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Amazon’s economies of density

According to Amazon’s recent annual 10-K filing, the company leased and owned (most of their space is leased) about 288,419,000 square feet of space around the world at the end of 2018. Of this number, about 80% is used for “fulfillment, data centers, and other.” Amazon doesn’t break out this line item any further, but GeekWire reckons that a good 3/4 of their real estate is dedicated to their fulfillment warehouses.

Here’s the full summary of their facilities (from the 10-K filing):

Given that fulfillment is such a large share of their properties, I am most interested in understanding the geography of their warehouses and how that impacts their core value proposition, which is largely all about convenience.

In April 2017, Jean-François Houde (of Cornell), Peter Newberry (of Penn State), and Katja Seim (of UPenn) published a paper on this very topic called, Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network.” There’s also this Knowledge@Wharton podcast on the paper if you’re looking for a quicker listen or read.

In the early days of online retail, the decision of where to warehouse had meaningful tax implications. Because (in most cases in the US?) you only had to collect sales tax if you had a physical presence in the same location as your purchasers.

As that changed, it then made more sense to create a broader distribution network and minimize the distance between fulfillment center and purchaser. By 2016, Bloomberg estimated that nearly 78 million Americans lived in a zip code where Amazon offered free same-dame delivery. That number has obviously increased since.

And in the paper “Economies of Density”, they discovered the following cost savings as a result of Amazon’s growing fulfillment network:

We find that Amazon saves between $0.17 and $0.47 for every 100-mile reduction in the distance of shipping goods worth $30. In the context of its distribution network expansion, this estimate implies that Amazon has reduced its total shipping cost by over 50% and increased its profit margin by between 5 and 14% since 2006. Separately, we demonstrate that prices on Amazon have fallen by approximately 40% over the same period, suggesting that a significant share of the cost savings have been passed on to consumers.

The interesting question for real estate people and city builders — which is brought up in the Knowledge@Wharton podcast but is difficult to answer — is whether there are diminishing returns to this “economies of density” phenomenon. In other words, how dense does Amazon’s fulfillment network want to be?

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The Russian James Bond

This is last year’s news and some of you may have already seen it, but here is a video of Zaha Hadid’s only completed private residence:

It was built in the Barvikha Forest near Moscow. The client, Vladislav Doronin, is a real estate developer. He owns/runs Capital Group, OKO Group, and Aman. Zaha used to call him the Russian James Bond.

The central idea behind the house is the raised master bedroom suite. Vladislav wanted to wake up and only see trees and sky. And so Zaha raised the bedroom 22m above grade.

Look at it in section (those stairs!):

It wouldn’t be my first choice, but I can appreciate its boldness. What are your thoughts on this house?

Image: Dezeen

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Shenzhen’s solution to jaywalking

I just finished watching this Bloomberg video on Shenzhen, called “Inside China’s High-Tech Dystopia.” The video obviously has a particular point of view, but there are parts of it that I wasn’t overly fussed about, such as the push toward increased factory automation. Jobs evolve. We used to have elevator operators. Now we don’t. Presumably those people found other empoyment.

What stood out to me was Shenzhen’s solution to jaywalking. They use cameras, facial recognization software, and a “wall of shame” to fine and then discourage people from illegally crossing a street ever again. One guy in the video explains how he once had the fine automatically withdrawn from his WeChat account. No authorization required. And it happened within seconds following the infraction.

That feels unsettling. (If you only want to watch the jaywalking part, skip ahead to 5:35 in the video.)

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How to manipulate attention

This Toronto Life article about a 32-year-old who has managed to buy 10 homes in the city is very Toronto Life. At a time where many young people are struggling to afford housing, here is a millennial who has bought 10 of them (albeit with some partners). The underlying message: You’re not working hard enough.

I am fairly certain Toronto Life writes these sorts of articles because they know they’ll enrage people. As Facebook has taught us over the last few years, getting people pissed off is good for engagement. And engagement is what drives advertising-based businesses.

Here is an excerpt from a recent Time article by Roger McNamee (a former Facebook advisor):

One of the best ways to manipulate attention is to appeal to outrage and fear, emotions that increase engagement. Facebook’s algorithms give users what they want, so each person’s News Feed becomes a unique reality, a filter bubble that creates the illusion that most people the user knows believe the same things. Showing users only posts they agree with was good for Facebook’s bottom line, but some research showed it also increased polarization and, as we learned, harmed democracy.

If you take a look at the Twitter conversations surrounding the above Toronto Life article, you’ll see the reactions you would expect: Troll article. Yeah, but how much debt has he taken on? He had help from wealthy friends. Here’s how a 32-year-old is eroding housing affordability in Toronto.

I appreciate all of this, but I will never understand the need to shit on other people because of their successes, regardless of whether they are self-made or were born with a competitive advantage. Billionaire isn’t a bad word in my books. I am a first generation real estate developer, but I wouldn’t be at all upset if my great-grandparents had decided that buying land in Toronto was a good idea.

Here is a guy that moved to Canada for University. Lived in a basement with cockroaches after leaving his first job after school. Took some risks. And saved his money instead of doing bottle service at the club on the weekends. I can respect that.

But again, these sorts of articles are bound to make a lot of people cranky. And Toronto Life knows that.

Photo by Tiago Rodrigues on Unsplash

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Junction House Sales Gallery — Now Open

We just received a bunch of photos back of our Junction House Sales Gallery. So today is photo day on the blog. (Thank you Dialogue 38 for coordinating these.)

Here’s the front “gallery” area. The artwork hanging on the wall is by local artist, Leeay Aikawa. Her work is terrific. You can see this space as you walk along Dundas Street West.

Here is the model suite pavilion and main reception area (evening shot). The bar area is absurdly long. It was designed to accommodate beers from Indie Ale House down the street.

Dialogue 38, the designers of the space, really wanted the model suite to be a “pavilion” — something akin to Mies van der Rohe’s Barcelona Pavilion. So here’s the ramp that takes you up and inside.

Finally, here’s the model suite. The kitchen is by Scavolini. And the backsplash is a penny tile.

The sales gallery is located at 2720 Dundas Street West and is now open every day of the week except Tuesdays. The hours are 1PM to 7PM during the week and 12PM to 5PM on the weekends.

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Shaping Cities in an Urban Age

Shaping Cities in an Urban Age is the third book to come out of the London School of Economic’s Urban Age project. It was published last fall. The first two titles were, Living in the Endless City (2011) and The Endless City (2007).

If you’re familiar with the first two publications, you’ll know that these books are heavily illustrated. Lots of maps, charts, and diagrams. So they make great coffee table books. But they’re also filled with insightful essays — this one has 37 of them.

In this particular book the focus is on the following:

“It identifies current trends that are making cities more fragmented, less equitable and environmentally more damaging, and argues powerfully for a more integrated social, environmental and spatial approach that can inform and inspire city-makers that are shaping an increasingly urban world.”

I am sharing this with all of you today because I have always really enjoyed these books. They have a way of quickly putting things into perspective globally.

Around 2.5 billion more people are expected to live in an urban agglomeration by 2050. And 90% of this growth is expected to happen in just two places: Asia and Africa. This is an unprecedented shift that will obviously create many challenges and many opportunities.

This book is about that.

Image: Phaidon

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Toronto to market 11 city-owned sites for new affordable rental housing

At the end of last month, Toronto City Council adopted the “Housing Now” action plan. The first phase of the plan involves the public marketing of 11 city-owned sites for the purpose of finding non-profit and private sector partners to help redevelop the lands with new mixed-income housing. It is expected that these lands could accommodate about 10,000 homes.

Here is the list of sites:

As part of the offering, around 2/3 of the built units will need to be rental (the above chart shows more), and of these rental units, 50% will need to be affordable with rents set to 80% of Toronto’s average market rents. All of this should translate into approximately 3,700 new affordable homes. (Mayor Tory’s plan is to build 40,000 affordable rental homes by 2030.)

The City wants to ultimately retain ownership of these lands, and so the sites will be offered up through long-term land leases. It looks like they’ll be for 99 years. The City will also be forgiving a number of fees and levies for the 3,700 affordable homes. They are pegging the PV (present value) of these development incentives at just over $280 million:

Making use of surplus public land to increase the supply of affordable housing certainly makes a lot of sense. But there’s a cost burden associated with these affordable units, which is why discussions around inclusionary zoning often come back to offsetting measures. Who is going to pay for these subsidies?

The above “financial incentives” — which in this case are simply foregone revenue — speak to this cost burden.

Tables: City of Toronto

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Construction update — MIRA, San Francisco

The MIRA Tower in San Francisco is one of my favorite buildings by Studio Gang and probably my favorite tall building under construction right now. Here’s a video and a few photos from the San Francisco Chronicle’s urban design critic, John King:

When we first met Studio Gang, this project hadn’t yet started construction. They broke ground in April 2017. But it was one of the designs that got us particularly excited about what a Studio Gang building could mean for midtown Toronto.

Now that the MIRA Tower is well underway, I have to say that it looks even better than it did pinned to the walls of their Chicago studio. I can’t wait to see it in person once it’s complete.

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Bye Tumblr. Hi WordPress.

I finally did it. Over the weekend I ported this blog over from Tumblr to WordPress. I had been thinking about doing this for a while, but kept putting it off (1) because of the work involved and (2) because I was worried about my permalinks changing. About 35-40% of the visits to this blog come from organic search. I’m on the first page when you Google “real estate developer.”

I had been using Tumblr since I first started writing this daily blog back in August 2013. But it started feeling increasingly limited. It isn’t great for longish-form blogs like this one and it is terrible at handling photos and other embedded content. (I plan to post more of my photography now.) The last straw for me was the inability to blog from a mobile device. I tried that over the weekend and it was bad.

I was also starting to feel like the product was on the decline. Yahoo acquired Tumblr in 2013 for $1.1 billion. Tumblr hadn’t yet figured out how to effectively monetize its platform and Yahoo needed a cool social product in their portfolio. But that deal doesn’t seem to have gone as planned, at least not for Yahoo.

So here I am on WordPress. I’m still working out some of the kinks, but I think we’re almost there. If you’re reading this post in your inbox, it should be business as usual. If you’re reading this post on the web, you’ll notice a few differences (I’m still fine tuning the design).

Regularly scheduled programming will resume tomorrow now that we’re just about setup.

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Height vs. density

This Planetizen article (2014) by Brent Toderian surfaced over the weekend. It is about tall buildings and why we should be focused more on how they are designed, as opposed to just how tall they are. Brent talks about this in terms of “density done well.”

One of the things that is often misunderstood when it comes to tall buildings is the relationship between height and density. It is often assumed that the two are perfectly correlated; but they’re not, which is why I like this quote from the above article:

“Height and density have a relationship, one that can be over-simplified or mischaracterized, but they aren’t the same thing – you can have density without height, and yes, you can have height without density.” -Brent Toderian

Part of the challenge is that density is a more nuanced metric. Height, on the other hand, is a lot easier to understand. How tall is this building? Oh, it is x storeys tall. But that’s only one piece of the puzzle.

Photo by Erwan Hesry on Unsplash