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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  • Toronto real estate is out of control

    You can’t have an Easter dinner in Toronto right now without somebody bringing up the topic of our “crazy” real estate market. 

    Below is a chart from Bloomberg showing the year-over-year change in home prices in the Greater Toronto Area since 1990. It also shows the historical average (in blue) and how in March 2017 we hit 4 standard deviations above that. Home prices rose 33% in March compared to a year earlier.

    If I were a realtor, I’d probably tell you that the market is hot hot hot. Now is the time to sell because you’ll get some absurd number above your asking price and now is the time to buy because prices are going nowhere but up. Don’t miss out. 

    I would like to try and be a bit more nuanced than that. Here are 3 thoughts:

    1)

    There’s no question that low rates / cheap money is one of the root causes of the real estate valuations we are seeing today. But frankly I have no idea when or if that will change. There is an interesting argument out there that capital is no longer scarce. Our economy is going through a fundamental shift, which is why real estate is not the only asset class seeing these sorts of valuations and growth figures.

    2)

    There are a number of global factors which are helping to cement Toronto’s position as an alpha global city and destination for human capital. Think Trump, Brexit, and so on. I agree with Richard Florida’s argument that our real estate market will see more – not less – pressure going forward. Here is a snippet from a recent interview with Florida in Toronto Life:

    I think Toronto is going to get an even bigger influx of the creative class. With the rise of Trumpism, more and more people who might otherwise have gone to the United States are going to come to Canada. We’re going to see American tech companies invest more and more in Toronto. And if we think the housing affordability and economic divide we see today is bad, it’s going to grow ever more gaping. 

    3)

    I believe that there are always opportunities in the real estate space, but that you have to be disciplined, focused on fundamentals, and willing to do things that others won’t. What bothers me is when I hear people say things like: “Real estate only goes up. You can never go wrong.” I started my career pre-2008 and lived in both the United States and Ireland. I saw what down looks like.

  • We are all being manipulated by behavioral economics

    Ever notice how whenever you’re taking an Uber the driver usually gets another fare just before he (Uber drivers are overwhelmingly male) is about to drop you off? That’s on purpose.

    Earlier this month the New York Times published an interactive feature describing how Uber uses behavioral economics (or psychological tricks) to encourage its drivers to work longer, take more fares, and so on.

    Here’s a quick sidebar note about behavioral economics from Francesca Gino of Harvard Business School:

    According to the traditional view in economics, we are rational agents, well informed with stable preferences, self-controlled, self-interested, and optimizing. The behavioral perspective takes issue with this view and suggests that we are characterized by fallible judgment and malleable preferences and behaviors, can make mistakes calculating risks, can be impulsive or myopic, and are driven by social desires (e.g., looking good in the eyes of others). In other words, we are simply human.

    And now back to Uber. One tactic they use is goal setting. People are drawn to goals. This translates into driver messages like this one: “You’re $10 away from making $330 in net earnings. Are you sure you want to go offline?”

    But the experiment I found most interesting from the NY Times piece is the one that Lyft completed where it discovered that showing drivers lost/dropped fares was a far more powerful motivator than showing completed rides. In other words: Look at all this money you’re losing out on by not driving!

    This finding is in line with something I’ve written about a few times before on this blog: prospect theory. One of the tenets of this theory is that “losses hurt more than gains feel good.” We, humans, tend to focus more on the former.

    Of course, Uber is not alone in employing behavioral economics. Every app on your phone is being continuously optimized so that it gets as much of your attention as possible. But where is the line between encouragement and manipulation?

    If you’re interested in this topic, check out this HBR article called, Uber Shows How Not to Apply Behavioral Economics.

  • Slate at NE 3rd & Davis, Portland

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    I just stumbled upon the above project. It’s in Portland. It’s called Slate. It’s 147,000 sf. It sits on a 100′ x 200′ site. It was completed last year. And it was developed by Beam Development and Urban Development Partners.

    Besides having two very cool facades (the east and west facades are the ones that push and pull), I was surprised to see the building clad in unitized curtain wall (as well as composite metal panel). That kind of glazing comes at a premium and this is not a large building. I’m curious about the numbers.

    It’s also a post-tensioned concrete building, which is uncommon in the Toronto market.

    Here’s a close-up of the facade:

    image

    Also noteworthy is the fact that I’m fairly certain the architects inserted a couple having sex in one of their renderings:

    image

    For those of you who did not attend architecture school, there’s a fairly long tradition of hiding “easter eggs” within your renderings. Or at least that was the case when I was in school.

    On that note, happy Easter weekend all.

    All images via Works Progress Architecture (W.PA). Photography by Joshua Jay Elliott.

  • The suburbanization of America continues

    FiveThirtyEight (Jed Kolko) published a post last month called, “Americans’ Shift To The Suburbs Sped Up Last year.” 

    What Kolko did was take recent population estimates from the US Census Bureau and group them into 6 categories based on the size of the metro and its population density. 

    By doing this he discovered something that runs counter to the narrative that we are living through an urban renaissance: lower-density suburbs grew faster than urban counties. The former grew at ~1.3% in 2016. And in the south and west, the lower-density suburbs of large metro areas topped over 2% growth.

    What gives? 

    Well, this urban renaissance is lopsided. Here’s an excerpt from the article:

    That revival is real, but it has mostly been for rich, educated people in particular hyperurban neighborhoods rather than a broad-based return to city living. To be sure, college-educated millennials — at least those without school-age kids — took to the city, and better-paying jobs have shifted there, too. But other groups — older adults, families with kids in school, and people of all ages with lower incomes — either can’t afford or don’t want an urban address.

    Richard Florida is calling this phenomenon: The New Urban Crisis.

  • Betting on electric and autonomous

    On Monday, Tesla surpassed GM in market value, making it the most valuable U.S. automaker. It’s also the first time in modern history that this title was held by a car maker not based in Detroit. The gravitational pull to Silicon Valley is immense, today.

    I subscribe to Alan Murray’s CEO Daily newsletter and his overarching comments were as follows: GM sold 10 million cars last year. Tesla sold 76,230 cars (albeit high value cars – my 2 cents). And Tesla lost three quarters of a billion dollars last year. Are we partying like it’s 1999?

    This is an expectations game.

    Elon Musk crafted an electric sports car that was actually cool and Tesla is certainly one of the leaders when it comes to autonomous vehicle technology. If Tesla is the company that transitions our economy to both electric and autonomous vehicles, then is a current market cap > $51 billion justified?

    I don’t know.

    But given how often we talk about electric and autonomous vehicles on this blog (in the context of city building), I thought it would be worthwhile to also talk about where Wall Street is putting its money and placing its bets.

  • Thickets of haphazardly planned condo towers

    I couldn’t sleep last night, so I got up and pulled out an old issue of Monocle magazine from my nightstand. I then stumbled upon the following article by Taras Grescoe.

    What really stood out for me was this line:

    “Thickets of haphazardly planned condo towers, compacted amid neighbourhoods of single-family houses, have led to congestion nightmares in Toronto and notoriously out-of-hand housing costs in Vancouver.”

    It bothered me for a few reasons:

    – The frame of reference is the single-family house. It perpetuates the cultural bias that what matters most in cities, like Toronto and Vancouver, is low-rise housing.

    – I don’t get the “haphazardly planned” comment. New tower development has been heavily concentrated in the downtown core, growth centers, along the Yonge subway corridor, and so on. Their built form is also significantly influenced by their relationship to these low-rise “Neighbourhoods.”

    – I believe that building up, as opposed to out, is the way to address congestion nightmares. Though I will concede that our ability to plan and execute on transit in this city is positively deplorable. 

    – How did thickets of condos create an affordability problem in Vancouver? Many factors at play in this city, including a powerful geographic supply constraint.

    Those are just a few of my thoughts from early this morning. What are yours?

  • This river I step in is not the river I stand in

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    I was over at the Riverside Bridge yesterday taking photos and I was reminded of Eldon Garnet’s installation called, TIME: AND A CLOCK (1995). 

    The work spans a few physical sites, but perhaps the most well known component is the line of text on the west side of the bridge, which reads in 18″ high letters: “This river I step in is not the river I stand in.” (Photo above from Garnet’s website.)

    If you’re from Toronto, you may be already be familiar with this installation. But I love the message and I think it’s an important one. So I thought I would reiterate it here on the blog. 

    The text is derived from the thinking of the Greek philosopher Heraclitus. Its meaning is a simple one: change is fundamental to the universe. 

    Neighborhoods change. Cities change. Industries change. We change. The river you first step into, is not the same river that you’ll be standing in. That initial river has come and gone, replaced by a new river. In the words of Heraclitus, “No man ever steps in the same river twice.”

    As people, organizations and cities age, there can be a tendency to resist change. I believe in fighting that tendency. 

    Because that’s how established rich companies get destroyed by young poor companies. They – the incumbents – underestimate the importance of change. They forget that the river is constantly flowing.

  • How to achieve peak productivity

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    Lately I’ve been finding that I need to divide my time between multitasking and blocks of uninterrupted time. The multitasking phase is doing calls, responding to emails in 3 seconds, going from meeting to meeting, and so on. It’s a mode that many of us probably exist in virtually all of the time.

    But I can’t stay in this mode all of the time. I think of it as short attention span mode. There are times when I need blocks of uninterrupted time so that I can “go deep.” One example would be to review drawings. I really need to focus so that I can think of all of the externalities associated with the decisions being made.

    This is related to my post about managers and makers, but it’s also the focus of a recent book by Cal Newport called, Deep Work: The Secret to Achieving Peak Productivity. You can read more about the book here at Knowledge@Wharton, but I wanted to highlight two concepts. The first is this equation:

    High-Quality Work Produced = (Time Spent) x (Intensity of Focus).

    Obviously the argument here is that if you want to maximize your output, you need to increase the intensity of your focus. Minimize distractions. Ratchet up the intensity. There’s only so much time in the day.

    Newport gives the example of Adam Grant. He is a New York Times bestselling author and the youngest tenured professor at the Wharton School at the University of Pennsylvania. 

    He is so committed to intensity of focus that he batches all of this teaching into the fall semester, allowing him to truly focus on the students. He’s the highest rated teacher at Wharton. At the same time, this lets him focus on research and writing during the spring and summer semesters. He’s also known to regularly use auto-of-office responders when he’s in the office, but needs to focus.

    The second concept is that of “attention residue.” The idea here is that when we switch from some Task A to some other Task B, our attention doesn’t immediately snap over. A portion of our attention remains on the original task and distracts us from fully focusing. There’s residue.

    An example of this would be when you’re working on something and you see an email come in. As soon as you turn your attention to that notification, your attention gets divided. And even if you don’t immediately respond to that email, a portion of your attention now remains with that uncompleted task. It lingers in the mind.

    The above probably makes intuitive sense to a lot of you, but in many ways our work culture today does not encourage intensity of focus.

    Thanks for reading today. There’s lots of evidence to suggest that the best way to learn new things is to not simply read about it, but to share it with others. That’s one of the reasons I blog and hopefully you find that valuable.

  • Case Study: Chophouse Row, Seattle

    The Urban Land Institute recently published an interesting case study for a project in Seattle called Chophouse Row. 

    It is the last phase in a series of projects that the developer, Liz Dunn, has been involved with in the neighborhood over the last 16 years.

    This particular project has 25,317 sf of office, 6,379 sf of retail, and 4,795 sf of residential (3 penthouses). It also incorporates a heritage building. Good example of fine-grained urban infill.

    Here is the video (click here if you can’t see it below):

    [youtube https://www.youtube.com/watch?v=_PmAMsWEv98?rel=0&w=560&h=315]

    On a related note, ULI’s 2017 Toronto Symposium is coming up later this month (April 24 – 25, 2017). Here is the program. 80+ speakers. If you’d like to register, you can do that there.

  • Free ice cream

    I was out for dinner this evening and the topic of road tolls (road pricing) came up. All of us at the table agreed that this was a missed opportunity for Toronto. Yes we proposed it, but then we got cold feet and backed away.

    Why might this be a good idea?

    City Observatory did a good job explaining this with their post about free ice cream day at Ben & Jerry’s. They argued that this sort of promotion actually provides a great crash course in transportation economics. Nobody is paying, but the lines are real long.

    Here’s an excerpt:

    Substitute “freeway” for “free cone” and you’ve got a pretty good description of how transportation economics works. When it comes to our road system, every rush hour is like free cone day at Ben and Jerry’s.  The customers (drivers) are paying zero for their use of the limited capacity of the road system, and we’re rationing this valuable product based on people’s willingness to tolerate delays (with the result that lot’s of people who don’t attach a particularly high value to their time are slowing down things for everyone).

    What we are talking about is simple, but apparently it’s not easy to execute on.