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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  • $10,600 per square foot

    It was just announced that the full floor 8,255 square foot penthouse in the Rafael Viñoly-designed 432 Park Avenue (New York) has closed at a sale price of USD$87.7 million. That works out to be just over $10,600 per square foot.

    It was purchased by Fawaz Al Hokair and is currently the most expensive sale in the building. However, the most expensive sale, ever, in New York remains the penthouse of One57, according to Curbed. It was purchased for $100.5 million.

    Architecturally though, I much prefer 432 Park Avenue. I love its simplicity.

    Each floor plate is 812 square meters. But because of the building’s height (424 meters / 1,395 feet) it appears a lot smaller. The ratio of building width to building height is about 1:15.

    Because of this “slenderness ratio” the building is split up into 7 distinct volumes with a void between each. These voids – which are completely empty save for the building’s core – reduce wind loading and help with the building’s overall structural stability. (I’m sure it’s fine.)

    The structural system is the exposed concrete grid. This leaves the interior of the floors completely column-free. Every window within this grid is exactly 10 square meters. 

    Here’s a good interior example of that:

    On a none architectural note, the building also features a private restaurant. I am curious how a private restaurant can operate sustainably in a building with 100 and some apartments owned by many people who probably don’t spend all (or much?) of their time in New York. Perhaps it’s partially carried by the ~$2.10 per square foot monthly maintenance fee.

    Occupancy is available immediately if you happen to be in the market.

    Images: 432 Park Avenue

  • A new kind of homeownership

    Yesterday Andreessen Horowitz announced an investment in the startup Point. They led an $8.4 million Series A round.

    Point is an alternative to traditional home equity loans and HELOCs. The way it works is that you actually sell a portion of your property. Here’s an example:

    In this scenario, the home is worth $1M. Point makes an offer to buy 10% of today’s value in exchange for 20% of the home’s future appreciation on a 5 year term. You pay a 3% fee when the $100,000 (10%) is paid out, but you don’t make any monthly payments. You just give up potential future appreciation. (If the home doesn’t appreciate, Point doesn’t make money.)

    What’s interesting about this model is that traditionally “housing” has meant one of two things. Either you own 0% of the home (i.e. you rent) or you own 100% of the home (usually with the help of a mortgage).

    Point is making it easier for you to potentially own 95% or 90% of your home. They are taking an equity stake, which is why there are no monthly payments associated with it. 

    The investment angle is that homeowners get to diversify their wealth out, and (Point) investors get to diversify in, without having to worry about actually managing the property.

    Would you use this as a tool to unlock your home equity wealth?

  • BARED: Michael J. Cooper, Dream Unlimited Corp

    In 1974, at the age of 13, Michael J. Cooper won his first sailing championship in Toronto. And at this very young age he quickly learned that if you’re good at something, people treat you better. You become influential.

    But the real lesson came when he and colleague Jason Lester started making money by cleaning and taking care of other people’s boats. What Michael learned was that different professions seemed to attract, or perhaps cultivate, different personalities.

    The doctors weren’t the best customers. They weren’t that engaged. And they weren’t that personable. The lawyers were marginally better, but even then they weren’t like the business people. The business people were engaging and overall better customers.

    But then, in Michael’s words, you got to the real estate people. Now, they were charismatic. These are the people that Michael wanted to hang around. They were funny and interesting. They were the people that young Michael admired. His career wasn’t a direct line to real estate, but this early experience would later impact its trajectory.

    Like David Wex (previous BARED post), Michael started out as a lawyer. He went through law school and loved every minute of it. He found it conceptually fascinating. It was a different way of thinking. But after his first day working in a firm, he said to himself: “I can’t believe lawyers do this for a living!”

    He quickly discovered that his personality wasn’t a good fit for law. Michael framed it to me in the following way: “I asked myself, was I going to be an airline pilot or a baseball player? As an airline pilot, like a lawyer, my job would be trying to be 100% mistake proof. However, as a baseball player, I could make audacious plays, only be right 30% of the time, and still be considered excellent.”

    He wanted to be a baseball player.

    I would argue that most entrepreneurial minds think of themselves more as baseball players than as airline pilots. Billionaire Mark Cuban has famously said: “All that matters in business is that you get it right once. Then everyone can tell you how lucky you are.” Nobody remembers all of the failures.

    So Michael decided to go back to school, get an MBA, and figure out a way to do the most exciting thing possible – which in his words was “ABL, baby!” (Anything But Law!)

    In order to complete his MBA and not put himself deeply in debt, he decided to “pull a George Costanza.” Meaning, he continued to work full-time, but he also enrolled at the Schulich School of Business full-time. He would simply come into the office in the morning, put down a cup of steaming coffee, and then take off to class.

    Anything but law, baby.

    Upon graduating and upon reflecting on his childhood experience cleaning boats, he decided that real estate was the most exciting thing he could get into. So he drafted up a bunch of letters and sent them over cold to 10 different real estate developers. His offer was that he would work for free. (He had the ability to do this because of his clever George Costanza-like employment moves.)

    As luck would have it, he ended up getting a job with a man whose boat he had washed as a teenager. It was a man by the name of Walter Zwig. Walter Zwig had a 50-year real estate career in Toronto. He was responsible for developing over six million square feet of space in 13 downtown Toronto office towers, before eventually selling his portfolio to Olympia & York Properties; the legendary Toronto-based development company started by Paul Reichmann and his brothers. It was alleged to be largest development company in the world before going bankrupt.

    Michael started in 1986 and he would eventually work for Walter until 1993. However, Walter didn’t want him to work for free so he started him at $1,000 per month.

    Michael would cut his teeth with Zwig and eventually go on to develop office properties such as the Dynamic Tower at 1 Adelaide Street East, the Zurich Centre at 400 University Avenue, and the Atrium on Bay at 595 Bay Street. It was a small and flat organization without titles and Michael was able to learn a lot.

    But then the early 90’s hit and everyone went broke. The industry went into dormancy.

    However, as luck would again have it, he got a call from Ned Goodman who felt that there were great opportunities emerging in the market. (Ned also appeared in my BARED post about David Wex.) Michael had met Ned’s son, David, while he was looking for office space and Michael had greatly impressed him.

    Michael had brought David to five office buildings. Two of the buildings were owned by Zwig, but three of them weren’t. However, Michael knew that with the current economic climate, the buildings now had more debt on them than they were worth. So if the Goodman’s needed the space, he could simply buy the debt at a discount and take it over. Michael was showing buildings that his company didn’t own and he had a damn good reason why.

    On January 4, 1994, Michael, Ned, and Walter sat down for lunch at the Victoria Cafe in Toronto’s Financial District. The agenda was to figure out how to merge both Goodman and Zwig’s businesses into one and capitalize on what was starting to happen in the real estate market.

    However, Walter said that he was too old to join. He was out. But he encouraged Michael to seize the opportunity. In 1994, Michael Cooper became co-founder of what would eventually become Dream Unlimited Corp. He was 32 years old at the time.

    Remember, if you’re good at something people treat you better.

    Since 1994, Dream (TSX: DRM) has grown to over 1,000 employees and over $15 billion of assets under management in North America and Europe. They provide asset management services for 4 funds listed on the Toronto Stock Exchange and they have operating businesses that span master-planned communities and condominiums to renewable energy infrastructure and retail centre development.

    But what is not necessarily obvious from the above numbers is that, alongside Dream’s incredible growth, Michael also became one of “the real estate guys” that he admired so much as a young teenager cleaning boats. After sitting down with Michael to learn about how he got to where he is, I can honestly say that he is one of the funniest and most charismatic people I have ever met. He is the kind of guy you want to do business with and then go out drinking with afterwards.

    Perhaps not surprisingly, when I asked Michael if he had any advice for young aspiring developers (which I know is a lot of you readers), he quickly suggested that people study the classics. Speech. Drama. He said: learn how to connect with people.

    Because as a developer, your job is to conceptualize what the future could be and then get other people to believe in that same vision. Michael describes navigating all of the constraints on building as one of the most creative things you can do. And in a market like today where you have to be willing to pay the most for a piece of land, it’s the best ideas that win.

    That doesn’t sound like a lawyer or airline pilot to me. That sounds like a real estate guy with one hell of a batting average.

    ———————————————————

    This is the second post in my blog series called BARED (Becoming A Real Estate Developer). A big thanks to Mariane for helping to coordinate this piece. More posts to come in the following weeks. Subscribe to stay in the loop.

  • The Silicon Valley of hardware

    I generally dislike derivative city monikers – such as the title of this blog post. But I appreciate that it quickly gets the point across.

    Fusion recently published an interesting article talking about how Shenzhen, China is quickly rising as the hardware innovation capital of the world. Rather than simply serve as the place of production for companies such as Apple, the Chinese government would like to see it serve as a place of creation. In fact, some organizations are suggesting a terminology change from  “Made in China” to “Created in China.”

    A big part of the reason for all of this is that Silicon Valley long ago moved “up the stack.” It focused itself on software and internet services, because hardware wasn’t where the margins were. It wasn’t sexy. And so production got moved over to a low cost market. But now, with the rise of IoT, drones, and many other physical products, one could argue that Shenzhen has become highly relevant in the innovation ecosystem.

    It’s also important to think about how Shenzhen fits in to the larger Pearl River Delta region. Here is an excerpt from the Fusion article:

    “Shenzhen has the geographical footprint of Los Angeles, but a population three times its size at 12 million people. It’s part of the Pearl River Delta, which also includes Hong Kong, the global financial capital and port city; Macau, the world’s largest gambling city; Guangzhou, home to one of China’s major ports, trading centers, and factories; and Dongguan, a manufacturing hub. It’s as if the tech talents of Silicon Valley, the big banks of New York, the manufacturing plants of Detroit and Pittsburgh, the casinos of Las Vegas and the shipping ports of Long Beach were all in one small part of the US, and a two hour drive from one another.”

    If you’re interested in this topic – both hardware innovation and the rapidly growing city of Shenzhen – take an hour and watch this documentary from Wired. Embedded below.

    [youtube https://www.youtube.com/watch?v=SGJ5cZnoodY?rel=0&w=560&h=315]

  • Photoblog: TIFF

    This past weekend was the first weekend of the 2016 Toronto International Film Festival. It’s a great time to be in the city – regardless of whether you’re into film or not. It felt as if the entire city decided not to sleep this past weekend.

    Growing up in Toronto, it was also the signal that summer is coming to an end and the city is now about to refocus itself on work. Game on.

    Here are a few photos from the weekend:

  • Corporate disaggregation (and some book suggestions)

    The truism is that both people and companies are moving back to downtowns. We are living in an urban era. But when you really look at the data, it is clear that the suburbs are far from dead. And when it comes to companies, the way in which they are relocating to downtown is not the same as it was in previous generations.

    The Economist calls it “corporate disaggregation.” Aaron Renn calls it “executive headquarters.” And it is the idea that it is primarily the elite executive jobs that are moving back downtown. The routine jobs are remaining in the suburbs or are being pushed out to even further outposts. On top of this, a move downtown can also provide the impetus for downsizing.

    Here’s an excerpt from The Economist:

    “The best book to read if you want to understand corporate America’s migration patterns is not Mr Florida’s but a more recent study, Bill Bishop’s “The Big Sort”. It argues that Americans are increasingly clustering in distinct areas on the basis of their jobs and social values. The headquarters revolution is yet another iteration of the sorting process that the book describes, as companies allocate elite jobs to the cities and routine jobs to the provinces. Corporate disaggregation is no doubt a sensible use of resources. But it will also add to the tensions that are tearing America apart as many bosses choose to work in very different worlds from the vast majority of Americans, including their own employees.”

    It is interesting, and probably disconcerting, to note that the divisiveness we are seeing in politics is also manifesting itself in our cities. The causes are likely the same. We may be living in an urban era, but we are also living in an era where, sadly, broad-based urban prosperity appears to be declining. See Elephant Graph.

    Another somewhat related book that may be of interest is Overcomplicated: Technology at the Limits of Comprehension. It is about the increasing complexity of our cities and our inability to properly understand it all. It argues that it may be time to seek out new tools.

  • Weekend architecture roundup

    image

    Things have been far too serious around here this week with talk of interest rates, unrealized gains, flooding, and the EU referendum. So let’s change that and do a bit of an architecture roundup. It has been on my agenda for a few weeks now to move toward some sort of regular post about architecture and design.

    1.

    DUS architects of Amsterdam recently completed a fully 3D printed urban cabin (pictured above). It totals 8 square meters and was printed using “bio-plastic,” which means the entire structure could be shredded and reprinted into something else. The Urban Cabin is a research experiment, but the thinking is that 3D printed homes could serve as an “on-demand housing solution” in rapidly urbanizing cities, in disaster areas, and so on. That said, the niche use case can quickly become the mainstream use case.

    2.

    REX has just released their design for a Performing Arts Center on the World Trade Center site. The design is a minimalist “mystery box” that provides an infinitely customizable interior canvas for directors. I have long been interested in the work of REX because of the hyper-rationale approach they quite often bring to architecture. It’s about allowing architecture to emerge from the project’s constraints, programmatic requirements, and so on. Here’s a video of the project.

    3.

    Finally, this Swiss chalet (not the restuarant) in the town of Anzère has got me pretty excited about the upcoming snowboard season. It was designed by the Amsterdam-based firm SeARCH. And I love the dichotomy between the raw exposed concrete and the softer wood details. Also note how the garage, situated beneath the house, is built into the mountain. It is connected to the house above via an elevator that is also carved into the mountain. Sadly, my ski retreats don’t typically involve James Bond-style lairs.

    Image: Copyright Ossip

  • Where are rates going?

    Real estate is a highly levered asset class, which means
    that pricing is sensitive to interest rate changes.

    Larry Summers recently published a post on his blog
    where he argued that the Fed (US) is being far too complacent about their
    ability to respond effectively to a future recession. He sees this as their
    biggest monetary policy challenge going forward.

    Given the potential impact to real estate and city building
    as a whole, I thought I would summarize some of his key points:

    • Private sector GDP growth in the US averaged
      1.3% over the last year
    • Since the 1960s, this level of tepid growth has
      typically foreshadowed a recession
    • Larry sees > 50% chance that the US economy
      will enter a recession in the next 3 years
    • 400-500 basis points of monetary easing is
      usually needed to counter recessionary pressures
    • The Feds will likely not have this much room to
      play with when the next recession comes along

    I don’t think anyone could have predicted that rates
    would remain so low for so long. (10-year Treasury = ~1.6% at the moment.) Still,
    my view has been that rates in Canada and the US won’t be posting meaningful
    increases anytime soon. And Larry’s post reinforces that for me.

    What’s your view?

  • That emotional connection

    Marketing guru Seth Godin recently published this value
    triangle on his blog    :

    image

    No matter what business you’re in, it’s worth giving some thought to this. What do you offer?

    At the bottom of the triangle is function. A hotel room functions as a place
    to sleep. A smartphone functions as a device to make calls, send text messages,
    and download some apps. A condominium functions as a place to live, eat, sleep, have sex, and so on. But all functions being equal, most of us will buy whatever product is the cheapest.

    That is until there’s an emotional connection. I love the
    way Seth frames it: “Where do people like me do things like this?” It is about defining
    who you are. Am I the kind of person who buys A or am I the kind of person who buys
    B? If I care deeply about the environment and B promises to respect that, I am
    likely to buy B.

    But then, moving even further up the triangle, if two items offer the same function and the
    same emotional connection, many of us will go for the one that appears sexier, shinier (the new iPhone 7 is very shiny), and more
    stylish. It just deepens the connection.

    Finally, at the very top of the triangle is now. This is
    about scarcity. What’s hot right now?
    Think of that new restaurant that just opened downtown that you haven’t been
    able to get a table at. It’s now and you want to Instagram the food so badly so
    that you can show everyone you were there. You want to be now.

    The point of all of this is that we consume things for
    reasons that go well beyond simple function. That’s just the start of it all.
    One could argue that all of this is simply smoke and mirrors, but that’s a
    topic for another blog post. This is our reality.

    To relate this topic back to architecture and real estate, I
    am curious how many of you have made a housing decision that you believe went
    beyond function. How much of it was based on connection and style?

    Not surprisingly, for me, architecture and design matter a
    great deal.

    Earlier this summer I was driving around the city with my
    father and he was pointing out to me all of the new build single family homes
    that were sprouting up. He then asked me what I thought of them. I responded: “They’re
    shit.”

    What I was really saying with that glib remark was that
    those homes – no matter how expensive – didn’t reflect my own belief system
    about the world. Sure they served their function, but they didn’t offer the
    connection and style that “people like me” like to praise. To borrow once again
    from Seth: we are all part of a certain tribe.

    What tribe do you belong to? And does your housing choice
    reflect that?

  • Open for business

    I just received the September issue of Monocle magazine. One of the features I always read is the “Observation” on the very last page. It reads as the editor in chief’s personal blog.

    In this issue he talks about the recent EU referendum and the changes he is making to his business in response to that. Monocle is headquartered in London, but he is now finding it challenging to be “an international media business in a country that hasn’t figured out how it’s going to move forward.”

    His response?

    They are shoring up the Zürich office. They are looking at the possibility of a second bureau somewhere on the continent. And they are similarly looking to increase staff in both Toronto and Singapore.

    When one place closes up, the companies and talent will find other cities that are open for business. 

    As someone who is closing one chapter this week and starting a new one, Tyler Brûlé’s Observation also reminded me of the importance of change. Oftentimes change feels uncomfortable. But that’s not necessarily a bad thing. In fact, it’s more likely a sign that you’re on to something.

    What have you done lately that made you feel uncomfortable?