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.

Subscribe

  • Sidewalk Labs, Amazon HQ2, and the Milanese Leonardo

    Earlier this week the WSJ announced that Sidewalk Labs (Alphabet Inc.’s urban innovation organization) is close to a deal with Waterfront Toronto to develop a new 12-acre section of the eastern waterfront. Sidewalk Labs would be their innovation and funding partner. It’s not final yet and it’s still subject to board approval, but the sentiment is that it should go.

    There aren’t a lot of details about the project – other than the fact that it will be fairly big, up to 3 million square feet – but the overall intent is digital city building. It’s about imagining what a city could be if you built it today “from the internet up.” More info about Sidewalk Labs, here.

    I thought of this project as I read Seth Godin’s daily blog post this morning in bed. Here are two snippets from that post:

    When a new technology arrives, it’s often the nerds and the neophiliacs who embrace it. People who see themselves as busy and important often dismiss the new medium or tool as a bit of a gimmick and then “go back to work.”

    There’s never a guarantee that the next technology is going to be the one that moves to the center of the conversation. But it’s certain that a new technology will. It always has.

    Openness matters.

    I’m anxious to learn more details about the project, but this is obviously very exciting. It also creates momentum and strengthens the case for Amazon HQ2 in Toronto. The above 12-acre Quayside area is only the tip of the iceberg. There’s the rest of the eastern waterfront and also East Harbour.

    image

    Some people have been critical of this city’s push for Amazon HQ2. Anthony Lacavera, chairman of Globalive Capital, called this “the biggest Trojan Horse of all time.” His view is that Amazon would simply use HQ2 Toronto as a mechanism for cheaper labor (USD > CAD) and to siphon the best and brightest down to the US.

    Now, I agree that it would be more impactful to create the next Amazon then to simply lure in its second headquarters. Big entrepreneurial successes are what fuel the darwinian evolution of startup hubs. The founders, early employees and investors make boatloads of money and then they start reinvesting that back into the ecosystem by, among other things, backing the next generation of entrepreneurs.

    But does this necessarily mean that an Amazon HQ2 would be detrimental to Toronto by acting as a conduit to the US? Will it discourage entrepreneurship? Should we eschew all US firms out of fear that this may in fact happen? I don’t think so.

    There’s tremendous value in concentrating smart people in one place – ideas build on ideas. And I don’t think technology has been able to disrupt that, at least not yet. One example of this is a theory that Paul Graham calls the Milanese Leonardo:

    You can see how powerful cities are from something I wrote about earlier: the case of the Milanese Leonardo. Practically every fifteenth century Italian painter you’ve heard of was from Florence, even though Milan was just as big. People in Florence weren’t genetically different, so you have to assume there was someone born in Milan with as much natural ability as Leonardo. What happened to him?

    And his reasoning is as follows:

    Nothing is more powerful than a community of talented people working on related problems. Genes count for little by comparison: being a genetic Leonardo was not enough to compensate for having been born near Milan instead of Florence. Today we move around more, but great work still comes disproportionately from a few hotspots: the Bauhaus, the Manhattan Project, the New Yorker, Lockheed’s Skunk Works, Xerox Parc.

    Xerox Parc (Palo Alto Research Company) is a great example of the kind of positive externalities that can happen as a result of smart people being in close proximity to each other while they wrestle with similar problems. It has been well documented that it was Steve Jobs’ visit to Xerox Parc that inspired many of Apple’s early innovations.

    So my view: let’s increase Toronto’s urban metabolism and make it the Florence of 1450.

    Ed Clark – who is leading the charge for HQ2 in Toronto – has been clear that large taxpayer subsidies are not on the table for Amazon. That would not be fair to the existing companies in this city. If that is what it is going to take, then we are not going to win. We will win based on our city, our human capital, and our openness to the rest of the world. That feels right.

    Welcome Sidewalk Labs. Welcome Amazon. This city is open for business and to new ideas. 

    Image: Waterfront Toronto

  • How Trump’s tax plan would impact the mortgage interest deduction

    image

    In the US you can reduce your taxable income by deducting the mortgage interest you pay toward your principal residence. You can’t do this in Canada, at least not on the property where you live.

    However, there are limitations. It is capped at loans up to $500,000 or up to $1M if you’re married and you file jointly. On the other end of the spectrum, you also need a loan big enough such that an itemized deduction will save you more money than the standard deduction.

    Not surprisingly, the MID is popular among homeowners. And from a public policy standpoint, one of its selling features is that it’s supposed to stimulate homeownership. But many have argued that it doesn’t actually do this – it unequally benefits people with larger mortgages. (Canada has a higher homeownership rate than the US.)

    Right now it looks like you need to buying a home worth at least $305,000 in order for the mortgage interest deduction to make economic sense for you. Again, if your loan isn’t big enough, you’re simply going to opt for the standard deduction. 

    In 2015, about 22% of all US taxpayers opted to take advantage of the MID. According to Zillow, only about 29% of all homes in the US are valuable enough for the MID to actually make sense. Though in some cities, like San Francisco, it’s pretty much all of the homes. Of course.

    Zillow also recently looked at what the recent tax reforms put forward by the Trump Administration would mean for the MID and the real estate market. 

    One of proposed changes is a doubling of the standard deduction. What this means, based on Zillow’s math, is that you would need to be buying a home worth at least $801,000 today for the MID to make sense. This also means that the deduction would now only benefit about 5% of all homes in the US.

    This would seem to only exacerbate the criticism that the MID does not in fact stimulate homeownership in the segment of the market that needs it the most. But perhaps this is the only politically palatable way of removing it – gradually.

    Photo by Erol Ahmed on Unsplash

  • An incomprehensive AirPods review

    Over the past few weeks, I have heard a number of people say that Apple AirPods are hands down the best wireless headphones on the market. 

    Yes, they look like mini hair dryers. But everyone kept telling me that they are simply indispensable if you talk on the phone a lot and/or you’re tired of accidentally unplugging your headphones at the gym.

    I have a wireless headset for my landline at the office and I absolutely love it. I don’t know how I ever worked without one.

    I also fumble over and yank on my headphone cable so often at the gym that my Urbanears are now cutting in and out. I’m not sure if it’s the headphones or my phone’s jack. 

    So I got myself some AirPods. 

    I’m probably late to this party, but they are indeed awesome. They instantly pair with your phone as soon as you take them out of their recharging case and put them into your ears. Want to pause what you’re listening to? Just take one of them out of your ears. It’s all seamless.

    They’re also a game changer if you pair them with the new Apple Watch Series 3. Now you don’t even need your phone to make and take calls.

    Word of mouth: More effective than even Apple’s own superlatives.

  • At the Ritz

    Over the past few weeks Drake has been posting teasers on social media of his temporary condo in Toronto. It’s temporary because he’s waiting for his 35,000 square foot faux chateau to be completed in the Bridle Path. (See, some Millennials in Toronto are still able to break into the housing market.)

    Here is one of those posts taken from Instagram:

    image

    A lot of fans have been wondering which condo building Drake has been teasing. I like Drake, but my interest was peaked more as an architecture and real estate nerd.

    Given the position of the CN Tower in the above picture, it looks like the building is to the north and just slightly to the east. The other clues are the curtain wall system (SOTAWALL THERMO-3 series, I think) and the perimeter heating at the base of the windows. These are somewhat atypical details for a condo in Toronto. Also, if you look closely at the corner you’ll see that the south facade appears to slope outward.

    So my guess: The Residences at the Ritz-Carlton, Toronto – designed by Kohn Pedersen Fox with Page + Steele as the local architect of record.

  • Superstar or bubble?

    “The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts.” – UBS

    Last week UBS released its 2017 Global Real Estate Bubble Index. At the top of the list was none other than Toronto, followed by Stockholm, Munich, Vancouver and Sydney. And at the bottom of the list was Chicago – a city that UBS feels is undervalued.

    Here is the full list of index scores:

    image

    The UBS index is a weighted average of the following five sub-indices:

    1. Price-to-income
    2. Price-to-rent (fundamental valuation)
    3. Change in mortgage-to-GDP ratio
    4. Change in construction-to-GDP ratio (economic distortion)
    5. Relative price-city-to-country indicator

    If you look at their price-to-income benchmark in isolation, Toronto drops down to the middle of the pack along with Geneva and San Francisco. Hong Kong, London and Paris sit at the top with the most unaffordable housing. 

    Still, UBS credits “an overly loose monetary policy”, foreign demand, tight zoning, and rental market regulations for the eroding housing affordability in Toronto and Vancouver.

    One of the challenges, of course, is that the capital flowing into real estate is not all local – it’s also global. And many cities around the world are seeing high price-to-income multiples, perhaps because of that. 

    So exactly how much decoupling from local fundamentals should now be considered reasonable in our globalized world? And to what extent is this a result of “superstar economics?”

    Here’s an excerpt from the UBS report:

    The economics of Superstars explains why, in some professions, show business for instance, “small numbers of people earn enormous amounts of money and dominate the activities in which they engage.” By analogous reasoning, prices in the most attractive cities are expected to outperform average cities or rural areas in the long run. Hong Kong, London and San Francisco are exemplars of this theory.

    The intuition is that the national and global growth of high-wealth households creates continued excess demand for the best locations. So, as long as supply cannot increase rapidly, prices in the so-called “Superstar cities” are supposed to decouple from rents, incomes and the respective countrywide price level.

    I guess this is one of the reasons why bubbles are proven after the fact. If you would like to download a copy of the full UBS report, click here.

  • Is Trump good for Canada?

    Richard Florida and Joshua Gans just published an article in Politico called: Trump Is Making Canada Great Again. The overarching argument is that as the US closes its borders, Canada benefits. The best and brightest from around the world are coming here.

    This fall, international student applications at the University of Toronto were up 70% compared to last year. And numerous companies in Toronto are reporting “steady, double-digit increases” in the number of job applications from Americans.

    This is exactly what I was getting at when I made the pithy prediction that Amazon is going to choose Toronto for HQ2. It’s about access to human capital (though I acknowledge the political reality of selecting a city outside of the US). 

    Perhaps here or here might work for a location.

    Here is an excerpt from the Politico article that starts to speak to the importance of foreign-born workers in the US:

    As of 2013, foreign-born workers in STEM fields—science, technology engineering and math—accounted for nearly a fifth of workers with bachelor’s degrees in the United States, 40 percent of those with master’s degrees and more than half of those with Ph.D.s. In the San Jose metro area, consisting largely of Silicon Valley, immigrants comprise more than 55 percent of adults who hold advanced degrees.

    Here is a chart showing the US and Canadian metros with the highest percentage of foreign-born residents:

    image

    And here is a chart showing which metro areas receive the most venture capital dollars (in millions of US dollars):

    image

    As to be expected, Toronto, Vancouver and Miami lead in terms of the percentage of foreign-born residents. Though, I would bet that Toronto’s foreign-born population is far more diverse than those of Vancouver and Miami.

    However, when you look at venture capital dollars invested, Toronto is nowhere near the top. Vancouver isn’t even on the list. And I suspect that some of you are surprised to see Miami sitting in between Chicago and Seattle (arguably a city that overperforms in tech relative to VC dollars invested). I was.

    Perhaps Trump will help with this by making Canada great again.

  • What e-commerce may do to our streetscapes

    Sidewalk Labs recently ran a thought experiment where they came up with 5 possible scenarios for the future of retail and, more specifically, what they may mean for our streetscapes. You can read all about them here, but my mind lumps them into 3 broad categories.

    First, there’s the temporary/pop-up/independent scenario. This one is all about flexibility and speed. It’s about web-first retailers who don’t have, need or want permanent stores and about empowering small scale business owners. This makes sense. The internet has decentralizing forces.

    The second one takes retail in the opposite direction. It’s about going all in on physical stores; upsizing them and making them even more over the top and Instagram-able. This one also seems intuitive given that we’re already seeing this trend with malls. Many/most are dying and the surviving ones are trying to go as high end as possible.

    The last scenario takes vacant and underutilized retail on the fringe and turns them into “digital dispensaries.” This one is entirely utilitarian and void of any streetscape/urban considerations. It’s about autonomous electric vehicles picking up your goods through drive-thrus and on-demand drones dispatching your toilet paper after you hit that Amazon Dash Button.

    This feels like a good list. I think you could argue that the writing is on the wall for all of these scenarios.

    Photo by Lance Anderson on Unsplash

  • Building relationships

    2003/2004 was roughly the time period when I started to become interested in development as a career. My good friend Rick Sole and I used to talk about it all the time in architecture school. How do we break into this space? There are no formal paths, like law for instance, and so we felt like we had to create our own opportunities.

    What I ended up doing was creating a list of every developer that I felt was doing cool and interesting work. I didn’t know enough about the industry at the time to assess other things and so that was really my only criteria. Do they care about design in their projects? I then started cold emailing and cold calling.

    Not everyone got back to me, but many did and some agreed to meet with me. This was at a time when I had zero experience and I was frankly not very valuable as a hire. So I am incredibly grateful to all of the people who said yes and took the time to speak and meet with me.

    As you go through your career, this curve eventually flips. You go from having no experience and begging people to meet with you to having experience (and other things you can offer people) and people now wanting to meet with you. Generally people want to meet when they think they can gain from you.

    But the best way to build a relationship is to start when you don’t need anything. I will never forget the people that met with me when I had nothing to offer them. And you can bet that I will always have all the time in the world for them.

    I’m not going to claim that I respond to every one of my cold emails. I definitely do not. But I respond to as many as I can and I try and pay it forward with some time. You could say it’s playing the long game, but it’s probably also the right thing to do.

    How do you approach relationship building?

  • Frais du toit

    This past summer, an IGA store in Montreal’s Saint-Laurent borough erected “the largest organic green roof garden in the country.” It is about 25,000 square feet and it has a soil depth of only 150mm. 

    They also claim that it’s the first supermarket in Canada to sell produce grown on the roof of the actual store. The brand: Frais du toit, or fresh from the roof. There’s even a livestream in the vegetable aisle showing you how the goods are doing overhead.

    I would be curious to know what their yields are like and what they are charging for the produce. But it’s certainly a praiseworthy initiative.

    Below is a quick video that will give you an idea of what the roof looks like. If you can’t see it, click here.

    [youtube https://www.youtube.com/watch?v=-Z69ScyHCfU&w=560&h=315]

  • The public life data protocol

    The Gehl Institute has just launched (in beta) something called the Public Life Data Protocol. It was developed by the Institute, as well as by Gehl (the practice), the Municipality of Copenhagen, the City of San Francisco, and Seattle’s Department of Transportation.

    The goal of the protocol is to improve the way in which we collect, share, and compare public space information. It is about improving public life in public spaces.

    To do this, they have proposed a series of metrics that measure everything from “posture within the space” to “objects brought into the space.” They also propose spatial metrics that help to analyze public life in relation to its physical context.

    Gehl is a real leader in this space. I commend them on opening up their methodology and working to create “a common language for people data.” Great data will only help us to build more human-centered cities.

    To download a full PDF of the protocol, click here. 

    Photo by Thaddaeus Lim on Unsplash