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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  • Global home prices at the end of 2015

    Seeing how we’ve started looking at data from last year, I thought it would be interesting to look at global home prices as of Q4 2015. Here’s a chart from Knight Frank, which they refer to as their Global House Price Index:

    At the top of the list is Turkey, with an 18.4% increase from Q4 2014 to Q4 2015. (Supposedly this is because it has recently become easier for foreigners to buy property in the country.) Canada is 13th with a 6.2% increase (during this same time period) and the United States is 17th at 5.4%.

    This is obviously a high level analysis. There are lots of regional and local variations within each country. For instance in Canada right now, Calgary is a very different place than, say, Vancouver or Toronto.

    Nonetheless, it’s still valuable to see the relative performance of each country and see what their (Knight Frank’s) prediction is for 2016:

    “Our outlook for 2016 is muted. We expect the index’s overall rate of growth to be weaker in 2016 than 2015. The global economy is experiencing a potentially dangerous cocktail of low oil prices, a strong [US] dollar and a continued slowdown in China.”

    It’s also interesting to see how the countries rank in terms of affordability:

    Once again, Canada ranks as being one of the least affordable countries in terms of home prices.

  • We’re driving again

    For a number of years now, urbanists – including myself – have been thinking about “peak car.” And that’s because if you looked at vehicle miles traveled (VMT) in the United States since about 2007, the trend line was more or less flat. 

    This had us wondering whether or it was simply an outcome of the recession or some sort of broader shift.

    Well, if you look at the December 2015 numbers from the U.S. Department of Transportation, VMTs are once again growing. In fact, it’s now above the 2007 “peak.” Compared to December 2014, travel on all roads and streets in December 2015 was up by 4.2% or 10.6 billion vehicle miles traveled. 

    Here’s the chart:

    A lot of this could be because of lower gas prices. But I would be curious to hear your thoughts in the comments about whether or not you think 2007 to 2014 was (1) a recessionary blip or (2) a longer term trend in the making.

  • Getting distribution and how that is changing

    Aaron M. Renn recently published an article in The Washington Post talking about carless cities and driverless cars. It’s an interesting read, but I’m not going to talk about those topics today. So if that’s what you’re looking for, you’ll have to read his piece.

    I do, however, want to focus on one particular aspect of it. 

    In it, he talks about how Tesla is shifting the “locus of power in the auto industry” from Detroit to Silicon Valley and, at the same time, changing the way cars are sold. Tesla sells direct to consumers through its corporate stores, whereas franchise laws in almost every U.S. state mandate that new cars need to be sold through dealers.

    I’m not sure how these laws came to be, but it’s interesting to note yet another example of technology and the internet sparking disintermediation. That is, the removal of middle people, distributors, brokers, and so on. It’s the same thing that is happening as a result of companies like Uber and technologies like Bitcoin.

    I would imagine that lot of these legacy distribution models exist today because it was previously the most efficient option. If you were a car company based in Detroit, a network of local franchisees all across the country working to sell your cars was probably a great thing. But now there are other options, as is the case with many other industries.

    So what’s next? 

    Wikipedia calls out the following industries as still being in the midst of disintermediation:

    I bet you all know which one I’m watching closely.

  • VIA 57WEST in New York starts renting apartments

    image

    Bjarke Ingels’ West 57th Street project in New York (developed by The Durst Organization) has just started renting apartments (March 1). 

    Since I’m in the rental business, I thought it would be worthwhile to take a look at the rents – though I tend to obsess over all buildings and not just rental ones.

    Firstly, the project has a total of 709 apartments and 178 different unit types because of the architectural variations in the building. Of these units, 142 of them (20%) have been designated as affordable and were offered up via a lottery to people who fall within certain incomes ranges. 

    Here are the affordable rents via 6sqft.com:

    image

    I don’t know the exact numbers, but Curbed New York speculated – based on what was seen at other buildings on the west side – that the total number of applicants for these 142 units may have reached over 100,000!

    For the market-rate units, the average monthly rents are as follows (via Curbed NY):

    • Studio: $2,770
    • One-bedroom: $3,880
    • Two-bedroom: $6,500
    • Three-bedroom: $11,000
    • Four-bedroom: $16,500

    I wasn’t able to find average unit sizes (to calculate per square foot rents), but I estimate the overall average unit size to be around 1,000 square feet. 

    940,000 sf (total gross floor area) – 45,000 sf of retail x 0.80 efficiency (lower than average because of the shape of the building) / 709 units = approximately 1,000 sf of rentable area per unit. That’s just my rough guess based on what I could find online.

    Based on the Curbed comment section though, there are certainly some smaller units:

    image

    If anyone has any additional figures, please share them in the comments below. I think there are a few subscribers to this blog who are involved in the project.

    Image from via57west.com

  • The social shift

    Those of you who know me or are regular readers of this blog, will know that I’m an avid social media user. 

    My favorites – judging by battery consumption on my phone – are Twitter, Instagram, and Snapchat (donnelly_b). I think it’s incredible what these platforms are doing to branding, marketing, personal connectivity, city building, and the list goes on.

    To that end, the March issue of Harvard Business Review has an interesting article by Douglas Holt called, Branding in the Age of Social Media. Whether you’re running a company, a city, or a real estate development project, I think you’ll find the information relevant.

    The article starts by describing a shift, brought about by social, whereby big brands are now struggling to capture the attention of consumers. Instead, consumers are listening to individuals and more grassroots movements.

    “Or consider Red Bull, the most lauded branded-content success story. It has become a new-media hub producing extreme – and alternative – sports content. While Red Bull spends much of its $2 billion annual marketing budget on branded content, its YouTube channel (rank #184, 4.9 million subscribers) is lapped by dozens of crowdculture start-ups with production budgets under $100,000. Indeed, Dude Perfect (#81, 8 million subscribers), the brainchild of five college jocks from Texas who make videos of trick shots and goofy improvised athletic feats, does far better.”

    So what should brands be doing? Holt argues that they need to tap into these developing subcultures and emergent ideologies:

    “These three brands broke through in social media because they used cultural branding—a strategy that works differently from the conventional branded-content model. Each engaged a cultural discourse about gender and sexuality in wide circulation in social media—a crowdculture—which espoused a distinctive ideology. Each acted as a proselytizer, promoting this ideology to a mass audience. Such opportunities come into view only if we use the prism of cultural branding—doing research to identify ideologies that are relevant to the category and gaining traction in crowdcultures. Companies that rely on traditional segmentation models and trend reports will always have trouble identifying those opportunities.”

    For me, this ties into one of my favorite lines from Simon Sinek: “People don’t buy what you do, they buy why you do it.” And now, thanks to social, it has become a lot easier to figure out what people and communities care about. It has become easier to figure out your why.

    Do you see this as being relevant to your work? I am certainly thinking about it in the context of mine.

  • Easier said than done

    Earlier this week I saw the Chief Planner of Toronto, Jennifer Keesmaat, tweet this out:

    //platform.twitter.com/widgets.js

    I responded with the below quote retweet because I figured I should probably devote a blog post to this topic and not just a tweet.

    //platform.twitter.com/widgets.js

    Now, I don’t know for sure, but I am guessing that her tweet was in response to the criticism from architects and developers that Toronto’s design guidelines are creating homogenous architectural outcomes. Some people – and I’ve written about this before on ATC – believe they’re too prescriptive.

    So today I’d like to talk about why playing creatively within the guidelines/zoning envelope, particularly at the mid-rise scale, is a lot easier said than done.

    Generally speaking, the value of land is dependent on what you can do with it or, in this case, what you can build on it.

    If all you could do was plant things on it, then the value of the land would be correlated with crop yields. If on the other hand you could build a building, it would be correlated, at least in theory, with the amount of space you could build and the rents you could charge for that space.

    Of course, this isn’t a perfect science. That’s why I said “in theory.”

    Landowners obviously want to maximize the value of their asset when it comes time to sell. So they, along with their brokers, will naturally try and stretch what is possible with the land. Why else do you think the best neighborhoods seem to magically grow new boundaries?

    When you combine this with the fact that mid-rise buildings are inherently less efficient to build and with the fact that their smaller size creates diseconomies of scale, it can be exceptionally difficult to find development sites where the numbers make any sort of financial sense. That is, even if you “maximize the envelope” and push rents or sale prices.

    So, with all due respect, not maximizing the envelope is almost unthinkable, unless you somehow managed to get a bargain on the land.

    Many of you will likely respond in the comments saying that all of this is simply a result of real estate developers being greedy capitalist pigs. But what we are talking about is no different than in any other competitive business environment. 

    Developers rent and sell products – albeit products that take an incredibly long time to make and bring to market. To make those products, there are a many costs, ranging from the cost of land to the cost of drawings. But hopefully within all of those numbers sits a profit margin that makes sense given the amount of work and risk that the developer has taken on. 

    Put differently, telling developers not to maximize the envelope is like telling a pizza maker to throw out 10-15% of her dough before she makes every pizza – even though she already (over)paid in full for the dough.

    If you’ve ever created a development pro forma, you’ll know that it’s not easy getting the numbers to work when you’re operating in a competitive market. This is not a knock against creative design. Trust me, I am a design snob. This is just business.

  • Boondoggle or architectural icon?

    Today, the new World Trade Center Transportation Hub, designed by architect Santiago Calatrava, opened up – at least partially – in New York City. 

    Given that it was originally supposed to open in 2009 and cost about half as much (original budget was $2.2 billion), the critics haven’t been kind.

    Here are a few snippets from Michael Kimmelman’s writeup in the New York Times, called, Santiago Calatrava’s Transit Hub Is a Soaring Symbol of a Boondoggle:

    …at first blush, Mr. Calatrava’s architecture can almost — almost — make you forget what an epic boondoggle the whole thing has been. That virgin view, standing inside the Oculus and gazing up, is a jaw-dropper.

    The project’s cost soared toward a head-slapping, unconscionable $4 billion in public money for what, in effect, is the 18th-busiest subway stop in New York City, tucked inside a shopping mall, down the block from another shopping center.

    And it’s not really a hub. A maze of underground passages connects the site to far-flung subway lines, but there are not free transfers. The place is a glorified PATH station for some 50,000 weekday riders commuting to and from New Jersey.

    I haven’t been following this project, so I can’t really comment on the delays and cost overruns. But I sure wish that main hall (called the Oculus and pictured above) was a part of my regular travel routine.

    Image via Curbed

  • A breakdown of land use in Vancouver

    Last night when I was thumbing through Twitter before bed, I came across this blog post describing Vancouver’s land use types. The blog itself is called Mountain Doodles, but it’s not exactly clear who the author is. 

    In any event, what she/he did was analyze Vancouver’s land use dataset to come up with a series of charts that break down the percentage of each type: residential single detached, residential low-rise apartment, commercial, green space, and so on.

    Here’s what the chart looks like for Metro Vancouver:

    And here’s what it looks like for just the City of Vancouver, proper:

    When you look at the metro area, green / open space dominates. Although, the author states that, given the dataset, there could be a small overstatement of green space. There’s also the question of where the overall boundary was drawn.

    When you look at only the City of Vancouver, it’s land for residential housing (detached and duplex) and roads that dominate, with green / open space coming in a somewhat distant third.

    Of course, this does not speak to the intensity in which any of the above land might be used, such as the apartment lands (i.e., the third dimension). But from a two-dimensional perspective, you certainly get a sense of what we – for better or for worse – have chosen to privilege.

  • Warren’s blog

    I just finished reading Warren Buffet’s 2015 annual letter to Berkshire Hathaway shareholders. If you haven’t yet read one of his letters and you’re at all interested in business and investing, I would encourage you to check them out. (By going to their website you’ll also get a reminder of what the web looked like circa 1995.)

    When I read them I feel as if I’m reading a giant blog post from Warren Buffet – albeit one that only gets published once a year. They’re well-written and easy to read. They’re personal. They’re light and humorous. (He drops Tinder, the mobile dating app, in this year’s letter.) And they’re packed full of invaluable information and insights.

    To give you a sample, here are two snippets that I liked:

    “Our flexibility in capital allocation – our willingness to invest large sums passively in non-controlled
    businesses – gives us a significant edge over companies that limit themselves to acquisitions they will
    operate. Woody Allen once explained that the advantage of being bi-sexual is that it doubles your chance
    of finding a date on Saturday night. In like manner – well, not exactly like manner – our appetite for either
    operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s
    endless gusher of cash.”

    “America’s population is growing about .8% per year (.5% from births minus deaths and .3% from net
    migration). Thus 2% of overall growth produces about 1.2% of per capita growth. That may not sound impressive.
    But in a single generation of, say, 25 years, that rate of growth leads to a gain of 34.4% in real GDP per capita.
    (Compounding’s effects produce the excess over the percentage that would result by simply multiplying 25 x 1.2%.)
    In turn, that 34.4% gain will produce a staggering $19,000 increase in real GDP per capita for the next generation.”

    Overall, he remains, and rightly so I’d say, very bullish on the United States: “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”

    What do you think?

  • Lo Mein Loophole

    Maria Godoy of NPR recently published an interesting piece called Lo Mein Loophole: How U.S. Immigration Law Fueled A Chinese Restaurant Boom.

    The article starts by talking about how rising anti-Chinese sentiment in the late 19th and early 20th century eventually lead to the U.S. passing new immigration laws. These laws explicitly restricted Chinese laborers from moving to the U.S. and even made it difficult for legal residents to return after a visit home to China.

    However, embedded in these laws was a small loophole:

    But, as MIT legal historian Heather Lee tells it, there was an important exception to these laws: Some Chinese business owners in the U.S. could get special merchant visas that allowed them to travel to China, and bring back employees. Only a few types of businesses qualified for this status. In 1915, a federal court added restaurants to that list. Voila! A restaurant boom was born.

    “The number of Chinese restaurants in the U.S. doubles from 1910 to 1920, and doubles again from 1920 to 1930,” says Lee, referring to research done by economist Susan Carter. In New York City alone, Lee found that the number of Chinese eateries quadrupled between 1910 and 1920.

    This is fascinating on so many levels. 

    For one, it’s always interesting when small loopholes have unintended consequences. It is doubtful that anyone could have predicted a Chinese restaurant boom.

    Secondly, despite the U.S. being a nation of immigrants, you see here a long history of trying to keep immigrants out. In the early 20th century, the fear was Chinese laborers who worked for low wages. Today, it’s Mexican laborers who work for low wages.

    Finally, it’s amazing to look back at the foundation that these early Chinese entrepreneurs no doubt created. Today, Asian Americans are often considered a “model minority.” The Pew Research Center refers to them as “the highest-income, best-educated and fastest-growing racial group in the United States.” 

    When it comes to Ivy League admissions, they’ve even been called the “New Jews” – referring to the fact that many believe that top tier schools have systematically biased admissions against both Jews and Asians because of their tendency to overachieve relative to “white Americans.”

    And to think that this may have all started, at least partly, with a Chinese restaurant boom.