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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  • Where US students want to live after college

    Axios and Generation Lab have something new called the Next Cities Index. The goal is to track US work and culture trends through people’s geographic preferences. For their first cities index, they asked over 2,100 students in the US, on two separate occasions, the following question: “Considering all factors that matter to you, where would you most like to live after college?”

    The aggregate answer to this question is shown above. But they also collected people’s incomes (anticipated since they’re students?), political affiliations, and gender. The list of cities changes slightly when you sort based on these different factors, but not by much. Seattle, New York, and Los Angeles remain top cities — at least in people’s minds.

    It is, however, interesting to note that about 45% of respondents had different answers to where they want to live and where they think they will live. For a number of reasons, the city of people’s dreams isn’t often a practical or realistic choice it would seem. Still, wanting a particular place still tells you certain things I suppose.

    Given all the chatter over this pandemic, I would have thought that Miami would have appeared higher up on this want list.

    Chart: Axios/Generation Lab

  • 6-unit missing middle site for sale in Toronto

    Marty over at Laneway Housing Advisors published this listing in his newsletter today. It’s for an entitled lot at 78 Gladstone Avenue in Toronto that has been approved (by way of a minor variance) for 6 units. Five units in the front where a house currently sits and one unit at the back in a standalone laneway suite. Though it also happens to be a corner lot and so the laneway suite isn’t really “in the back”.

    It’s listed for $2.5M. And according to the description, you can build about 5,500 square feet (4,200 sf in the front with a 1,300 sf laneway suite). This ask translates into a land cost that is just over $450 per buildable square foot, which is far more than what high-density land typically trades for in the city right now. This is usually the case for smaller low-rise sites.

    To help put this figure into some kind of context, Bullpen Consulting published in their latest insights report that the average high-density land price in Q4-2021 was $135 per buildable square foot in Toronto (416 area code only). Of course, averages only tell you so much. To truly evaluate the feasibility of a site like this, you’d need to create your own pro forma and do your own residual land value calculation. The value of development land depends on what you can build on it.

    If you were to do that, I suspect that you would discover at least two things: 1) you would find it challenging to make the numbers work, particularly for rental housing, and 2) you would quickly realize that this sort of “missing middle” housing isn’t, in its current form, some undiscovered bastion of housing affordability.

    Part of the problem is that these 6 units are not being delivered on an as-of-right basis. Somebody had to go out and entitle the land in order to secure these permissions. That means that time and money were spent and that the current owner is now rightly seeking a margin for their efforts. But if we collectively believe that this is an appropriate and sensible form of housing, then this should not be a necessary step in the whole process. Especially for only 6 units.

    All of this being said, we know that Toronto and many other cities around the world are taking a hard look at this issue. And that there is a groundswell of interest in allowing more housing in our low-rise communities. It’s going to be a battle — just look at how Toronto’s new garden suite policies have now been appealed by various resident’s groups. But I’m certain that we’ll get there, just like we are getting there with laneway housing and other types of ADUs.

  • Who cares if there’s an NFT bubble?

    The Financial Times recently reported on “the great NFT sell-off” here in this article. Daily trading volumes on OpenSea, which is the largest NFT marketplace, are down 80% ($50M) from their high in February ($248M). Bored Ape Yacht Club, which is the most expensive NFT collection out there, has seen its average daily price come down by about a third (see above). Of course, they still remain extremely valuable NFTs. And a recent CryptoPunks auction was just pulled from Sotheby’s so that the owner could “HODL” until things recover.

    I don’t think any of this should surprise both NFT holders and the naysayers. This is a high-risk space and it is all very speculative. You can’t run a discounted cash flow (DCF) model on a Bored Ape and most other NFTs (though some might actually produce cash flow through, for example, secondary sale royalties). The more important point of all of this is that we are living through what many people believe is the creation of a new kind of internet. Cryptocurrencies are what underpin these new digital economies, but we are still figuring out how they will function and what their long-term business models will be.

    For me, this is an exciting thing to be a part of. I’m not a venture capitalist, but buying NFTs and doing other crypto things feels a bit like I am an amateur one. Holding ETH or SOL is similar to holding Canadian or US dollars (currencies that underpin economies). So what I am doing is using these currencies to put money into ventures (NFTs) that seem interesting. And to do that, you look at the art, the team behind the project, the roadmap, and how well they appear to be executing against that plan. Indeed, many of the most successful NFT projects are naturally run by teams who are constantly building and shipping.

    At the same time, I mentally write off every NFT I buy to $0 as soon as I purchase it. I am also limiting my total crypto allocation to between 5-10% of my non-real estate investments and buying with a scheduled dollar-cost averaging approach. So if this whole web3 thing went to zero tomorrow (which I firmly do not believe will be the case), my life would still go on. None of this is, of course, investment advice. Please do your own research and make your own decisions. But I can tell you that it is a lot of fun following and learning about what smart, creative, and entrepreneurial people are doing in this emerging space.

    If you’re interested in NFT photography, check out my global citizen collection on Foundation.

    Chart: Financial Times

  • Cars make cities less compact

    The relationship between car ownership and urban density is a fairly intuitive one. Below are two charts from a study by Francis Ostermeijer, Hans Koster, Jos van Ommeren, and Victor Nielsen, showing how urban density is inversely correlated with car ownership. In other words, the more people with cars, the less dense that a particular place is likely to be.

    But there’s an interesting chicken-and-egg question here. Does Atlanta, which is near the bottom right in the above chart, have a lot of cars because it wasn’t dense enough to support other modes of transport, or did the prevalence of cars in Atlanta cause the city to spread out and become less dense? And that is exactly what the above researchers set out to determine.

    To do this, they started by looking at the presence of commercial car manufacturers in the above geographies in the 1920s. One of the things they found was that having a car manufacturer in your city at this time appears to have had no effect on population density. But over the long run, rising car ownership seems to have had a sizeable effect on reducing population densities in those places.

    The conclusion they draw from this is the title of this post: cars have made cities less compact, rather than low population densities causing people to go out and buy more cars. This makes some sense to me because cities were doing just fine before we invented cars. But like all transportation innovations that allow us to move faster over longer distances, the car encouraged decentralization.

    There are, of course, all sorts of possible implications for a finding like this. But the authors specifically mention developing countries where car ownership may still be relatively low. This is something to be mindful of because if you put most people into cars, history strongly suggests that it will impact the kind of city that you end up building.

    Chart: Cars make cities less compact

  • Construction update: Junction House

    This is a photo of Junction House that I took this morning after our weekly construction meeting. The team is currently preparing for the first concrete pour of level 4 (each floor has been split up into three pours). We’re now flying our forms, which means that we’re able to move a lot faster. This is the exciting part of a new build mid-rise like Junction House. The underground garage part is like watching paint dry.

    We’re scheduled to be topped out by this summer, so expect some gratuitous view photos on the socials.

  • Playful parkades

    This is perhaps the wrong post to be writing right now with gas prices where they are, but lately I’ve been thinking about parking garage designs. We have talked a lot about parking minimums and other related topics on this blog, but let’s put all of these aside for today and assume that parking garages are a thing that will continue to exist in our cities.

    Generally speaking, parking garages are fairly utilitarian spaces. They store cars and they usually aren’t that nice. And in the case of public garages, they often smell like urine. But there are some extraordinary examples out there. Miami immediately comes to mind as a city with some pretty cool garages. I mean, when you have one designed by Herzog & de Meuron (1111 Lincoln Road) that is usually a pretty good indicator.

    When I was there in January, we went walking one night through the Design District and we ended up on the roof of “Museum Garage” to take some photos and take in the views. Once we got there, we found people doing everything from eating dinner to filming TikTok videos. Great spaces attract people. It also helps when all of your parking is above-grade, which is the case in Miami.

    Here is another example from Sydney (also pictured above). In this case, it’s a residential parking garage and Craig & Karl were hired to create a colorful geometric mural. Garages are a perfect place to be a bit more playful and have some fun. I think we should do more of this.

    Photo via Craig & Karl

  • Rebalancing retail sector taxation

    Back in 2006, online shopping in the UK represented about 3% of total retail sales. As of March 2020, right before the pandemic, this number had increased to about 22%. Online shopping then spiked during the pandemic, as we all know, but it has since normalized and the January 2022 figure was about 27.1%. But if you exclude grocery sales (because food is special), I believe the percentage of online sales is now in the range of 35-40% for the UK.

    What is clear is that there is a longstanding shift towards more online shopping. It has just become so easy. However, UK retailers, as well as many others I’m sure, have been arguing that part of the reason for this systemic shift is an unfair tax advantage.

    Physical retailers tend to be located in high-traffic areas and so they are naturally subjected to higher municipal taxes. Online retailers, on the other hand, get to locate their warehouses and distribution centers in lower cost locations and so aren’t taxed at the same kind of rates.

    Because of this perceived imbalance, the UK is now studying the pros and cons of implementing an online sales tax (OST) as a way “to help rebalance taxation of the retail sector.” Tax online so offline seems more attractive.

    But this is a tricky thing. Nobody wants to see our main streets and urban centers void of retail activity. That would be like walking through a financial district that had decided to bury all of its retail activity underground or something. But at the same time, does it make sense to shift taxes to what the market seems to like and want? Though I suppose it could be a lucrative tax since you generally want to target things with inelastic demand.

    What are your thoughts?

    More info on the OST consultation, here.

  • Climate and economy

    I have long been interested in the possible relationships between climate and economy. Because my unproven hypothesis is that, given the choice, most city dwellers would probably prefer to hang out on Ipanema beach and drink caipirinhas in the sun than sit in a windowless cube farm toiling away on cover pages for TPS reports.

    Well it turns out that there is some science to support this theory. A 2012 study by professors at Harvard and the University of North Carolina did in fact discover that people tend to work a little harder and focus a bit more when the weather is crappy outside and they’re not distracted by the promise of glorious sunshine.

    This Scientific American article from 2013 also argued that there are physiological reasons for why we’re maybe not as sharp in extremely warm weather. The possible science is that excessive heat is more taxing on our body (compared to the cold) and so more energy is required to maintain homeostasis. That leaves less mental capacity for TPS cover pages.

    Of course, these sorts of ideas aren’t all that novel. For centuries, economists as well as many others have posited that climate could be one of the reasons why geographies like northern Europe have historically had a higher standard of living than the south. It instilled work ethic and an awareness of deadlines. If you didn’t plan accordingly, you would starve to death in the winter.

    But we also know that climate alone won’t do it. There are many examples of tropical cities with advanced economies and high-functioning societies. (The invention of air conditioning surely played a meaningful role.) And on the flipside, there are many examples of cold shitholes. So it’s complicated. But all this being said, doesn’t a caipirinha on the beach sound nice right about now?

    Photo by TAIS HELENA DE CARVALHO on Unsplash

  • Florida proposes stricter condo rules

    In response to the tragic collapse of the 12-storey Champlain Towers South building in Surfside last year, the state of Florida is set to pass new stricter condominium rules around inspections and reserve funds. And according to the WSJ, the requirements would be some of the strictest in the US.

    Under the House bill that has already passed, condominium buildings that are three or more stories would need to be fully inspected and recertified once they are 30 years old. For buildings within 3 miles of a coast (salt water is impactful), the requirement would be 25 years old. Following this recertification, the buildings would then need to be inspected every 10 years. Under the proposed Senate bill, the inspection process would start after 20 years and be required every 7 years. In both cases, the reports that come out of these inspections would need to be submitted to all unit owners and to local building officials.

    If approved, these rules would have an immediate impact on the market given that about 900,000 of the approximately 1.5 million condominium units in Florida are older than 30 years old.

    But is all of this enough? I think the devil is in the details.

    Under the House bill, unit owners would no longer be able to waive the collection of certain building reserves. But under the Senate bill, the requirements for waiver would simply be tightened. How tight? In all honesty, I don’t know the specifics. I haven’t read the bills. But the collection of reserve funds is paramount. And after reading the above WSJ article, I can’t help but feel like these new policies might still be less stringent than what we already have here in Ontario.

    Here are two excerpts from Ontario’s Condominium Act:

    Put more simply, all buildings and structures need to have regular inspections. Materials and systems naturally depreciate over time and so the point of a reserve fund study is to determine (1) what will need to be repaired/replaced, (2) when it will need to be repaired/replaced, and (3) how much it might cost. You then need to ensure that the money is in place to carry out the execution of said study. In all cases, there should be zero compromises around life safety.

  • Price of carbon permits has fallen

    At the beginning of this year, I predicted that we would see the price of carbon continue to rise, and in particular the price of EU carbon permits. Well the year is still young but so far the opposite has been happening. Back in January, the price of EU carbon permits were hovering around €80 per tonne. Since Russia bullied its way into Ukraine at the end of February, this market has corrected and now hovers around €66 per tonne. Generally carbon prices tend to increase alongside energy prices, but the opposite dynamic is happening right now because of all of this geopolitical uncertainty. But over the long-term, I don’t believe that this will remain true. So this feels like possible mispricing to me. Climate change may be a relatively less important issue in Europe right now, but it’s not going away.

    Chart: Trading Economics