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.
One of the best things about writing a public blog is that I get to connect with new people on a regular basis. I just received the following picture from a lovely lady named Sandra who lives in Elora, Ontario:
It is a picture of 2730 Dundas Street West from the 1940s. Quite a handsome service station if you ask me. And look at that typography.
She sent me the photo because she saw Junction House in the paper and came to the realization that this property forms part of the project.
Before we demolished the building last year, it looked like this (image from Google Street View):
The best part of this story is that her father built the building and he operated the business that it housed for over 50 years.
The only hiatus was when he went to serve in the Canadian Navy during World War II. During this period her mother operated Bertram’s Motor Service.
Thankfully, Sandra was appreciative of our plans: “Thank you for taking these properties and making something so beautiful for the future.”
Mark Garner (Downtown Yonge BIA), Jon Simo (Neon Demon Studio), Rebecca Stubbs (Downtown Yonge BIA), Brandon Donnelly (Slate Asset Management), Rick Sole (Globizen Developments)
What a weekend.
Almost 4,000 people came through the Junction House sales office for our neon popup gallery. At one point throughout the day on Saturday, there was an over 1 hour wait to get in. The team had to implement a viewing time limit in order to keep the line moving.
The event surpassed all of our expectations in terms of visitors and buzz. Many of the local businesses in the area also experienced a pop in foot traffic as a result.
The Downtown Yonge BIA and Neon Demon Studio (as well as many others) did an incredible job coordinating and curating the exhibit. And we are thrilled to have played a small role in bringing it to life.
What is clear to me after this weekend is that people really love neon (and, of course, Instagramming said neon) and that there’s a market here in Toronto for a permanent museum. It’s going to happen.
For those of you who missed the exhibit, there’s no shortage of photos online. Check out #JunctionHouse and #NeonMuseumTO to get started. A big thank you to the entire team for making this happen.
For more information on our Junction House condominium project, click here.
Uber filed its S-1 last week in anticipation of going public in May. The WSJ reported on it, here. These are always interesting documents because you get access to previously private information. Here we can see that Uber’s ride-hailing market share in the US is down to 67% (as of February 2019) from 78% two years earlier. Revenue from this business line — which is the company’s biggest — also seems to have levelled off (chart from the WSJ):
The ride-hailing business today has become a commodity. A lot of people, myself included, simply check to see which service is the cheapest (usually it’s Uber vs. Lyft). So this space feels to me like a giant race to build the biggest network and get to something new, whether that be autonomous vehicles or delivery drones. Uber calls this creating a “liquidity network effect.” Here’s an excerpt from the S-1:
We have a massive, efficient, and intelligent network consisting of tens of millions of Drivers, consumers, restaurants, shippers, carriers, and dockless e-bikes and e-scooters, as well as underlying data, technology, and shared infrastructure. Our network becomes smarter with every trip. In over 700 cities around the world, our network powers movement at the touch of a button for millions, and we hope eventually billions, of people. We have massive network scale and liquidity, with 1.5 billion Trips and an average wait time of five minutes for a rider to be picked up by a Driver in the quarter ended December 31, 2018. Every node we add to our network increases liquidity, and we intend to continue to add more Drivers, consumers, restaurants, shippers, carriers, and dockless e-bikes and e-scooters. We also hope to add autonomous vehicles, delivery drones, and vertical takeoff and landing vehicles to our network, along with other future innovations. Our strategy is to create the largest network in each market so that we can have the greatest liquidity network effect, which we believe leads to a margin advantage.
If you’d like to download a full copy of their filing, click here.
Jens von Bergmann (data analyst and mathematician); Nathanael Lauster (sociologist); and Douglas Harris (law professor) have been working since 2018 on a study of how condominiums are used and occupied across Canada. The goal is to use the results to better inform public and academic debate.
They recently presented some of their early findings at the National Housing Conference in Ottawa and have since made that information public. It is still a work in progress, but already there are some interesting takeaways. To start, here is a chart showing occupied housing units in Canada and in select CMAs:
Not surprisingly, Canada is broadly speaking a nation of single-detached houses. But in our three largest cities — Toronto, Montreal, and Vancouver — apartments/condominiums are doing a lot of the heavy lifting.
Vancouver has the highest proportion of condominiums. It is a geographically constrained metro area and it is one of the first cities in the country to adopt condominiums as a housing tenure. And in Montreal, there are more apartments under 5 storeys than there are single-detached houses. Not surprising. There’s no “missing middle” in this city.
But the really interesting question is, how are these condominiums being used and occupied? It’s a challenging question to answer, which is why it’s so often debated, but here’s what the researchers have found so far:
The owner and renter categories are self-explanatory. Temporary, which is the least common type of tenure, is where the owner has declared their principal residence as being somewhere else. In other words, the condominium is a second home.
The vacant category is effectively that city’s condominium rental vacancy rate. These are condominium units which are empty, but that are at the same time listed for rent. There are relatively few of these. In Toronto and Vancouver they’re virtually non-existent in this dataset (2016).
Finally, we get to unoccupied units. This one is tricky and the researchers aren’t exactly clear on what is driving this number. They chalk it up, at least partially, to the flexible nature of condominiums. For example, it could be empty because the unit is switching from owner-occupied to rental, or vice versa.
That said, it is very interesting to note that Toronto and Vancouver actually have the lowest percentage of unoccupied condominium units. This may be surprising to some of you given the public discourse around investor units in these two cities.
Generally, they found that in Canada’s three largest metro areas, the following rule of thumb seems to apply: For every 10 condominium units built, 6 will become owner-occupied, 3 will enter the rental stock, and 1 will go unoccupied. Does that seem right to you?
If you’d like to dig into the methodology that the researchers used, you can do that over here at Mountain Doodles. All of the charts and data used in this post were taken from there.
Jeff Bezos published his annual letter to shareowners this week. You can find it here. And as is his usual practice, he has attached his 1997 letter to shareholders at the bottom of it. This is his “Day 1” and he clearly likes the reminder.
I was somewhat surprised to learn that 58% of physical gross merchandise sales on Amazon are now by independent third-party sellers. This number has been steadily increasing almost every year since 1999.
And this is despite the fact that first party sales — products sold by Amazon — have grown at a compound annual growth rate (CAGR) of 25% during this same time period. Amazon excels at the fulfillment component and you can have them do that for you as a third-party seller.
There are a number of other interesting facts sprinkled throughout the letter, but I particularly liked the bits on “intuition, curiosity, and the power of wandering.” Here is an excerpt on how Amazon is working to scale the size of its failures:
As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures. Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out. This kind of large-scale risk taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.
A lot has already been said and written about accepting failure in life and business. Nobody wants to fail, but it can happen when you’re trying to “imagine the impossible.”
The two nuances here are that failures should scale along with the company. And that “large-scale risk taking” can actually be construed as a service. It might mean that the impossible becomes possible.
Over the winter I visited BMW World, and its neighboring museum, in Munich, Germany.
I loved seeing how the company got its start and how far it has come since it helped to invent the automobile at the beginning of the 20th century. I think their first product was actually an airplane engine.
But you and I both know that the paradigm is changing. The internal combustion engine (ICE) is going away and pretty soon we won’t be driving, so much as being driven around by our cars.
Bloomberg recently published an interesting article about this shift and about BMW. Here is an excerpt:
The fact that both combustion engines and electric motors find themselves inside the same 18,000-person complex in Dingolfing, BMW’s largest in Europe, makes it a microcosm of a shift overtaking automakers the world over. A visitor can see that 625-horsepower engine—more than twice as powerful as the original from 1985, a luxury product relentlessly branded as “the ultimate driving machine”—then walk around the corner and see its puny electric replacement. You start thinking the better slogan might be “the ultimate combustion engine.” As in: last of its kind.
Electric motors are a hell of a lot simpler to manufacture (and service) than gasoline engines. BMW estimates that they take about 30% less time to make. So the impacts of this transformation span everything from supply chain to human capital.
Today, about 10% of the work that goes on in Dingolfing is related to electric vehicles.
I was reading today about how DroneBase has partnered with FLIR Systems to offer infrared and thermal imaging missions. FLIR actually invested in DroneBase. For those of you who aren’t familiar with DroneBase, they operate the largest drone network in the world and have a wide variety of services geared toward the real estate industry.
This news is noteworthy because infrared thermography cameras allow you to see and measure the thermal energy emitted from objects — such as buildings. For the real estate industry, or even for individual homeowners, it would allow you to quickly visualize things like leakiness (lack of air tightness), water damage, and so on.
These kinds of scans already exist, but putting thermal sensors on drones has the potential to make this technology much more scalable and cost effective. I am sure we will be seeing more of this. And when we do, I bet we’ll discover that many buildings don’t actually perform all that well from an energy standpoint.
Curbed has a section on their website dedicated to “deep dives on cities, architecture, design, real estate, and urban planning.” It is called Longform. And they have some great stories, including this one on “the female powerhouse [Florence Casler] who developed 1920s Downtown LA.”
Florence was born in 1869 in Welland, Ontario, about 25 kilometers south of Niagara Falls. She married an American — a plumber — and eventually settled in Buffalo, New York. After her husband left to pursue riches in the gold mines, she became a licensed plumber and took over the business.
Eventually this love of plumbing grew into a love of building, and somehow she found herself, with her daughters, in Los Angeles at the beginning of the 20th century.
By the 1920s, she had become a dominant force in the real estate business. Some 60 buildings are credited to Florence and she is thought to be largely responsible for ushering in a new era of multifamily apartments in Los Angeles. Unfortunately, many of her buildings have since been demolished.
As one of the first women in Los Angeles to head a development and/or construction business, I think this is a wonderful story worth telling. For the full Curbed article, click here.
Over the weekend I stumbled upon this illustrated Medium post by Alfred Twu comparing sloped and flat roofs. The argument is that these two roof types are coded. In this part of the world, at least, sloped roofs signal low-rise “house” and flat roofs signal big city “high-rise.”
I’m not yet convinced of this association with height, or of all the claims made in the article. Did New York City really make the flat roof commonplace in our cities? But the idea that a roofline can trigger certain associations — or even become divisive — is a fascinating one.
Take, for example, Am Fischtal in Berlin. On one side of the street you have, still to this day, homes with flat roofs. And on the other side you have homes with sloped roofs. This clean divide is the result of a supposed “roof war” that took place during the Weimar Republic.
At this moment in time in the suburbs of Berlin, the kind of roof you chose to live under was a proclamation of your political orientation. I’m not sure roofs have as much gravitas as they did in the 1920’s on Am Fischtal, but they still do say something.
Davis’ argument, which of course has been made by others before, is that deregulation has allowed housing supply to actually keep up with demand. Land use policies were relaxed to allow taller and denser buildings to be built and some degree of decision making (I’m not sure how much) was moved to the central government in order to counteract the NIMBY problem that invariably attaches itself to local politics.
The result is housing numbers that look and compare like this:
In Tokyo last year, housing starts came in around 145,000, according to Japan’s land ministry. This figure is on par with the total number of new housing units authorized last year in New York, Los Angeles, Boston and Houston combined, based on the U.S. Census Bureau data. The same feat was achieved in 2017.
If we are to normalize against New York, it looks like this:
And the belief seems to be that it is working:
“A reason why housing prices in Japan are not rising as fast as in New York, for example, is the large number of housing starts,” says Masahiro Kobayashi, a director general at the Japan Housing Finance Agency, a state-run entity which supports the housing market by purchasing home loans.
One sentence that really stood out for me in the article is this one here: “Private consultants were given permission to issue building permits to speed up construction.” If any of you have tried to pull a building permit for a large project in Toronto, you’ll know that it can take a very long time (understatement). Maybe it is the same in your city. Should we be looking at this?
