Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Category: Urbanism

  • Land and improvements

    At a high level there are two components to the value of a house. There’s the value of the land and there’s the value of all the improvements. That is, the bricks, wood, and other stuff that form the actual house. When a media outlet runs a sensational headline about some shack in Toronto selling for, oh I don’t know, a million dollars, what it actually means is that the land in this particular area was just valued by somebody at this number. In fact, if the property is very clearly a “knock down” the improvements sitting on the land become a liability/cost rather than anything of value. Because whoever buys the land will almost certainly need to remove the improvements before they can build whatever it is they want to build.

    This distinction between land and improvements is a valuable one for many reasons. Here’s one example. In cases where the improvements aren’t some shack, you may be faced with a scenario where a property can be valued in two different ways. You can value it based on the development potential of the underlying land or you can value it based on the income (either in-place or potential) that the improvements are generating, or could be generating with some hard work on your part. If the development value is greater than the value of the improvements, then there will be pressure to redevelop. Conversely, if the opposite is true, it is likely that not much will happen other than maybe capital expenditures applied to the existing building(s).

    Of course, you could also run into a scenario where there’s little development potential and there’s zero ability to invest in the existing improvements, either because the market rents are too low in the area or because they’re capped and/or controlled in some way. In this scenario, it’s likely that not much will happen other than the normal and expected depreciation of the improvements. Maybe one day the development/investment math will work. But in the interim, you probably won’t be seeing any of those sensational media headlines.

    Photo by Andre Gaulin on Unsplash

  • What tribe are you part of?

    This satirical piece in the Beaverton about “biking everywhere” is hilarious because it touches on so many cycling stereotypes:

    “It’s a great way to get around while also staying in shape,” said McFarlen as he biked through a red light. “From tattoo shops to my job at VICE to even the best Banh Mi in the city – I just hop on my bike and I’m there. Why does anyone drive ever? Gross!”

    But the other thing it does is speak to the trade-off between location and transportation costs. Brian McFarlen, the fictional protagonist from the article, is able to bike everywhere (low cost) because he allegedly lives in a central neighborhood (high cost):

    McFarlen, whose parents paid for him to go to film school and has no mortgage, kids, or debt, condemns people who drive in the city. “I hate cars – we should just get rid of all roads and replace them with bike lanes. Isn’t everyone able to live downtown and spend hours of their day biking around the city hitting up all the best micro breweries?”

    I think it’s natural for us humans to form tribes with others that are similar to ourselves. We have two wheels and you all have four wheels. We live in the city and you all don’t. All of these things make us different.

    But there’s certainly something to be said for having a bit of empathy for those outside of our particular tribes.

  • Why we work out

    This recent article by Amanda Mull makes an interesting argument about “Why Americans Really Go to the Gym.” In it she argues that gyms aren’t just about being healthy and looking beautiful. Part of the satisfaction of working out in a collective space is that, among other things, you get to be around people with similar values and you get to prove to others that you are someone with enough self-discipline to stay consistently active. In her words, “proving something to others is often a big part of proving it to yourself, and that’s difficult to do when no one else can see you.” Depending on how you interpret this, it might lead you to believe that we’re all looking for a bit of validation from others. But I think the other way to look at it is that spaces such as gyms and offices aren’t just empty vessels where we come to do our necessary work. They are also social environments that serve some potentially important psychological functions.

    The other thing Mull’s article touches on is the evolution of physical activity:

    In the past 70 years, physical activity in America has transformed from a necessity of daily life into an often-expensive leisure activity, retrofitted into the foundation of people’s identities. As a concept, fitness was a response to the flourishing, sidewalk-free postwar American suburbs and what the fitness pioneer Bonnie Prudden dubbed “the tyranny of the wheel”: Americans went from strollers to school buses to cars, stripping out much of the on-foot transportation that had long characterized life in cities or on farms. “In the ’50s and ’60s, the body became a problem, and exercise developed—it had to develop—because people realized that we were all going to die of heart attacks,” Shelly McKenzie, the author of Getting Physical: The Rise of Fitness Culture in America, told me.

    In short: we had no choice but to create a fitness industry because we systematically removed physical activity from our daily lives. You could argue — as the above excerpt does — that this was largely because of suburbanization and changes in mobility. But I don’t think that’s everything. We also changed the kind of work that a lot of us do and created technologies that allow us to do more without, frankly, moving all that much. Today, doing good work and being productive is often characterized by sitting still for extended periods of time and subsisting on empty calories so that you don’t have to lose focus for very long. Indeed, working out our bodies, and consequently our minds, has become somewhat of a luxury.

  • Our many places

    In the world of planning and community building there is a hierarchy of places that is often referred to as first, second, and third places. As many of you probably know, first place is your home. Second place is where you work. And third places are where you commonly spend your time outside of the first two places. This could be a coffee shop, gym, barber shop, bar, or some other social anchor that serves to connect you with other people. In fact, you probably have multiple third places.

    Some have argued that online communities have started to fill the role of third place. And it is true that social networks have used what works offline in order to build and grow their communities online. So in some ways, the internet has brought third places into our first place. Similarly, lockdown has brought our second place into our first place. And now everyone is debating to what extent we even needed these other places. Aren’t Zoom and TikTok enough?

    Nope.

    For those who don’t have a second place — such as, for example, freelancers — it is common to rely more heavily on third places, which then become pseudo second places. Why is that? Isn’t a first place enough? Because it’s an opportunity to get out and be around other humans. Cities are built around these other places. It’s where, in the words of Jerry Seinfeld, we “coagulate together.” And I just don’t see that changing. Do you?

  • The car revolution is being powered by software

    Frederic Filloux publishes a regular newsletter called the Monday Note. It’s generally all about tech and new emerging business models. His latest post, called “Code, on wheels,” is about Tesla and the software revolution that is currently underway in the car industry. And it’s a good reminder of just how unique Tesla appears to be as a car company and how software is bound to infiltrate all aspects of our economy. Already you’re hearing people make a distinction around “pure” software companies. This is necessary because of how ubiquitous it has become.

    Here is a a longish excerpt from Filloux’s article:

    But the ultimate leap in value will be the creation of an application ecosystem. The limit will only be the imagination of app creators. As an example, airport operators are likely to develop apps to manage car traffic and passenger flows. Here is a use case: Your flight departing from San Jose Airport leaves in an hour. Your dual app system — one in your phone, the other in the car — checks the flight status, the gate, and the traffic. It notifies you when it’s time to leave. Once in the vicinity of the airport, the app guides you to the parking space nearest to the gate. An alternative and slightly more futuristic scenario involves you dropping your car in front of the terminal, then letting the autopilot send the car to the long-term parking lot a few miles away (this will soon become feasible as geofenced environments such as airports will be well-suited for Level 4 autonomous driving).

    Again, this implies major changes in the way car software is currently handled. These scenarios require the car and the phone apps working seamlessly, exchanging data in real-time with the airlines, the airport, the navigation system of the car, the parking infrastructure, and eventually, the autopilot. We are not there yet, but by that time, the dust will have settled: either carmakers will have developed their own OS — along with the SDKs to foster the development of third-party apps — and/or, tech giants will have taken-over, leveraging their current market positions in the phone sector to impose their own norms. I always thought that Apple had that in mind when it hired legions of engineers for its Titan project and filed applications for self-driving cars to the California Department of Motor Vehicles. I doubt that they completely gave up on the idea of replicating what they achieved for the 500 billion smartphone market with the 3 trillion dollar car sector.

    There are many in the planning world who are quick to dismiss autonomous electric vehicles as being more of the same. They’re still cars, right? For better or for worse, the internal combustion engine was massively transformational to cities — just as previous advances in transportation were. But what comes next is still mostly unknown because, even if you assume that autonomy is a foregone conclusion, it’s unclear how this and an app ecosystem could change how “cars” function in our cities. What will be the spatial impacts?

    It is, however, clear to me that when things do start to really change, it will be because of software.

    Photo by Jannis Lucas on Unsplash

  • Non-consensus thinking

    The venture capital industry likes to talk about the importance of investing in ideas that are and turn out to be both non-consensus and successful. The idea here is that if an idea or opportunity is already consensus, then there’s too much money flooding into that space and it becomes too difficult to make money. This is particularly true in venture capital where a select few companies usually end up generating most of the returns. This is a high risk business. Supposedly, even the best VCs end up having to write off a big portion of their deals.

    But I don’t think that this logic need only apply to venture capital. In real estate development, you are often faced with similar situations. For example, if an area is already consensus — that is, it is already considered to be highly desirable — then capital is going to naturally flow into it and land prices will be relatively high. These high land prices might be justified by the revenue side of your pro forma, or they might not be. I know many developers who avoid “core” locations simply because the land is too much and the margins are too little.

    On the other hand, if an area is non-consensus — that is, you’re not sure people will want to rent or buy new space in the area — then the land prices should reflect this. But here’s the thing. What you’re doing is trading, among other things, a lower land price for greater market risk. Because the non-consensus bet could turn out to be either successful or unsuccessful. People will either want to occupy space here or they won’t. And remember, by definition, it being non-consensus means that most people believe they won’t — or at least not at the prices you might need in order to make the math work.

    What all of this means is that if you’re right about something that most people think is wrong, then you have the opportunity to do quite well. (Though I am not suggesting that you need to follow this framework in all situations.) This is on my mind right now because it feels to me that there are certain consensus opinions emerging as a result of this pandemic. For example, opinions around the demise of office space and the demise of downtown living. If you’re a regular reader of this blog, you’ll know that I think these death-of-the-city predictions are largely bullshit.

    I could be wrong. Or I could be right.

  • Azaleas — L-shaped infill housing

    This is an interesting infill housing project in Villa Allende, Argentina. Designed by Studio LZ, the community contains seven homes, built across a 600 square meter site. Each L-shaped home is 63 square meters and hugs a private courtyard space (many of which have an outdoor BBQ). On the main floor of each home are the kitchen and living areas. And on the second floor are two bedrooms, as well as a second bathroom.

    It’s a simple but clever design. Looking at a plan of the project, you can see that, despite its compactness, the L-shaped houses have been arranged in such a way that there are no direct facing conditions. The courtyards and window exposures alternate. It’s almost as if they are Tetris pieces that have been pulled apart. The result is a dense community that still manages to offer some of the benefits of low-rise housing.

    Photos by Gonzalo Viramonte

  • The Copenhagen kolonihave

    Well this is an interesting concept. One part allotment garden and one part summer home. Copenhagen’s kolonihave is a community of small homes and gardens within biking distance of Copenhagen’s city center. A place to get away and maybe plant some fresh mint for mojitos. It shares some similarities with the Toronto Islands (land trust) in that the owners own their home, but lease the land. Except in the case of Toronto you’re not allowed to use your island residence as a summer home. If you want to live on the islands, you need to tough out the winters and make it your principal residence. Regardless of the ownership structure, there is something clearly endearing about these small homes and gardens. And I bet that there would be a lot of demand for something like this if it could be done at any sort of scale.

  • Before and after: Sugar Beach turns 10 years old

    One of my favorite public spaces in the city is easily Sugar Beach at the foot of Jarvis Street. So I couldn’t resist sharing this before and after tweet by Waterfront Toronto. Sugar Beach turns 10 years old next week. It’s nearly a teenager.

    For those of you who were around and paying attention a decade ago, there was a bit of controversy over the cost of this park — specifically its pink umbrellas. The budget for the park was $14 million and each umbrella cost $11,000.

    It’s one of those things that’s easy to single out and make a big deal out of — if that’s what you’re trying to do. “How much? $11,000 for a candy pink beach umbrella? Come on.”

    But as Waterfront Toronto explained in this blog post from 2014, each umbrella was fabricated out of a solid piece of fiberglass and was designed to withstand hurricane winds, as well as a good old fashioned Toronto winter. They also serve as lighting for the beach at night.

    Part of this is coming from lessons they learned on previous waterfront parks, where the umbrellas weren’t as expensive and haven’t been as resilient to the elements. So there is a whole life cycle cost analysis to be considered here.

    Now I don’t profess to be an expert on candy pink beach umbrellas, but I will say this: Sugar Beach wouldn’t be Sugar beach without them. And ten years later, it’s easy to argue for this being one of the most successful public spaces in the city.

    P.S. If I could make one small request for Toronto’s waterfront, it’s that we need to better engage the lake. We need proper places to swim. Think of the Strandbad Tiefenbrunnen or the Seebad Enge in Zurich. We may need to tidy things up a little, but it’ll be worth it.

  • The global effort to build more bike lanes

    I received an email this week from a senior real estate executive who was sharing the fact that, in response to COVID, he had decided to give up driving completely. He was now cycling everywhere — whether for work or for personal errands. And it was doing wonders for his health and his overall well-being.

    Indeed, this feels like some sort of golden era for urban cycling. Back in May I wrote about how Toronto City Council had just approved the largest ever one-year expansion of bike lanes. Some 40 km. When have we ever moved this quickly and without months (okay, years) of painful debate? Probably never.

    Of course, it’s not just Toronto. This is happening all over the world. Here are some of the numbers (taken from this recent Journal article):

    • Paris added 400 miles of pop-up bike lanes across the region — all of which didn’t exist before the pandemic – some of the streets being tracked have seen a doubling in usage
    • Oakland closed almost 10% of its streets to cars
    • Montreal is adding an additional 70 miles of pedestrian and cycle paths
    • Bogota is the midst of planning for 47 miles of temporary bike lanes
    • The UK has fast tracked over $315 million in capital spending for bike infrastructure — referring to this as a “once-in-a-generation” opportunity
    • New York’s bike share service (Citi Bike) saw year-over-year usage surge 67% in the first 10 days of March alone — before any shelter-in-place rules were even imposed

    There are obvious reasons for this rush to build out cycling infrastructure. We’re in the midst of a global health crisis and people are staying away from public transit in big numbers. But I think it’s also important to keep in mind that in many / most cases, there is really no other viable mobility solution. You cannot take all the people that used to ride the tube in London and plop them into cars. There isn’t enough space.

    So cities all around the world are doing the sensible thing and acting fast to make sure that it’s safer for people to move about on bikes. But as we all know, humans tend to have a bias toward the status quo. And so when this is all said and done, I suspect that many of these pop-ups will end up sticking around. And that will be a good thing for cities.