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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  • Destructive development?

    Planner Sean Hertel shared this (embedded above) on Twitter over the weekend. It is a lawn sign from Toronto’s Junction neighborhood that is calling for a stop to demolishing family houses for high rises.

    From what I can tell, this law sign is trying to communicate a few key messages.

    One, high-rises are monstrous beings that enjoy praying on innocent low-rise houses and squashing them with their feet, and sometimes their asymmetric hands.

    Two, it is mostly impossible to conceive of a world in Toronto where families live in high-rises and don’t live in grade-related housing with a backyard.

    And three, there is little value in building more, rather than less, housing in order to help with affordability concerns. Perhaps the thinking is that it needs to be low-rise affordable housing, or nothing.

    With all of this said, let’s do a little thought exercise today on the blog.

    Let’s for a second assume that there aren’t any high-rises proposed in the Junction; only European-scaled mid-rise buildings that sit on the area’s main avenues and back onto low-rise single-family neighborhoods. Let’s also assume that these buildings will be sculpted in complete deference to their rear neighbors so that things like shadows are minimized.

    Let’s assume that more housing is better than less housing.

    Finally, let’s assume that, get this, noble families may actually be able to live in mid-rise and high-rise buildings. And that there are already many successful examples of this taking place in the city, such as over here in CityPlace.

    What key messages would this lawn sign be then communicating?

  • Mass timber construction next?

    We poured the last section of our level 4 slab at Junction House yesterday. As I was leaving the site, I tweeted this photo out from Watkinson Avenue. What you are seeing is the northwest corner of the building where we have seven two-storey towns that front onto our rear laneway. In response to this tweet, Andrew Williamson asked a most excellent question: “timber next?”

    My response was that we would love to do a mass timber building. We have certainly looked at it in the past, and we will continue to look for opportunities to use more sustainable building materials wherever possible. But there are challenges to overcome and a project like Junction House would have been far more difficult to do in mass timber. I’m not an expert when it comes to wood construction, but I will offer up three items that have come up for us in the past.

    The first is trade familiarity. We are in a highly inflationary hard cost environment right now. Everyone is hyper focused on costs and the market is competitive. So switching to a construction method that is less common comes with some additional risks. But this will almost certainly change over time as the market evolves and more people adopt mass timber.

    The second is water. The Junction area, or at least parts of it, have a relatively high water table. That is certainly the case with our site. One of the things you need to do during construction is dewater, or draw down the water level within your site so that you can actually build. In our case, we built a watertight below-grade parking structure, though that isn’t always the case.

    Dewatering comes at a cost and so generally you want to stop dewatering as soon as it is feasible to do so. But you need to make sure that you have enough weight to counteract the buoyancy forces associated with groundwater returning to the site. Generally this means you need to wait until you’ve finished constructing a certain level in the building so that there’s enough mass. The engineers will say things, “we can shut off the dewatering once we complete our level 4 slab.”

    The thing to consider with all of this is that concrete is heavier than wood, which means that you may need to run your dewatering program for longer (increasing your costs). Or, if your building isn’t all that big, maybe you’ll never have enough weight to offset the below-grade water forces and so you have to look at other methods for keeping your building from floating away. Again, this will increase your costs.

    The last thing I’ll mention is that mass timber buildings generally have higher floor-to-floor heights compared to cast-in-place concrete. What this means is that a 9 storey building in timber is going to be taller, in meters, compared to a 9 storey building in concrete — even if the clear heights within the suites are the same. This is a massive deal when you’re operating in an environment that is highly sensitive to building height.

    In the case of Junction House, we were negotiating our final height in centimeter increments — literally arguing whether it could be 50cm to 1.3m taller than some perceived maximum height. This is, in my mind, absurd, but it became a hill that people were willing to die on. The result is that our laneway towns (pictured above) went from having an entrance that was a few steps up off the lane to having an entrance that is now a few steps down off the lane. That is how we ultimately solved our centimeter problem.

    This wounded me to my core because, at the end of the day, what are people going to remark: The additional meter at the top of the building or the relationship that these towns will now have to the street? It will, of course, be the latter. So please know that our hearts were in the right place. But what this also means is that had we been trying to build in wood, we likely would have lost a floor during this negotiation and that would have killed the entire project.

  • Zoned housing supply vs. actual housing supply

    This Twitter thread by UC Davis Law Professor, Chris Elmendorf, is a good reminder that there can be a meaningful difference between actual completed homes and zoned land that might one day becoming new housing.

    The point he makes is as follows: The state of California’s housing needs allocation for the city of San Francisco is approximately 80,000 new homes over the next decade. In the past, cities could demonstrate that they were able to meet these targets through, as I understand it, some fairly loose assumptions. But more recently, amendments have made it such that the probability of new homes actually getting built needs to be considered.

    San Francisco has been doing this and, according to Chris, the conclusion was that the city should upzone portions of the city — primarily on the west side — to allow for some 22,000 new homes. Sounds cool. But as part of this process, the city also hired an outside consultant to run indicative pro formas and assess overall development feasibility. This is what they found:

    I haven’t seen any of the actual numbers, but what this chart is saying is that nobody is going to develop on the west side of the city no matter what entitlements you put in place (tier 3 and tier 4 market areas). The only new development that is likely to take place is high-rise development over 24 storeys in the highest value submarkets (tier 1 and tier 2 market areas).

    Based on this, the 22,000 new homes figure is probably closer to 0 new homes.

  • [Video] RAD Marketing’s Future Frontiers real estate podcast

    I was recently on RAD Marketing’s Future Frontiers podcast talking about real estate stuff with Daniel Marinovic (CEO and Managing Partner of Forest Gate) and Sean Zahedi (Vice President at RAD). I haven’t watched the video yet and I honestly don’t remember what I said (it was a few weeks ago), but if you’re interested, you can listen to it here and watch it on YouTube here.

  • Miami rents increased 55.3% on a year-over-year basis

    All of the talk of people moving to Miami over the last two years is certainly coming through in the numbers. According to this recent rental report by Realtor.com, residential rents in the Miami-Fort Lauderdale-West Palm Beach metro area increased 55.3% on a year-over-year basis (as of February 2022). And the next 2 metro areas on the list are also in Florida. This is compared to a 17.1% increase for national rents, which is quite a bit lower, but still a massive increase. These are clearly unsustainable numbers and eventually things will settle down. How exactly things settle down is yet to be determined. But for right now, the above figure feels to me like a pretty good answer to the following question: If you had the flexibility to work from anywhere, where would you go? Somewhere sunny, I guess.

  • How do you charge an electric vehicle if you park on-street?

    Last year, about 10% of all new motor vehicles registered in Canada were some form of electric vehicle (battery, hybrid, or plug-in EV). But this number is rising. And even though we’re still early on in the adoption curve, you can live a pretty great life with an electric vehicle today.

    The caveats are perhaps as follows: (1) it really helps to have some kind of garage or driveway (so you can install a dedicated charging station) and (2) depending on your lifestyle, you may encounter the occasional feeling of “range anxiety.”

    I drive to the mountains to go snowboarding every winter and my sense is that we need to get far more serious about blanketing our most densely populated regions with charging stations.

    But here’s another problem that came up this week in conversation: How do you charge your EV if your only option for parking is on-street?

    Do you have to run a cable from your home across the sidewalk? And then what happens if the spot in front, or nearby, isn’t available? Is it really going to be feasible/desirable to have charging stations on the sidewalks of every residential street when EV penetration reaches the majority?

    This is clearly a problem that will need to be solved, and I know that many people and cities are working on it as we speak. I don’t know how advanced this is, but Norway, for instance, is working on wireless charging roads that power up vehicles from below.

    What other possible solutions have you seen out there?

  • Shares vs. tokens

    Crypto tokens are kind of like shares in a company, or at least they can be pretty similar if one wants them to be. Here is an interesting post by Tomasz Tunguz comparing the two. More specifically, he looks at inflation and deflation for both kinds of assets. According to Tomasz’s numbers, the average annual change in share count for software companies is about +5% (see above chart). Though there are some notable exceptions, such as Apple, who are aggressively buying back shares and decreasing their counts.

    The median inflation rate for crypto tokens, on the other hand, is much higher. Based on the projects that Tomasz chose for his post, the median rate is about 25%. Given the age of most of these crypto tokens, this generally makes sense. Younger companies also tend to have higher inflation rates as they raise outside money and issue new shares to attract talent. But this is likely to change as the space matures. Those of you who are following closely, will know that Ether is set to become deflationary sometime later this year.

    But going beyond these inflationary and deflationary numbers, what is more interesting to me is how similar shares and tokens can be, but also how meaningfully different they can be at the same time. They are similar in that they represent some sort of value, they can be bought, sold, loaned and generally used to earn a yield, and they can be used for governance matters, among other things. Where they are the most different is that (1) we don’t really know how to value most tokens right now and (2) tokens can have utility.

    I am confident that (1) will change as the space evolves. It is still very early days and valuation methodologies will get figured out. (2) will also grow and evolve into things that are unimaginable today, but even right now you have the option of using your crypto tokens to buy things like NFTs. This option should, in theory, have some sort of value attached to it. Though nobody has any clue what these NFTs will be worth ten years from now and so it’s pretty easy to poke fun at JPEGs of Apes. But with some new NFT projects seeing over $52 million in trading volume in their first 30 days, my instinct is to learn as opposed to eschew.

    Not every crypto token will have enduring value, just like not every share in a company has enduring value. Some are worth a lot and some are worth nothing. At the end of the day, what matters is the underlying business or project or city that you are becoming a part owner of. And I can tell you that lots of exceedingly smart people are working on exactly this for the token space.

  • Toronto breaks ground on new Ontario Line

    This past weekend it was announced that ground has been broken (i.e. construction has started) on the new Ontario subway line that will connect Exhibition / Ontario Place to the Science Centre by way of the light purple line labeled “C” on the above map. (The other image is a rendering of the proposed Exhibition station.)

    This transit line has gone through many permutations over the years and was previously called the Downtown Relief Line (but that was seen as too downtown-centric); the Yonge Relief Line (still too specific); the Relief Line (not Ontario-specific enough, I guess); and probably a bunch of other names corresponding to various lines on a map.

    So it is exceedingly easy to be cynical when you hear of an announcement like this. Is it really happening? Are we actually building new and much-needed transit? And as you might imagine, if you read through the chatter on Twitter, you will find an overabundance of this sort of cynicism, along with what appears to be a general dissatisfaction with the current state of everything.

    But in my simple view, I reckon that it is far better to be starting construction on an important new transit line than not starting construction on an important new transit line. So this is exciting! Let’s go! If you’d like to learn more, I also tweeted out the initial renderings for the 14 stations that are planned for the Ontario Line.

    Images: Province of Ontario

  • Location always matters

    Well this is interesting, yet not surprising: According to RBC’s annual “Home Ownership Poll”, three out of every five respondents (so nearly 60%) said that location is more important than buying a larger home. Now, there’s only so much you can glean from a single survey question, but the overarching sense is that people’s home-buying attitudes are now starting to revert back to pre-pandemic levels.

    Other evidence includes how quickly urban residential rents/prices have bounced back and, in many cases, now exceed their pre-pandemic levels. Below is a chart from the WSJ showing residential net-effective median rent prices in Manhattan. The low came in November 2020 when the median rent price hit $2,743 per month. But today it is well over $3,500, which is the highest it has been in a decade.

    https://twitter.com/donnelly_b/status/1506451164937789441?s=20&t=wCqayRJY2vmf9kTNJ3A4QQ

    Certain aspects of how we will continue to live and work in our cities is admittedly still evolving (see my recent post on office utilization). But part of our pandemic narrative was that location was no longer going to matter, or at least not matter nearly as much. New York City, to give just one example, had died forever. But that was obviously bullshit. And what we are seeing in the residential space is an important leading indicator. Location always matters.

  • Higher gas prices impact cities differently

    Gas prices are up. And here is a chart to support this statement:

    If I were trying to be as sensational as possible, I would likely leave things here. But since that is generally not what I try and do with this blog, here is another chart showing gas prices over a longer time horizon.

    Shown this way, gas prices don’t seem as crazy. In fact, we’re only now returning to where prices were back in 2008.

    That said, these swings do impact things. And it is interesting to consider how these impacts might be felt differently across different cities.

    So here is one more chart from City Observatory looking at the average number of miles driven per person prior to COVID:

    One way to think about this chart is that it generally speaks to built form. Compact cities with higher densities and greater access to public transport, generally translates into people driving less.

    The result is something that City Observatory refers to as a “green dividend.” Less driving, means you save money on cars and gas. And so when gas prices go up, so does your green dividend.

    Of course, if you were to get really serious about calculating your green dividend, you’d also want to look at your housing costs, as land prices tend to decline as you sprawl outward.

    Ultimately, this is a trade off between housing costs and transportation costs (both direct and indirect, such as the cost of your time).

    But I think that there should be another dimension to this green dividend and that is the environmental benefits of less vehicle miles travelled. That too, of course, can be measured.