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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  • A modernist utopia at Summit Powder Mountain

    About 60 miles north of Salt Lake City is the largest ski resort in America, called Summit Powder Mountain. It’s some 10,000 acres. But beyond just being big, there is also a fascinating story and philosophy behind the mountain.

    It was started by four partners — Elliott Bisnow (of Bisnow events), Brett Leve, Jeff Rosenthal and Jeremy Schwartz — who partnered up with Learn Capital in 2013 to buy the mountain from a distressed seller for $40 million.

    The four guys were already running a successful invitation-only event series for entrepreneurs and creative types called the Summit Series, and big part of their vision for the mountain was to recreate this same ethos.

    The idea was to create a community focused on relationship-building, entrepreneurship, innovation, environmental sustainability, and good design. Put differently: a kind of utopia for rich people.

    So far, about 80% of the home buyers at Summit Powder Mountain are members of the Summit Series.

    All of this has translated into some pretty cool mountain architecture (see above). In fact, people who buy vacant lots within the community are effectively banned from building the kind of faux chalet stuff that permeates a lot of (or most?) mountain towns.

    Here is a taste of some of the homes that have already been built.

    Image: Paul Bundy for the Wall Street Journal

  • The resilient story of Toronto’s tall towers

    The Urban Land Institute Toronto is hosting an event and panel discussion on April 8, 2021 about the future of high-rises in our cities. Here’s the blurb:

    Against the backdrop of the pandemic and its toll, what is the future of high-rises in our cities? What role do tall towers now play in shaping Toronto’s identity? While the pandemic has accelerated existing large trends, residential tall towers are proving the durability of a quality urban centre and hyper-urban lifestyles in Toronto and around the world.

    An introduction will be provided by James Parakh (author, Fellow of the Council on Tall Buildings and Urban Habitat, and Urban Design Manager for the Toronto & East York District) and then a discussion will be moderated by Robyn Player (Director, BTY).

    The discussion will be focused on what ULI is calling three of Toronto’s most exciting tower projects under development: Pinnacle One Yonge, One Delisle, and 11 Yorkville.

    I will be on the panel (talking One Delisle) alongside Lee Koutsaris (VP, Sales and Marketing, Metropia) and Anson Kwok (VP, Sales and Marketing, Pinnacle International).

    If you’d like to register, you can do that over here. It should be a great/timely conversation.

  • To yield or not to yield

    If you’re building a multi-family rental building, you’re almost certainly building it “on spec.” What this means is that you’re building an empty building and, once it’s done, you will then work to rent it out. (Nobody rents an apartment years in advance.) In this scenario, you will know what your costs are once the building is complete, but you won’t really know what your revenue will be until you start leasing. If demand is strong and the market has moved since you started building, maybe your rents will be a pleasant surprise. If the market has moved in the opposite direction since you started building, your rents might be an unfortunate surprise. The laneway house I recently completed is an example of a spec rental building. I built it without a tenant, but I assumed that I could rent it out upon completion. That proved to be true, but mind you it was only one unit. So it was relatively low risk.

    If you’re building an office building, it is bit more common to have some pre-leasing in place. Early on in my career, I worked on an office development where we started construction with about 25% of the leasing complete. This wasn’t enough for construction financing, but we saw that demand was strong and we needed to start right away in order to meet our lead tenant’s occupancy timing. And so we made the decision to go. We ran on equity for the first bit of construction, but once we completed enough leasing we were able to place our construction facility and lower the project’s overall equity requirement. We took a chance and everything ended up working out okay. But it could have not worked out. What would have happened if a pandemic hit after we started construction? Leasing activity would have completely stopped.

    If you’re building a condo building (at least in this city), you’ll likely be pre-selling your suites. You don’t necessarily have to do this. There are examples of well-capitalized condo developers building on spec without any pre-sales whatsoever. (Build, lock in your costs, and then sell.) But generally most developers will pre-sell, secure their construction financing, and then begin construction. In some ways this lowers your risks, as well overall systemic risk in the market. It also lowers your equity requirement as a developer. But it does create another possible risk. Once you pre-sell, you’re effectively locking in and capping your revenues. So you better have a very good handle on your costs. Otherwise you could be exposing yourself to cost escalations without any way to claw back some of your margins.

    The other thing to consider is whether you want to yield or not. Is it better to sell all of your suites as soon as possible (bird in hand) or sell only what you need, holdback the rest, and hope that prices increase going forward? I don’t think there is a right or wrong answer here. Some developers don’t want any market risk and so they take the bird in hand when they can. Other developers prefer to profit maximize and/or safeguard themselves against unforeseen costs, and so they sit on inventory. If you have unsold suites, you can always push revenues. Either way, what is hopefully clear from this post is that development is risky. This is just one example of some of the decisions that need to be made. There are countless others. Sometimes you’ll get it right. And sometimes you won’t. Hopefully the former happens more than the latter.

  • Housing supply and house price dynamics in the UK

    In the fourth quarter of last year, the average house price to earnings ratio in the UK was about 8.4x. Apparently this is about as high as it has been in the past 120 years. But interestingly enough, if you go back to the 19th century, this ratio was even higher. It was over 12x back in 1845, but then went on a steady decline until about the 1920s. What changed, according to some researchers, is three things: homes got smaller (making them more affordable), incomes rose, and supply increased.

    So what’s going on today? The obvious answer is perhaps that interest rates are low. But in this recent FT article by Martin Wolf, he argues that that’s not really the primary driver. Part of his logic is that low interest rates are a global phenomenon. And so how is it that real home prices in the UK rose 93% between 2000 and 2020, but only 29% in Germany? There must be some other structural force(s) at work. (Germany has a lower homeownership rate for whatever that’s worth.)

    Wolf argues that it’s a problem of housing supply. Very little housing was built during WW2, for obvious reasons, but housing delivery did really spike in the post-war period in the UK. Local authorities also played a major role. If completions from 2000 to 2019 had averaged the same rate seen between 1950 and 1970, the country would have 2.9 million more homes today, representing a 13% increase to total dwelling count.

    This, Wolf argues, would be having an impact on house price dynamics.

    Chart: Financial Times

  • Map art using Google Earth satellite images

    I just discovered the work of artist and photographer Federico Winer. More specifically, I just discovered his ongoing art project called ULTRADISTANCIA, which uses Google Earth satellite imagery as a starting point for beautiful map art.

    Above is a piece from his “Mines” collection. What you are seeing is the Ekati Diamond Mine in Canada’s Northwest Territories. It is located about 310 km northeast of Yellowknife, 200 km south of the Article Circle, and apparently it’s Canada’s first surface and underground diamond mine.

    In addition to using images of mines, Federico has transformed airports, ports, and other urban landscapes. Here is a link to his “Selected” gallery, which includes places ranging from Venice to Minas Gerais, Brazil. I think his work is amazing.

    If you’re interested in learning more about his workflow, you can also check out this short video.

    Image: ULTRADISTANCIA

  • The rise of the second home

    Real estate brokerage firm Redfin recently did an analysis of “mortgage-rate lock data” taken from the analytics firm Optimal Blue. A mortgage-rate lock is an agreement between a lender and a borrower guaranteeing a particular interest rate for a particular period of time.

    What’s potentially interesting about this data is that (1) approximately 80% of mortgage-rate locks apparently result in an actual home purchase and (2) buyers must specify whether they’re applying to secure a rate for a primary home, a second home, or an investment property. So there’s a high degree of intent that goes along with these applications.

    What Redfin found when they looked at the data is that the growth in demand for second homes is exceeding that of primary homes by quite a wide margin. They argue that this is largely a result of people now working remotely.

    But this rise in demand — at least according to the above data — appears to have started in the second half of 2019. So I think a few more data points would be helpful in understanding what’s really going on. Is what we’re seeing more about acceleration than about causation? And what does this look like a year from now?

    Chart: Redfin

  • The climate idol of the unimaginative

    Here’s some food for thought around electrical vehicles. In this recent article in The American Conservative, Jordan McGillis argues that, “the electric vehicle is the climate idol of the unimaginative.”

    Rather than simply changing what’s under the hood of our cars, we should be reexamining the broader impacts that the car has had on the urban landscape. Here’s an excerpt that speaks to this:

    “All of the effort directed towards EV adoption would be better expended on improving our development patterns, bringing them to human-scale and reducing the necessity of the automobile. The obvious reform candidate is zoning. According to the New York Times, it is illegal to build anything other than a single-family home on 75 percent of land zoned for residential use in the United States. Zoning exclusively for single-family homes artificially flattens our cities, necessitates daily automobile commutes, and increases our greenhouse gas emissions. As Istvan Bart has documented for the Climate Strategy Institute, suburban sprawl bears more responsibility for increased emissions from transportation than either population or GDP.“

    There is no question that electric vehicles are helpful to addressing climate change. But Jordan is also not wrong. We can’t ignore that built form is crucial to this discussion, and likely even more important.

  • Upsizing to a larger apartment in New York City

    This is an interesting story about New Yorkers starting to seek out larger homes. Last month, Manhattan saw 140 purchase agreements signed for homes priced at $4 million or more. In the last week of February alone, 40 contracts were signed, which is apparently a weekly record for this price point that hasn’t been seen since August 2016.

    What’s also interesting is that, in some of these cases, we’re talking about buyers who bought preconstruction and then went back to the developer to swap for a larger apartment. Developer Scott Avram is quoted in the above article saying that 10 buyers have “upgraded their contracts” at 130 William (David Adjaye project) over the last six months.

    As we’ve talked about before, this is likely happening for a bunch of reasons. People have been working from home and want more space. Interest rates are low. And New York saw some softening in prices and now people are jumping back in to seize on those opportunities. At the same time, it is yet another example of people going long on dense urban living.

  • How balconies and winter gardens were added to the Grand Parc Bordeaux apartment blocks

    The 2021 Pritzker Prize was just awarded to French architects Anne Lacaton and Jean-Philippe Vassal. One of the most notable aspects of their work is their appreciation for and reuse of existing structures, which, as many of you will know, is far more sustainable than building new. A good example of this approach is their Grand Parc project in Bordeaux, where they transformed three existing tower blocks and 530 dwellings.

    What’s fascinating about this project is how they added balconies and winter gardens to structures that previously didn’t have any. I also like how there are two layers of outdoors spaces. There’s the more enclosed winter garden portion and then there’s an open air balcony-type component, which also happens to be a more public-facing space where you might actually run into some of your neighbors.

    If you can’t see the video above, click here. Once you’ve had a chance to watch the video, I would be curious to know: Are these spaces that you would like to live in?

  • The future of self-driving cars (and LIDAR)

    Here is an interesting podcast with Austin Russell, who is CEO of Luminar Technologies. Luminar specializes in LIDAR vision systems for autonomous vehicles and has already cut deals with carmakers such as a Volvo. Starting as early as next year, Volvo hopes to start rolling out “fully autonomous highway driving” using LIDAR. And, supposedly, Luminar makes the best kind of LIDAR with ranges of up to 250m. But not everyone believes that LIDAR will be a necessary component of autonomy going forward. Tesla instead relies on vision (lots of cameras and fancy AI software), and Elon Musk has famously said that anyone relying on LIDAR will ultimately be doomed. Time will tell, though I am in the LIDAR camp because of the recency bias that this podcast has created. And in the interim, Luminar going public at the end of last year has made Austin Russell the youngest self-made billionaire in America.