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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  • 79 container ships are waiting to berth in Los Angeles

    Most of us have felt the effects of supply chain disruption during this pandemic. When we were building Mackay Laneway House this past winter, it was right when lumber prices were peaking. We had no choice but to just absorb the cost premiums and move forward with the job. On bigger projects with longer construction schedules, I know that a lot of us are trying to time what they can with the expectation that things will eventually sort themselves out.

    When things are working as they should, this is the sort of thing that you can take for granted. But now you really need to consider lead times and cost premiums. I was reading this morning that the average number of wait days from anchorage to berth in a port in Los Angeles is now 13 days. What that means is that vessels are sitting out in the water, on average, for almost 2 weeks waiting a spot. This costs money.

    As of last week, this translated into 79 container ships sitting in front of Los Angeles and Long Beach waiting to berth (see above chart). If you do the math, which Freight Waves tried to do over here, you get to a value of somewhere around $26 billion worth of stuff sitting out in the water. As I understand it, a big part of the problem is a lack of trucks and drivers to pick up the cargo once these ships have berthed. So you can run the ports 24/7, but you still have a bottleneck.

    Logistics clearly matter.

    Chart: American Shipper with data from Marine Exchange of Southern California, via Freight Waves

  • No-cost affordable housing in Toronto

    It upsets me when I read things like this (click here if you can’t see the embedded tweet above). I think it creates a false sense of a free lunch and ignores all of the nuances and complexities associated with inclusionary zoning.

    IZ is an obligation to provide a certain number of affordable units in new housing developments. There’s a lot of detail and debate around where this should apply, how much needs to be provided, and at what degree of affordability.

    But at the end of the day, it’s important to keep in mind that at meaningful levels of affordability, these IZ homes are going to be built at steep losses. More info on the economic impacts of IZ can be found here.

    The simple math is that the costs to build these homes are going to be greater than the revenues that they bring in. Which is why developers aren’t out building affordable housing everywhere. There’s no margin.

    In order to build, somebody or something needs to provide a subsidy so that this revenue-expense shortfall can be made up. How this works its way through the market is where I have tried to focus the discussion when writing about IZ. There are complexities. Some lessons from Portland, here.

    But to just assume that these costs will get magically absorbed by housing developers, with no other knock-on effects or distortions to the market, is incorrect.

  • Condo rents in Toronto are up 11.4% quarter-over-quarter

    Urbanation released its Q3-2021 rental report for the Greater Toronto Area at the beginning of this week. The vacancy rate in purpose-built rental buildings fell to 3.0%. This is down from 5.1% in Q2-2021 and 6.4% in Q1-2021. For the former City of Toronto (the city pre-amalgamation), vacancy rates declined to 3.8% in Q3-2021, down from 9% in Q1-2021. So people are renting apartments.

    At the same time, rents are growing. The average rent for newer purpose-built rentals was $2,389 per month or $3.30 per square foot at the end of last quarter. This is up 3.8% from Q2. But what is also interesting to see is how quickly the core / downtown is snapping back. Looking at condominium rentals, the former City of Toronto had the lowest leases-to-listings ratio at the start of the pandemic in Q2-2020. But in Q3 of this year, its ratio was the highest. See below.

    Average rents have also spiked for condo rentals in the core, posting an 11.4% quarter-over-quarter increase and a 6.2% year-over-year increase. The average rent is now sitting at $2,405 per month or $3.62 psf. See above. Remember when everyone thought that cities were dead and nobody was ever going to live in a downtown apartment ever again? Yeah, that was funny.

    Charts: Urbanation

  • In real life in New York City

    This past weekend Bright Moments opened up their NFT art gallery in New York’s Soho. This is the company’s second gallery. The first was in Venice, California. And there are plans for eight more cities, with Berlin being the next one. (When is Toronto?!)

    Bright Moments is a decentralized autonomous organization (DAO), which is interesting in its own right but is a topic for another post. You can read a bit more about Bright Moments and DAOs, here and here.

    What I would instead like to talk about today is how Bright Moments is operating at the intersection of NFT art and real-world spaces. They are in effect a community. It’s a place for artists to release/showcase their work and a place for people to connect.

    One of the things that the company is doing with each gallery launch is minting an NFT collection that is tied to the city and that uses the local demonym. When they opened their popup in Venice, they launched the CryptoVenetians. And last weekend in New York they launched the CryptoNewYorkers.

    In each case, 1,000 NFTs were minted and the idea is that once they have expanded to their 10 cities, there will be a collection of 10,000 NFTs.

    I have said it before, but this is an exciting time in the world. Maybe this current NFT craze ends up being a massive bubble, or maybe it doesn’t. Either way, things are exciting.

    But here’s the thing.

    Organizations like Bright Moments show you just how important physical spaces, live communities, and cities continue to be. It doesn’t matter that this is digital art being displayed on a screen and that one could be viewing it from anywhere. People want to hang out in the same room and experience these sorts of new things together.

    I can’t see that ever going away.

  • Innovation in real estate development

    I am moderating a panel at the Toronto Real Estate Forum later this year (it’s on December 2 to be exact). The topic is innovation in development. There is a great panel of speakers (more info here) and the plan right now is to cover everything from new design and construction approaches to the rise of crypto and blockchains. Topics that are all near and dear to this blog.

    But we are still in the early stages of planning and I haven’t yet figured out what the questions to the panel will be. So I thought it would be interesting to hear from all of you: What would you say are the most important topics to cover when it comes to innovation in development? What’s next for our industry, or what should be next for our industry?

    If you have any thoughts, please leave a comment below. That way everyone can see them. Supposedly this is one of the most asked for topics at the real estate forum, and so it’s clearly top of mind for many people.

  • A single room with a single book, Tokyo

    This recent post by Benedict Evans talks about the firehose that is the internet. To illustrate this point, he gives the example of unread emails. If you were to look at your phone right now, how many unread emails would it show?

    My work email account is mostly read because reading and responding to emails is one of the ways that I manage to remain gainfully employed. But my personal email currently has 27,230 unread emails. Most of these are newsletters and emails from people wanting to somehow optimize this blog or help me reach 1 trillion followers on Instagram.

    Whatever the purpose, it’s almost impossible to keep up. And since having unread asymmetric emails of little consequence doesn’t bother me in the slightest, I let it go.

    This is one way to deal with the firehose — acceptance. And in Benedict’s post he makes the argument that maybe the push that we are seeing toward the metaverse is exactly that — full acceptance. “When software eats the world, it’s not software anymore.”

    But the opposite way of dealing with information overload is extreme simplification. And there is something so beautiful about minimalism in a world of too much.

    Today I learned about a bookstore in Tokyo called Morioka Shoten (shoten = bookstore). It is located in Ginza (pictured above) and the proposition is “a single room with a single book.” The bookstore consists of, you know, a single room and at any given time there is only one book for sale.

    Each book is available for six days, after which time a new book is made available. In addition to selling one book at a time, the single room shop is used for things like events and exhibitions.

    It’s a radical idea and perhaps it is best suited to Japan. But maybe we all need things that slow us down and focus our attention on only a few things or even a single thing. Maybe we need it to offset the information firehose.

    Image: Morioka Shoten

  • Zillow pauses algorithmic homebuying business

    Zillow just announced that it has paused its (algorithmic) US homebuying business for the remainder of this year. The company acquired some 3,800 homes in Q2 of this year and, apparently, it now has a backlog of repairs and sales to work through. As a reminder, this business model, which is sometimes referred to as iBuying, is based on using algorithms to quickly value and buy homes (mostly online). The homes are then renovated and flipped for a profit. The problem, as most of you know, is that this pandemic has, among other things, disrupted construction supply chains and made it difficult to hire people. That has hurt the renovation component of this model.

    Today’s news was bad for Zillow’s stock, but good for Opendoor’s stock, which is their main competitor. Opendoor subsequently came out and announced that they remain open for business. (Disclosure: I am long $OPEN). But this announcement is perhaps a good reminder that buying and selling real estate remains a different animal than, say, buying and selling stocks. And so there are some perfectly understandable reasons for why real estate hasn’t been disrupted by the internet in the same way that other industries have. Matt Levine does a great job explaining this in his recent column, “Sorry, Zillow’s Computer Can’t Buy Your House Right Now.”

    Here’s an excerpt:

    “I’ll pay you $350,000 for your house as long as a human can go out there, look around, and make sure that price isn’t wildly off” is an interesting model but it’s not quite the same as “push this button to sell your house for $350,000.” And “I’ll pay $350,000 for a house and then send out a crew to replace the carpets” is not quite the same as “I’ll pay $350,000 for a house and flip it 20 minutes later for $355,000, collecting a small spread for providing liquidity.” Computerization has come into the housing market, but it hasn’t taken it over yet.

    One of the challenges is that the supply of homes is heterogeneous, even in a suburban community or in a multi-family building where you might have the same set of floor plans that repeat. Because maybe the home has been renovated and fit out entirely in gold. Or maybe it’s the opposite and it has been poorly maintained. There are variables to contend with that have historically necessitated more rather than less human involvement. Homes are also something that don’t trade all that frequently, which is less than optimal when it comes to online marketplaces.

    But what if buying and selling a home was dramatically cheaper and easier to do? How often would people actually do it? Presumably more often. I agree with Matt that “computerization” hasn’t taken over the real estate industry just yet. But algorithmic homebuying still appears to be one of the more promising approaches.

  • The 10 commandments of micromobility

    This is a great 30 minute talk by Horace Dediu that is structured around his 10 commandments of micromobility. If you can’t see the embedded video above, click here. What I think that many of you will appreciate about the talk is that he focuses on smaller interventions. Think bike lanes over big hyperloop moonshoots. In his words, we’re going to get to where we want to go not through hyperbole, but through humility. And micromobility is all about humility.

    I’m also a big fan of his last commandment. It is titled: cities always win. Yup.

  • Waterfront ReConnect Design Competition announces six shortlisted teams

    This past summer, the Bentway (in collaboration with the City of Toronto, the Waterfront BIA, and the Toronto Downtown West BIA) issued a call for expressions of interest to re-imagine two key intersections under downtown Toronto’s elevated Gardiner Expressway. The York Street intersection and the Simcoe Street intersection.

    That process has run its course and the following six teams have now been shortlisted:

    York Street

    • Sans Façon + Zeidler (Calgary/Toronto)
    • LeuWebb Projects + DIALOG + Mulvey & Banani Lighting (Toronto)
    • 5468796 Architecture Inc. (Winnipeg)

    Simcoe Street

    • O2 Planning & Design Inc. + Mulvey & Banani Lighting + ENTUITIVE (Calgary/Toronto)
    • Daily Tous Les Jours + SvN Architects + Planners + Latéral (Montreal/Toronto)
    • SOCA + Tiffany Shaw-Collinge + SHEEEP (Toronto/Edmonton)

    The next step in this process is a nine-week design exercise where the above teams will go away and prepare their design concepts. We work with a number of the companies on this shortlist and I am sure that there will be some fantastic ideas that are put forward. After selecting the two winners, the plan is to then start construction in 2022.

    The Bentway is doing some fantastic work in reimagining the underside of our downtown highway. This is yet another example of that. For more information about the competition, click here.

    Photo by Brian Jones on Unsplash

  • Offline and online

    https://twitter.com/donnelly_b/status/1449087312009256966?s=20

    I was out for dinner this week with a group of real estate developers. And as you might expect, we spent the majority of the time talking about real estate and complaining about how long things take. But a good chunk of time was also spent pontificating about the world of crypto. That’s what happens these days. In fact, one of my friends joked that my/this blog used to be a real estate and cities blog, but now it’s a crypto blog. It’s a joke, but I guess it’s becoming partially true.

    For as long as I can remember, I have always been interested in what’s new and what’s next. And I think this is next. So I’m reading, playing, thinking, and writing about it. And the more I do these things, the more my conviction grows. But what really did it for me was the hands-on playing around part. I’m not interested in owning a crypto ETF (the US is about to get its first bitcoin ETF based on futures contracts). I want to own the cryptocurrencies directly so I can see what they can do and how everything works. (Though I will say that this space is still not very user friendly.)

    One of the things that comes to mind as I continue to play is the future interrelationship between our offline and online worlds. Because already we are living in a world where people now buy and collect rent on virtual real estate in places like Decentraland (REITs are even starting to emerge). Where parties happen online instead of offline (but still attract big name DJs). Where people buy digital fashion instead of physical fashion, and pay just as much for it and sometimes even more. And where augmented reality is changing how we experience our cities in real life. A few weeks ago, I came across a park in Paris that had partnered with Snapchat to deliver an AR experience, to give just one example.

    These are meaningful shifts that are gaining traction (and this post is by no means an exhaustive list). And while I remain steadfast in my belief that cities are profoundly resilient and real-world experiences are irreplaceable, I do believe that our emerging digital worlds are going to have an impact on how we design and build our cities going forward. From art murals of NFTs to entire new virtual worlds, this is an exciting time for cities and technology.

    Enjoy the weekend.