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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  • Development is slow

    Whenever we submit a development application for a new project, we typically get a ton of inbounds from people who are looking to sell us something, partner in some way, or buy/rent space in the development. These can be positive connections and we have completed deals based on these sorts of inbounds.

    But what is clear to me is that many people do not understand the development process and how long it takes to actually bring a new building to fruition. By the time a development application is filed, it is not uncommon for the developer to have already been working on the project for at least a year, and oftentimes longer in the case of more complicated projects.

    And after the application is filed, it is not uncommon (at least in this city region) for the approvals process to take another few years. We have projects that are on year 7 and we still can’t put shovels in the ground. This is a bit of a unique situation, but even still, when it’s all said and done, a “typical” mid-rise or high-rise project could take 7-10 years from beginning to end. And sometimes longer.

    A decade is a long time. So it’s no wonder that low-rise sprawling cities with permissive land-use policies tend to have more elastic housing supply. Quicker builds. And quicker approvals.

    I say all this not because I expect everyone to understand how the development process works. I’m saying it because maybe if more people knew how long everything takes, they’d be more open to streamlining the delivery process and to encouraging the construction of more missing middle housing.

  • What we value the most

    One natural response to yesterday’s post about (housing) affordability vs. beauty is to think that I put forward a false dichotomy. Why can’t we have both? Why does it need to be a zero-sum game? Surely there’s a middle ground. Our cities should be both inclusive and beautiful. And of course, I don’t disagree.

    What I was trying to do with the post was force a thought exercise. There are lots of things that we do as city builders which serve to increase the cost/price of housing. Going to a design review panel adds time/cost. Deciding to use that really nice material from Europe adds cost (and maybe time). And even adding a simple building stepback adds time/cost.

    So in doing these things, we are in effect deciding that these are more important that just building cheaper and lowering the resulting rents/sales prices. We can certainly debate the right balance and how much should be spent on things like design and/or sustainability, but it doesn’t change the fact that, for better or for worse, we are saying, “it is important that we spend the money on this particular item.”

    Now, there is also a common counter argument that none of this really matters, because developers will always price new housing at whatever the market will bear (i.e. the maximum possible price). But as I have tried to argue many times before on this blog, this is not always true. Pushing prices too far increases risk and slows absorption.

    It also ignores the fact that in any given city there are going to be sites that are infeasible to develop with new housing. That is, when you look at all the costs and, yes, what the market will bear, the numbers just don’t work. And so what can happen when you reduce development costs is that you now unlock more sites for new housing, increasing overall supply.

    None of this is to say that our cities shouldn’t be beautiful or that we shouldn’t strive for creative design solutions. This is exactly what we should be doing! Instead, this post (and yesterday’s) is simply a reminder that time and things do cost money, and that the decisions we make are rarely benign. In fact, they usually speak to what we value the most.

  • Affordable vs. beautiful

    If you had to pick one, would you say that it’s more important for new housing to be affordable or to be beautiful? Many of you are probably thinking that it should be both. And while it is true that good and thoughtful design doesn’t always need to be more expensive, nice things do often cost money. And sometimes, doing as little as humanly possible costs even more money.

    Let’s consider two development scenarios. In scenario A, the developer has well-oiled machine that delivers relatively affordable, but identical rental housing all across the country. The buildings are functional and there’s virtually no vacancy, but the architecture is undoubtedly bland and it certainly doesn’t respond to its local context. Standardization and efficiency trumps all, including aesthetics.

    In scenario B, the developer is similarly building new rental housing, but she instead invests heavily in custom designs. Each building is unique. And each building goes through a “design review panel”, after which extensive changes are made in order to ensure that the design is truly beautiful and that it responds to its local context. As a result, there is a real price premium to these homes.

    These are perhaps extreme examples. Usually, the goal is some sort of balance between affordability and beauty. But I do think it speaks to some of the tensions that our industry faces. So if you had to choose one, which one would it be? What kind of new homes do our cities really need more of? And if your answer is scenario B, does it change after a certain premium?

  • Gone snowboardin’

    View on TikTok, here.

  • What is the correlation between urban density and housing affordability?

    There’s lots of data out there to suggest that there is a correlation between urban density and housing unaffordability. Take Hong Kong. It is very dense, and also one of the most expensive housing markets in the world. But I think the real question is: does urban density actually cause housing unaffordability, or do the two simply tend to be correlated when you plot a country’s biggest cities?

    One the one hand, there are factors that do drive up home prices when you build more densely. Building a reinforced-concrete high-rise is always going to be more expensive on a per square foot basis than building a wood-framed bungalow. But of course, the former also uses land a lot more efficiently, which is what you need to do in big and supply-constrained cities.

    Michael Lewyn’s view (credit to Robert Wright for sending me the article) is that density is incorrectly used as a scapegoat to fight compact development. It does not actually cause higher rents. One counter example he gives is that of Manhattan, which went from 2.3 million people in 1910 to just under 1.7 million in 2020. In other words, it got less dense, while at the same time its rents grew exponentially.

    Like most important city matters, the answer is complicated. But this is an interesting topic that I think we should spend more time on here.

  • Schwarzenegger’s real estate career

    I grew up watching Arnold Schwarzenegger movies, and I have always found him to be a super impressive guy. Bodybuilding, movies, and politics — he always seems to have the discipline and the confidence to accomplish his goals. But what some of you may not be aware of is that he actually had an illustrious real estate career before he became a movie star, and that this side hustle made him a millionaire before he ever starred in Conan.

    Here’s an excerpt from a recent interview that he did with Tim Ferriss:

    I did not rely on my movie career to make a living. That was my intention because I saw over the years the people that worked out in the gym and that I met in the acting classes, they were all very vulnerable because they didn’t have any money and they had to take anything that was offered to them because that was their living. I didn’t want to get into that situation. I felt like if I am smart with real estate and take my little money that I make in bodybuilding and in seminars and selling my courses through the mail orders, I could save up enough money to put down money for an apartment building.

    I realized in the 70’s that the inflation rate was very high and therefore an investment like that is unbeatable. Buildings that I would buy for $500K within the year were $800K and I put only maybe $100K down, so you made 300% on your money. You couldn’t beat that. I quickly developed and traded up my buildings and bought more apartment buildings and office buildings on Main Street down in Santa Monica and so on. The investments were very good and it was just one of those magic decades.

    Today you couldn’t do it in that same field. There’s another field in real estate where you can do it, but in this particular field I don’t think you will see those kind of jumps ever again. I benefited from that and I became a millionaire from my real estate investments. That was before my career took off in show business and acting, which was after Conan the Barbarian. In 1982 that movie came out. We shot it in 1981 and in ’82 it came out. From that point on my career took off because people saw that the movie was successful at the box office and then I signed a contract to do Conan number 2 and then that led to a contract for Terminator 1 and then Commando.

    To listen to the interview, click here. Or for the full transcript, click here. It’s great.

  • Multiple on land cost

    Following yesterday’s post about the most expensive home in Brooklyn’s Dumbo, Jed Bryne of Oak City CRE fame shot me a note asking about the typical land multiple that developers need in Canada in order to make a project feasible. In other words, if your land cost is $X, what multiple on this would your top line number need to be in order to have a project? And he mentioned that in North Carolina, he often sees multiples in the range of 3-5x the land acquisition cost.

    My initial response was that we don’t typically look at this metric. Many years ago, the rough rule of thumb for new condominiums here in Toronto used to be 10x the land price per buildable square foot. So if you were buying development land at $100 per buildable square foot (calculated as land price divided by the total gross floor area of the project), then you likely needed to sell your condominiums for somewhere around $1,000 per square foot.

    On some level this can be a useful metric, because it allows you to quickly tell if a parcel of land is too expensive. And in some situations, it might allow you to compare sites/markets. If you have two different markets and land at the same $X price pbsf, but one requires a 10x multiple to be feasible and the other a 5x multiple, then it tells you something about the cost structures of these two markets. Construction costs probably won’t vary all that much (assuming similar builds), but project timelines, development charges, and many other things sure can.

    But again, this isn’t a number that we typically care a great deal about.

    There are a lot of variables in a pro forma and the “required” multiple can change overnight. Maybe it’s 10x today, but then development charges go up by 49% and now you need an even higher multiple in order to make the project feasible. So for us, the salient land number is the price per buildable square foot. What is the price per pound of development density? And the way you determine if you have a reasonable number is by doing a residual land value calculation.

  • The most expensive home in Brooklyn’s Dumbo neighborhood

    The most expensive home in Brooklyn’s Dumbo neighborhood is currently under contract and is expected to close in the next few months (at least according to the WSJ). It is a 4,270 square-foot penthouse, with a 500 square-foot terrace, that occupies the full top floor of Olympia Dumbo.

    The asking price / contract price is $17.5 million, which works out to be about USD 4,098 per square foot (or CAD 5,486 per square foot based on the exchange rate right now). Based on this price per pound, an equivalent 600 square foot suite would cost you about CAD $3.3 million.

    The land was purchased in 2018 for about $98 million. I don’t know what the total GFA of the building is, but it does have 76 residences, so that works out to about USD 1,289,473 per suite (or CAD 1,726,624 per suite), for the land cost alone.

    This should give you an indication of what the end suite pricing would need to be to make this development feasible, and likely also speaks to its average suite size. New York City tends to build much bigger suites. Certainly compared to here in Toronto.

    Also, notice that I didn’t say unit?

  • Global electric vehicle adoption

    This is the current state of global electric vehicle adoption:

    • Last year was the first year that global electric-vehicle sales reached 10% of all car sales — the total was around 7.8 million cars (see above chart)
    • Fully-electric vehicles accounted for about 5.8% of all car sales in the US, 11% of all car sales in Europe, and about 19% of all car sales in China — China is leading in this department
    • The US saw 807,180 fully-electric vehicle sales last year — Tesla remains the biggest EV maker in the world
    • In Germany, electric vehicles accounted for about 25% of all new vehicles produced last year — BMW reported a 5% decline in new-car sales, but saw its EV sales more than 2x
    • Similar story with Volkswagen: 7% decline in new-car sales; 26% increase in EV sales
    • This year, some are predicting that China will see EV sales increase to every third car, and that it will reach its tipping point sometime between 2025-2030

    It is obvious where all of this is heading. It is simply a question of how fast, and who will be the leaders at the end of the day.

    All data sourced from the WSJ

  • Canadian complacency

    The founder and Editor-in-Chief of Monocle Magazine, Tyler Brûle, recently had a nice trip to Ottawa:

    If you’ve never been to Ottawa, don’t bother. Of all the G7 capitals, it’s one that hardly conjures up much in the way of attractive images. Don’t believe me? Try it. What comes to mind? What stands out? You see what I mean? No Big Ben, no Lincoln Memorial, no Eiffel Tower. Ottawa might have had an easier time when Germany was partitioned and Bonn was its capital but that credit ran out when Berlin was reinstated as Haúptstadt and the Brandenburg Gate roared back as a symbol for the Federal Republic’s capital.

    He and his mom also thoroughly enjoyed their hotel:

    We walked into the bar and the whole space seemed gripped by a similar force that plagued the front desk: no speed, movement or sense of urgency. A man-child showed us to the table and barely said a word. His colleagues at the bar were having their own discussion, disconnected from the patrons around them. I started to laugh. My mother urged me to stop. “It’s incredible that this is the best that our country can do for people coming to the capital, no?” I said.

    As an unabashedly proud Canadian, this is deeply upsetting. It is upsetting because a lack of movement, a lack of urgency, and an overall lack of engagement are truly terrible qualities to possess. But more importantly, it is upsetting because one could argue that Tyler’s Ottawa and hotel experiences were a microcosm of some broader national issues around Canadian complacency.