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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  • Dwelling in peace

    These “aesthetic monsters” are part of a new NFT collection that I recently bought into. They’re called Angomon (supposedly “ango” translates from Japanese into “dwelling in peace”). And they can be purchased on the Magic Eden NFT marketplace. At the time of writing this post, the floor price is about 1.15 SOL.

    The ultimate plan is for these characters to live in some sort of 3D world that will be called the Angoverse (which is an obvious play on metaverse). The team is also planning to provide NFT holders with the original 3D files for these Angomon so that owners can 3D print their own real-world figurines. Longer term, the hope is that there will be official Angomon collectible figurines available for purchase.

    All of these things are of course future plans. They could happen or they could not. These NFTs could have tremendous value or they could not. I just thought these monsters looked cool and fashionable, and so I bought a few. Right now the plan is to frame them and display them all at Parkview Mountain House.

    But it is also interesting to note how go-to-market strategies are changing in this new world of crypto and web3. Fred Wilson recently wrote about this over on his blog. In web2 (think the Facebook/Instagram era), most consumer applications started out with a tool. The network came after.

    Chris Dixon called this strategy, “come for the tool, stay for the network.” In the case of Instagram, the tool was initially photo filters. People used it to apply those filters that made every photo look brown and hipster-like. But eventually network effects took over and that became more important. There are were lots of people using it.

    In web3, everything now seems to start with some kind of asset or token. People buy in and then become invested in the project, which is interesting because they then begin to market out of self-interest. This post is not about that and is more about sharing something that I think is cool.

    Fred Wilson has proposed a new slogan for this. It is: “come for the assets, stay for the experience.” So these Angomon are now assets of mine. If the experience does eventually come, I guess I’ll stick around. Hello web3.

  • Toronto is on the verge of finding the missing middle

    Toronto’s chief planner Gregg Lintern (who you can follow over here on Twitter) was recently in the Toronto Star talking about the city’s plans to allow more multi-unit dwellings in our low-rise single-family neighborhoods.

    I was careful to say “more” because they are already permissible in some areas. The challenge is that they’re not happening at any sort of meaningful scale, which is an obvious signal that some key ingredients are still missing.

    Or perhaps there are too many required ingredients. For example, right now the zoning by-law requires one car parking space for every dwelling in a multi-unit building. This is, of course, dumb and the requirement should be completely eliminated.

    Changes like this, as well as many others, are long overdue. Not just in Toronto, but in many other cities. And it is partially what I was getting at when I wrote about laneway housing this past weekend and hinted at the need for other solutions to increase housing supply.

    So when you have a few minutes, I would encourage you to complete the city’s survey on expanding permissions for multiplexes across the city. I just did it and voted to bring on the multiplexes.

    Photo by Tiago Rodrigues on Unsplash

  • How developers in London responded to an expansion of inclusionary zoning

    Eric Jaffe, of Sidewalk Labs, recently wrote about an interesting research paper — from the Journal of the American Planning Association — that looked at the developer response to an inclusionary zoning policy change in London. The full research paper can be found over here.

    The change was an expansion to existing mandatory IZ policies. Between 2005 and 2008, each of the 33 local authorities in Greater London reduced the minimum threshold for new housing projects. Previously it only applied to new developments with 15 or more units, but it was reduced to projects with 10 or more units. In other words, projects with a total of 10-14 units were now subject to IZ, whereas they were previously exempt.

    These feel like small unit counts, but I guess it speaks to the scale of development happening in London. You generally need pretty high prices to make these kinds of boutique projects pencil out. By comparison, the IZ threshold here in Toronto is expected to be 100 or more units.

    In any event, here’s what happened in London:

    Before the policy change developers were effectively building up to the 14 unit mark (to avoid IZ). Following that new supply dropped off. After the change, developers simply adjusted their project sizes and built more projects with less than 10 units.

    Interestingly enough, the researchers found that there was generally no net loss of new homes during the study period (2004 to 2014); developers simply built more projects with lower unit counts. But more importantly, the team discovered that the policy change only kind of worked.

    The increase in affordable housing was modest. The researchers uncovered a net increase of two affordable units per borough, per year, among projects within the 10-14 unit band. That’s something. But London is a big place.

    Of course, this is a response to a particular kind of policy change in a particular kind of market. Development is a local business and it’s oftentimes hard to generalize. But it does speak to the fact that there are nuances, complexities, and market distortions to consider when it comes to land use policies.

    Photo by Aaron Gilmore on Unsplash

  • Toronto has issued nearly 200 building permits for laneway suites — is that enough?

    We talk a lot on this blog about laneway housing and ADUs, including, of course, the one that Globizen built earlier this year. But beyond being exceedingly cool (see above), what has this policy change meant at the macro level? To what extent is it actually helping housing supply? Let’s consider Toronto.

    As a reminder, “laneway suites” became permissible in the former/old City of Toronto in 2018. The policies where then expanded to the entire city of Toronto in the summer of 2019. So we’ve had just over 2 years of this housing type being fully allowed city-wide.

    Though it’s worth keeping in mind that there are only so many laneways in Toronto (which is why “garden suites” are going to be important and may actually end up being more impactful):

    Between the introduction of laneway suites and June 2021, the City of Toronto received 306 permit applications to construct, of which 238 were associated with a unique address (the same address can have multiple permit applications).

    During this same time period, 183 permits were issued. 107 were still under review at the time this report was written. 15 were refused. And 1 was classified as “unknown”, which I guess means it got lost in the ether or under someone’s desk.

    Some of you will probably argue that this isn’t enough new housing for a city of 3 million people with high home prices, high demand, and high immigration. And I would agree.

    But it’s still early days, there will be an adoption curve, and the policies are still being tweaked to further remove some of the barriers associated with delivering this housing type. Of the 238 unique addresses that submitted a permit application, just over a quarter of them had an associated minor variance application, which means that they did not fully conform to the current laneway suite by-law.

    The most common obstacles appear to be the 1.5m laneway setback, the soft landscaping requirements, and the required fire access. But I know that there are others too. I could have used another foot or two in height on mine.

    But as I mentioned before, there are more areas in this city without laneways than with. And so garden suites are going to be an integral component of city-wide ADUs. This will certainly help the adoption curve.

    I continue to believe that these are all steps in the right direction and that this is an exciting time for Toronto. We are in the midst of transforming our laneways. But we’re not done yet. We’re going to have to make many other tough decisions in order to further increase housing supply. I’m positive we’ll get there.

  • Longer-term benefits of Airbnb for housing supply

    There is a commonly held view that short-term rentals (such as the ones you might find on platforms like Airbnb) are bad for housing affordability because they take long-term rentals out of the market and they help to drive up property values. And there’s evidence for this. A study published in Harvard Business Review found that home-sharing alone might be responsible for about 20% of the average annual rent increases across the US.

    Findings like these have encouraged municipalities around the world to put restrictions in place for STRs. But like most policy issues, there are nuances. And the thoughtful answers are rarely as obvious as they may initially seem. This has been part of my complaint around inclusionary zoning. It sounds good when politicians say it: let’s just get developers to build us free affordable housing. But again, there are nuances to consider.

    Short-term rentals are similar. A recent follow-up study that was again published in Harvard Business Review has actually uncovered some interesting longer-term benefits to STRs.

    Using residential permit data, Airbnb listings, and STR policies across the US, the team found that when you look over a longer time horizon, Airbnb listings actually tend to increase the supply of residential housing. On average, a 1% increase in Airbnb listings led to a 0.769% increase in permit applications. Supply is of course good for a whole host of reasons, one of which is boosting the local tax base.

    Conversely, they found that restricting STRs tended to reduce the supply of new housing and renovations. After new regulations were put in place affecting STRs, Airbnb listings fell on average by about 21% and residential permits fell by 10%.

    Restrictions also seem to have a direct impact on the construction of things like accessory dwelling units (laneway and garden suites for us here in Toronto). When analyzing data in and around the borders between jurisdictions in Los Angeles County, the researchers found that areas without STR regulations saw 17% more ADU permit applications compared to the areas that had restrictions.

    For the 15 US cities that the team studied, they conservatively estimated that STR restrictions reduced property values by about $2.8 billion and impacted tax revenues by about $40 million per year. Some cities, like Chicago, have also found success using STRs as an economic development strategy in distressed neighborhoods, which would further bolster the tax base.

    All of these findings suggest that a more nuanced approach to STR policies is probably merited.

    Photo by Andrea Davis on Unsplash

  • The Tower — NFT Residences of Solana

    I am not counting on my nascent NFT collection to fund my retirement. At least not yet. But I have enjoyed collecting them this year and using them to learn about and get involved in the crypto space. Playing around and experimenting is one of the best ways to learn.

    I recently discovered a project called The Tower (DAO) and I think that many of you, particularly those in the real estate community, might find it interesting. In its simplest form, it is an NFT project where you buy “residences” in a virtual metaverse tower. They look something like this:

    The tower has 500 floors and 20 units per floor. And so there are 10,000 units in total. Each is unique.

    When you buy a residence, you get, among other things, a profile page on the web that allows you to show off your residence and all of the other NFTs in your crypto wallet. You can also see who else owns on your floor.

    Of course there are plans for a lot more. As part of The Tower’s roadmap, the team wants to direct some of the funds that it raises toward real-world affordable housing. There’s also a roommate model in the works where, presumably, people can share their residences and earn tokens.

    Now, I have no idea how a project like this ends up evolving or what it ultimately becomes. But I think it’s a fun example of the kind of creative projects that are being developed as a result of the fact that we can now all take ownership over scarce digital assets.

    Many of these “assets” will likely end up going to $0. But others, as we have seen, will come to be worth a lot.

  • The Zillow postmortem

    The postmortems surrounding Zillow’s exit from the algorithmic home-flipping business are starting to surface. Here’s an article from the WSJ and here’s Matt Levine’s take on it. The latter piece is very Levine-like and is called, “Zillow tried to make less money.”

    The obvious story is that Zillow’s algorithms were not valuing homes correctly. But the story is more nuanced than this. In Q1 of this year, Zillow’s home flipping business was actually more profitable than it had initially expected. And that’s because its algorithms were consistently undervaluing homes. So when it did transact, it was doing so at favorable / low cost bases.

    The problem was that the company was not transacting enough and there was a fear of losing ground to competitors like Opendoor. Apparently only about 10% of people who requested an offer from Zillow actually ended up accepting it. Margins were good, but volumes were too low.

    So what Zillow did was tweak its algorithm to be more aggressive (see above chart from the WSJ). But this created the opposite problem: low/negative margins, higher volumes.

    Once again, it shows you some of the challenges with bringing real estate online. The supply of homes is largely heterogenous and there are a lot of qualitative factors that play into what someone is willing to pay.

  • A universal language for global trade

    This article by Ryan Petersen is a good history lesson on how shipping containers came to be. Here is an excerpt:

    The idea for containerization came from a trucker, not a shipper. Malcolm McLean started out hauling empty tobacco barrels with his family in North Carolina in 1935. At that time, entire trucks would drive onto ships, wasting both a ton of potential cargo space, plus a chassis that could be on the road moving goods. McLean developed plans to use the so-called trailerships for travel from North Carolina to New York, but U.S. regulations didn’t allow one person to own both a trucking and a shipping company at the same time. So McLean did what any innovation-minded entrepreneur would do: He dumped the trucking company, took out a $22 million loan, and, in January 1956, bought two World War II T-2 tankers. 

    The magic of shipping containers is that they created a standard. Now all of a sudden you had standardized boxes that were intermodal. They could fit on ships, rail, and trucks. Ryan refers to containers as the “unsung hero of logistics.”

    He also likens them to the HTTP standard that helped give us the internet that we know today. Before HTTP, computers could only communicate with each other if they were on the same local network. Now we are, of course, connected globally.

    But while containers standardized a part of our physical infrastructure, there’s a lot that remains fragmented and manual:

    The same way data passes between devices via the internet, goods pass between ocean ports, airports, warehouses, and other entities to reach their final destination. Without a logistics standard to act as a request-response protocol, all the players — suppliers, drayage, ports, warehouses, buyers — have to stitch their networks together manually. 

    Information gets lost; layers of redundancy, designed as backups given low visibility, slow the exchange: connections end up being very brittle. Let’s say there’s a shipment scheduled to arrive in Long Beach on Tuesday. But which terminal exactly and what pier number? What time is pickup? How long before late charges are incurred? Finding these answers is labor-intensive and imprecise. Logistics managers end up consulting different sources on websites, via email, or in person. 

    The dirty secret of the industry is that no one really knows where their stuff is.

    I’ll be honest in that I was expecting the article to transition into talk of blockchains. But that’s okay. The underlying message remains the same. Better software and more standardization is needed to improve our physical world.

    For some added context: Ryan Petersen is the founder of a company called Flexport.

  • Grocery-anchored real estate as food logistics

    Blair Welch, co-founder of Slate Asset Management, was recently on Institutional Real Estate’s podcast talking about grocery-anchored real estate. In it, he talks about the role that this asset class plays in last-mile food logistics, why ecommerce might actually be strengthening its importance, and why it needs to be considered as being distinct from other kinds of retailing. This is a topic that we have covered a few times before on the blog and I think many of you might find it interesting. To have a listen, click here.

  • Rise of renewables in the US

    Here are some fascinating figures (from Environment America) about the growth of renewables in the United States:

    • Between 2011 and 2020, renewable energy production (solar, wind, and geothermal) grew at an average rate of 15% per year. Assuming this same rate of growth, the US could be on target to meet all of its electricity needs with renewables by 2035.
    • The US produces 23x more solar power and 3x more wind power than it did in 2011.
    • The median efficiency for new residential solar panels increased by 37% from 2010 to 2019. At the same time, the cost of distributed solar photovoltaic systems fell by 71% and the cost of utility-scale systems fell by about 80% between 2010 and 2018.
    • During this same time period (2010-2018), the cost of land-based wind power fell by 66%.
    • The median range of new electric vehicles increased by more than 3x between 2011 and 2020. The median range is now more than 250 miles on a single charge. By the middle of this year, cumulative plug-in EV sales surpassed 2 million units.
    • Texas is the US state that currently produces the most renewable energy.

    To download the full report by Environment America, click here.

    Photo by Nuno Marques on Unsplash