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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  • Landed is helping teachers buy homes

    The average salary of a teacher in the United States was approximately $61,730 last year. This can make homeownership in high cost areas a challenge.

    Here is a chart from Curbed:

    Landed is trying to solve this problem by offering downpayment assistance to “essential professionals” — starting first with teachers — so that they can buy homes in and near the communities that they serve.

    The way it works is pretty simple.

    They’ll contribute up to half of a traditional 20% downpayment — so 10% of the value of the home — in exchange for a 25% share in any future gains, or losses.

    Put differently, for every 1% that Landed contributes, it takes 2.5% of any future appreciation (or depreciation). However, on an equity basis, they are actually putting up 50% of the required cash (in the maximum scenario) in order to get 25% of any future gains.

    There’s no monthly payment associated with Landed’s money, but it does need to be repaid at the end of 30 years or when the homeowner exits the agreement, whichever comes first. Homeowners are free to repay Landed at any time should they decide to sell the property or they just want to pay them out.

    Landed pitches the service as another version of “the bank of mom and dad.” And for many prospective homeowners, I am sure that it makes all the difference in the world.

    At first glance, it would seem that each homeowner also benefits from a kind of positive leverage. They only put up 50% of the required equity, but they get to enjoy 75% of the potential gains. However, each homeowner is also responsible for 100% of the carrying costs.

    I ran a couple of quick return scenarios, assuming a $500,000 purchase price and a 10 year hold, in order to test whether Landed or the homeowner would receive a higher IRR once the property gets sold.

    I didn’t carry any transaction costs, but I did factor in principal recapture, as well as utilities, insurance, and maintenance.

    My rough numbers suggest that it depends on the annual rate of appreciation. If appreciation stays close to the rate of inflation, it could tip in favor of Landed because they don’t put out any money after t = 0.

    But at higher rates of appreciation, the homeowner starts to benefit from the favorable 75/25 split at the end of the hold period.

    Either way, Landed is providing a service to people who may not otherwise be able to afford to buy a home. That has value. Here’s some more information on how it works, in case you’re interested.

  • Uber’s seed investors made this much money

    $UBER went public on Friday. Notwithstanding the initial stumble, Uber will go down in history as one of the most lucrative venture capital investments of all time.

    The stock is down from its IPO price of $45 per share, but at that price, the initial seed investment of $510,000 that First Round Capital made back in 2010 was worth about $2.5 billion on Friday.

    Here is a list of some of the other notable investors from Uber’s seed round and what their initial investments grew to over the course of 9 years (chart from the WSJ):

    Of course, for every Uber, there are many more failed companies. And for every investor who turns $5,000 into nearly $25 million, there are many more who decided to pass on the opportunity.

    In the case of Uber, many early investors couldn’t see how the product could go mainstream. It initially started upmarket with limousines, which was actually a clever way to hack the chicken-and-egg problem that plagues marketplaces.

    Many also wondered how many metro areas outside of San Francisco had the kind of urban density and supply and demand drivers to support this kind of a service.

    Today, some nine years later and many billionaires later, lots of people — including myself — are still wondering: Will Uber turn out to be a great (i.e. profitable) business? Hindsight is always 20/20.

  • Redfin is rolling out an online purchase option for homes

    There’s a lot of money at work right now trying to reinvent the way that homes are bought and sold. Perhaps the most popular trend is “instant buying” or algorithmic home buying. I have been writing about this for years, mostly because of Opendoor. But now there are lots of companies competing in this space. With this model, home sellers get the benefit of an almost immediate sale, though usually it’s at a slightly lower price.

    Redfin, on the other hand, is returning to something that it first tried out back in 2006: a buy now button on its online listings. It failed back then. But maybe it was simply too early. The feature allows unrepresented buyers — that is, buyers without an agent — to make online offers. Naturally, it’s far from a single click process. But when accepted, the seller ends up paying about half the amount of commission.

    According to the New York Times, the company started testing the feature in late March in the Boston area. Of the 120 homes listed on Redfin with a “start an offer” button, 5 ended up being purchased via an online bid. That’s more than I would have expected. But Redfin positions these offers as being the stronger option because they save sellers money. There’s also an option to tour the home on your own.

    Given this initial response, the company is now working to roll out this feature nationally, market by market. Is this the future of home buying?

  • Equinox to open its first hotel this summer

    Equinox Holdings operates, among other things, 99 fitness clubs in the US, the UK, and Canada. And this June, the first Equinox Hotel will open in a 92-storey tower in New York’s Hudson Yards. It will occupy floors 24 to 38. Below it will be Equinox’s corporate headquarters. And above it will be residential condominiums.

    Supposedly, the brand emerged out of a trend that the company saw over a decade ago: Its fitness club members were choosing to stay in hotels based on their proximity to an Equinox. They simply weren’t satisfied with the gym offerings at other luxury hotels.

    The full back story, which can be found here in WSJ. Magazine, is a good read. I think their ambition of trying to “own sleep” is a clever one. They are pitching their rooms as dark, quiet, and cool. I am sure other hospitality brands have tried to do this, but Equinox is clearly taking this directive very seriously. They even sponsored a sleep study with UCLA.

    This feels like a natural extension of their existing brand. Equinox is focused on regeneration. What better way to accomplish that than through a good night’s sleep?

    Image: 35 Hudson Yards via Related-Oxford

  • The American Institute of Architects’ 2019 Housing Awards

    The American Institute of Architects just presented its 2019 Housing Awards. 12 housing projects were recognized across four categories.

    Some of the projects I have written about before — such as the Tiny Tower in North Philadelphia. But most of the projects haven’t been covered on this blog. One of my favorites, among the winners, is the Oak Park Housing project in Sacramento by Johnsen Schamling Architects.

    I like that the massing is simple and that it’s a dense — 6 unit — urban infill project in an area of Sacramento that has been struggling with disinvestment for many decades. According to the architect, it is one of the first residential projects in the neighborhood since the Oak Park Riots of 1969.

    Three of the homes front onto the main street. And the other three front onto and are accessed from a rear alley. Each home is just over 1,500 square feet. The project also had “an ambitiously limited construction budget“, so let’s call it an example of good design not having to necessarily cost a lot of money.

    I’m guessing their land costs were reasonable.

    Photo: John J. Macaulay

  • Miami in the 21st century

    I started reading a new book this weekend called, The Global Edge: Miami in the Twenty-First Century.

    When many (or perhaps most) people think of Miami/Miami Beach, they think of its beaches and resorts. And that is certainly a mainstay of the region’s offering. But over the past few decades, Miami has also emerged as an important global city (albeit at a more regional scale) and as a center for art and culture. Miami has the second largest concentration of international banks in the United States after New York, which begins to speak to the region’s importance for Latin America.

    New York City is what it is today because it was the port of entry for new immigrants coming to the United States. This same phenomenon is what reshaped the Miami economy, starting first with Cuban exiles. Today, the city remains a refuge for Latin Americans searching for greater political and economic stability. As my friend from Miami likes to tell me, “the best thing about Miami is that it’s so close to the United States.”

    I’m enjoying this book and I bet some of you will as well.

  • Best innovative suite design

    Junction House won “Best Innovative Suite Design” at the 39th BILD Awards (2019) last night. A big congrats to the team. Below is the floor plan that won. It is a 2 bedroom suite from our two-storey House Collection (JH_2B_H1).

    This design is fundamental to Junction House. It is why the project is called what it is. The goal was to create a suite that felt less like a condo, and more like a low-rise single-family home. Credit to Superkul Architects, and the rest of the team, for figuring it all out. There was a long list of requirements.

    We wanted dedicated kitchen (+ island), dining, and living areas. (The living area is also wider than what you’d typically find.) We wanted a terrace with (standard) water and BBQ connections. We wanted the bedrooms upstairs for privacy/separation. We wanted both of them to have direct window exposure. And we wanted a master ensuite bathroom with a double vanity.

    The House Collection includes some of my favorite suites in the building, which is why — full disclosure — I’m going to be moving into one of them. If you’d like more information about Junction House, reach out to Paul Johnston and his team at info@junctionhouse.ca or at 416-900-6076.

  • EU regions, by economic development

    The European Union uses something called the Nomenclature of Territorial Units for Statistics (or NUTS) in order to geographically subdivide its member states and collect statistical data. There are three scales: NUTS 1, 2, and 3. And generally speaking, they follow existing administrative boundaries. Or at least that’s the goal.

    In addition to being used for collecting statistical data, they also form the basis for how the EU implements its “cohesion policies“, which are designed to direct funds toward less developed regions within the Union based on GDP per capita (PPP).

    Because these NUTS impact funding allocations and because they can be redrawn if certain criteria are met, there’s not surprisingly an incentive to gerrymander. The Pudding has a great visual essay that explains why this happens and how Hungary split its central region into two new ones, isolating its capital, Budapest.

    Big cities tend to be, of course, more developed than their surrounding areas. But it is interesting to see by how much. Though an extreme outlier, the Inner London – West region has a GDP per capita that is 625% the EU average (2017 numbers).

    Image: The Pudding

  • Laneway suites all across the city

    As of August 2018, the City of Toronto has allowed laneway suites (accessory dwelling units) to be built as-of-right in the Toronto and East York area of the city (subject to meeting some criteria).

    This was a tremendous step forward for the city. And I know a number of people who are currently taking advantage of these new planning permissions.

    Toronto is now looking at expanding these permissions across the entire city and they have just started their community engagement phase. The first public meeting took place today and the next three will be taking place over the course of this month. Click here for the when and where.

    This is a natural extension of the policies that have already been put in place around laneway suites and I’m excited to see this moving forward.

    For those of you who already own property in Toronto & East York and are considering building a laneway suite, there are two programs that you should be aware of.

    The first one allows eligible property owners to defer development charges on the new secondary dwelling unit for up to 20 years. This is meaningful. And the second is a $50k forgivable loan if you make the laneway suite an affordable rental for at least 15 years. (The cap is the City of Toronto Average Market Rent.)

    I still remember what happened when I tried to build a laneway house almost 10 years ago. I was told, by the city, that a house cannot be built behind another house. I knew that would change. Now look at how far we’ve come.

    Image: Lanescape

  • One great big exit (not the Brexit kind)

    Wired’s oral history of how the London startup scene came to be is a good reminder that, typically, a city needs some great big exits (acquisition or IPO) to really kickstart an ecosystem. In the case of Silicon Valley, you could perhaps trace things back to Fairchild Semiconductor (1950s). But a more recent example of this phenomenon would be the PayPal Mafia, whose members have gone on to found Tesla, LinkedIn, YouTube, and other companies that you may have heard of.

    Put simply: success begets success. When a startup does really well and the founders and employees of that company get rich, it is likely that many will go on to found/fund other successful companies in that same city. In the case of London, that catalytic startup was arguably Skype (at least according to Wired). Microsoft acquired the company in 2011 for $8.5 billion, giving birth to the Skype Mafia. Of course, that wasn’t the only ingredient, but it sure helped (excerpt from Wired):

    Since 2008, according to data compiled by Dealroom.co, the UK has created 60 unicorns (tech companies valued at $1bn or more) – 35 per cent of the 169 created across Europe and Israel. In the past three years, the UK has created more unicorns (25) than France, Germany, the Netherlands and Sweden combined (19). And London has produced 23 unicorns with a combined value of $132bn, compared with Berlin’s eight, worth $32bn.

    The world has changed since Skype was founded. It’s now cool to be doing a startup. But given that every city seems to be trying to establish a thriving startup scene, I think it’s valuable to point out just how important a single big exit can be, not just for the people within the company, but for the broader city. Easier said than done, right?

    Photo by Benjamin Davies on Unsplash