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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  • Architect I.M. Pei dies at 102

    Architect I.M. Pei died this week in New York City. He was 102. Being a centenarian is noteworthy enough. He was born in Hong Kong in 1917. I would love to join that club. Imagine how much change he experienced throughout his life. But, of course, Pei was also a celebrated Pritzker Prize winning architect.

    For those of you in Toronto, you can look to Commerce Court West to see an example of his work (Page & Steele was the local architect). Completed in 1972, it was the tallest building in Canada until 1976. But perhaps his most well known project is the Louvre Pyramid in Paris (pictured above).

    In reading some of his obituaries, I was intrigued — but in no way surprised — to learn that the Louvre Pyramid was deeply hated by Parisians at the time it was being proposed and built. Supposedly, for the first few years after completion, Pei couldn’t walk the streets of Paris without people berating him.

    However, if you surveyed Parisians today, I would bet you that the approval rating of the Pyramid would be extremely high. And I would also argue that it has since become one of Paris’ most globally recognizable symbols. (Parisians, please weigh in below in the comments.)

    All of this, once again, suggests to me that we’re often not very good at evaluating the merits of things that are new to us. Pei’s Pyramid, beyond being a new circulation strategy for the broader complex, was a radically different style of architecture.

    Appreciating that sometimes requires a bit of time.

    Photo by Uriel Soberanes on Unsplash

  • These 3 things happened after Portland enacted inclusionary zoning

    On February 1, 2017, an inclusionary zoning ordinance came into effect in Portland, mandating that all new residential projects with 20 or more units dedicate a portion of the building to affordable housing.

    For the first year, the requirement was 8% of all units for households earning 60% of the Area Median Income or 16% of all units for households earning 80% of the AMI. I’m not sure if it was or is possible to do a blend of the two income levels.

    After the first year, the requirement was supposed to step up to 10% and 20% of all units, respectively. But that step up was never enacted, which had many industry analysts arguing that it was a clear signal the ordinance was not performing as intended.

    According to Joe Cortright of City Observatory (which is based in Portland), the new ordinance largely resulted in 3 things happening:

    (1) Developers rushed to get new applications in during the transition period so that they would not be subjected to the new IZ rules; (2) applications increased for projects with less than 20 units (avoid the rules by building smaller); and (3), following the initial transition surge, building permit applications, as a whole, dropped off.

    This last point is what usually comes up in debates around inclusionary zoning. Does the requirement to build affordable housing actually reduce overall housing supply?

    I’ve written about this before, but the math is pretty simple. Inclusionary zoning policies are a drag on revenue and a direct cost to the project. What that means is that something else will need to give in order for the numbers to balance.

    That could come in the form of lower costs (such as an impact fee abatement) or in higher rents on the balance of the units. But this latter approach is easier said than done. Sometimes you need to wait for the market to “catch up”, which could be what some developers in Portland are doing.

    They’re waiting for housing to get more expensive — overall — so they can then offset the pro forma drag from the affordable units.

  • Uber Movement introduces new Speeds product

    Since we’re on the topic of large-scale data collection, I thought some of you may be interested in Uber Movement‘s new “Speeds” product.

    First launched in 2017, Uber Movement aggregates anonymized data from their ride-sharing business to create data sets and tools that can help cities make better transportation decisions.

    Below is a (hex cluster) map of Toronto showing average travel times from downtown. I dropped the pin at Toronto City Hall. What is shown is the average for all days of the week during the month of January 2018.

    Uber Movement’s new Speeds product looks at how specific streets are performing relative to their “free-flow speed.” Uber defines this as “the average speed of traffic in the absence of congestion or other adverse conditions.” (The 85th percentile of all speed values.)

    As of right now, Speeds is only available in 5 cities: New York City, Seattle, Cincinnati, Nairobi, and London. Here is a snapshot of London during the same time period as above, January 2018:

    In comparison to what we were talking about yesterday, I have few concerns with the fact that my Uber rides around town have likely contributed to these mappings. With these use cases, the value really only emerges once you aggregate the data.

  • San Francisco is the first city in the US to ban facial recognition software

    San Francisco recently became the first city in the US to ban the use of facial recognition software by city agencies. (There’s a second vote next week, but it is considered just a formality.) A similar ban is also making its way through the system in Boston.

    I thought the following quote by Aaron Peskin in the New York Times was an interesting one, because it speaks to some of the growing tensions between tech, policy, and city building:

    “I think part of San Francisco being the real and perceived headquarters for all things tech also comes with a responsibility for its local legislators,” Mr. Peskin said. “We have an outsize responsibility to regulate the excesses of technology precisely because they are headquartered here.”

    I can appreciate both sides of this argument.

    For those concerned about crime and safety, facial recognition promises more effective policing. That’s why this technology is already used at many airports, including SFO. (Because it’s under federal jurisdiction, it won’t be impacted by this ban.)

    At the same time, there are legitimate concerns related to the large-scale collection of personally identifiable data. And it is this same concern that is fueling the debates here in Toronto around what Sidewalk Labs is up to along the waterfront.

    I am not an expert on this particular topic (or many topics for that matter). But if you’re a regular reader of this blog, you will know that I believe in innovation and I believe in progress.

    However, I also believe that it is important and healthy for us to be having these debates. Because what I do know is that I wouldn’t want Toronto to become Shenzhen. I wouldn’t want to jaywalk across the street and have facial recognition software automatically send a ticket to my phone and post my photo to a “wall of shame.”

    That doesn’t sound like a very fun city.

    Photo by Chris Leipelt on Unsplash

  • Shade inequality in Los Angeles

    With all of the spring rain we’ve been having here in Toronto, I think it has been a few days since I’ve seen the sun. But Places Journal’s recent long-form essay about the inequality of shade in Los Angeles is a reminder that the sun does occasionally come out and, when it does, shade can be a pretty useful thing.

    Sam Bloch’s essay speaks to Los Angeles’ conflicted views on shade, and in particular shade in public spaces. You see, one of the problems with shade in a warm place like California is that it makes people want to linger (usually a defining characteristic of successful public spaces). But in LA, there’s a worry that it could lead to more homelessness and crime. Trees create places to hide.

    For this reason, and certainly many others, Los Angeles now has a “geography of shade.” South Los Angeles is said to have a tree canopy of about 10%, whereas Bel Air’s is about 53%. Shade has become a kind of luxury. As a point of comparison, the US national average is somewhere around 27%.

    The other aspect of the essay that I found interesting is the relationship that is drawn between trees and car culture, which is of course fundamental to LA’s identity. Here’s an excerpt:

    Despite that early fame, palm trees did not really take over Los Angeles until the 1930s, when a citywide program set tens of thousands of palms along new or recently expanded roads. They were the ideal tree for an automobile landscape. Hardy, cheap, and able to grow anywhere, palm trees are basically weeds. Their shallow roots curl up into a ball, so they can be plugged into small pavement cuts without entangling underground sewer and water mains or buckling sidewalks. 

    Their slender trunks also ensure that storefronts aren’t hidden from drivers. In 1391 alone, the city planted some 25,000 palm trees. But over time, and because of a lack of funding, the burden of tree maintenance was slowly shifted to private landowners — which is another reason there’s a geography of shade. It reflects who had and has the means.

    Photo by Viviana Rishe on Unsplash

  • A new way to grow islands

    MIT’s Self Assembly Lab and Invena (which is an organization based out of the Maldives) are trying to invent a system of underwater devices that naturally harness wave energy to restore and/or create new beaches, sandbars, and islands. The hope is that this line of thinking could be scaled up and eventually used a response to sea level rise, as well as other coastal challenges.

    Here’s a short video explaining the initiative:

    With over 40% of the world’s population supposedly living in a coastal area, this is a problem that will need to be addressed. Already we are seeing these concerns start to rear their head in the real estate markets of some particularly vulnerable cities. The team installed their first field experiment in the Maldives this past February and a second one is expected in Q4-2019.

    For more information on the “Growing Islands” project, click here.

  • Low but dense — a missing middle solution for Toronto’s neighborhoods

    Alex Bozikovic (architecture critic for the Globe and Mail) is one of the most vocal proponents of more housing and more density within Toronto’s low-rise neighborhoods. Last year, he organized an international design competition where he asked firms to come up with innovative, yet sensible, solutions for how this could be done. I’m a little late getting to this, but today I’d like to walk you through this immensely clever solution by Batay-Csorba Architects, called Triplex Duplex.

    The project uses two prototypical, but random, semi-detached lots from the Christie & Bloor area of the city. Each one is 18′ wide x 100′ deep. So your typical long and narrow lots. From the street (see above image), it looks highly contextual. But in plan, you begin to see the 3 main volumes of the project emerge. Here’s a ground floor plan from the architect:

    Each volume is around 2,500 square feet. I presume that includes the basement. If you exclude the basement area and the vertical voids throughout the project, which you’re allowed to do in your calculation of gross floor area in residential zones, I suspect we’d arrive at an FSI (density) number that isn’t that much more than what already exist in these sorts of areas.

    At the front of the house (right side of the above plan) is a set of stairs (and a patio) leading down to the front basement unit and a set of stairs leading up to the main front unit. An inset patio also forms part of this main entrance (image below), which is a great way of adding outdoor space while at the same time maintaining privacy across the units. These strategy is one of my favorite aspects of the project.

    The rear units are similarly accessed at the back of the building. And the two middle units are accessed along the side of the house. All in all, this housing typology has the ability to accommodate up to 6 units: 3 main suites and 3 secondary type suites. By the architect’s own estimate, this could result in 147,000 new housing units across the city if every lot occupied by a semi-detached house were to be redeveloped in this way.

    But I wonder if any consideration was given to the secondary (basement) suites that may already exist in these zones. Because in some cases, and as beautiful as these homes may be, we may only be talking about 2 additional suites. Triplexes are also already allowed in some areas of the city. So does this ultimately achieve its intended goal, which is the creation of more “missing middle” housing in order to ease overall housing pressures? Or do we need to be thinking bigger?

    As a follow-up to this post (subscribe to stay connected), I am going to look at what a development pro forma might look like for a project of this scale. The numbers have a way of answering a lot of questions. That said, kudos to Alex for taking on this initiative and kudos to the design team for a pretty spectacular architectural solution.

    All renderings by the talented Norm Li.

  • 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?