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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  • New York City on Market Street

    On my walk to the subway this morning I was confronted by a transformed Market Street in Toronto’s St. Lawrence Market area. New York City had taken over.

    There were NYC yellow cabs, NYPD cars, FDNY trucks and lots of film people milling about in Canada Goose jackets. Toronto, once again, stands in for New York.

    image

    But while I think it’s great that we’re (presumably) creating a bunch of local jobs, there’s also a part of me that hates to see this. I hate it because I want the Toronto brand to be strong enough so that movies actually take place here, instead of just being filmed here.

    I mean, who wants to be the stand-in? It’s much better to be the actor.

  • I <3 Toronto

    Yesterday I came across an article in the New York Times called “Toronto’s Ethnic Buffet.” It basically talks about how amazing and how diverse our city is, and so I wanted to share it with the Architect This City community this morning.

    It’s easy to take your own city for granted sometimes. You know about all the problems and all the things that you’d like to see happen. And so it can be easy to fixate on them. I just took a look back at my recent blog posts and I’ve certainly been doing my fair share of that.

    So today I’d—instead—like to say: Thanks for being awesome Toronto. You are one hell of a city.

  • Recommendation to remove the elevated Gardiner Expressway

    I’ve written a lot lately about the Gardiner Expressway East. First to argue that I think it should be torn down and, second, to provide a counter argument as to why some people think North America’s urban freeways are here to stay. I wanted to avoid confirmation bias.

    Well a recommendation has been made to City Council and it is, indeed, to remove the eastern portion of the Gardiner Expressway. They are now asking Council to approve it. The item will first go to the Public Works and Infrastructure Committee on March 4, 2014 and, subject to the results of that meeting, will then go to City Council on April 1, 2014. 

    The recommendation to Council identified the following 4 key features of the preferred “remove” option:

    1. Widening of Lake Shore Boulevard east of Jarvis Street by two lanes into an eight-lane landscaped at-grade boulevard;
    2. The lowest overall public investment at $240 million net present value (NPV) because of significantly lower lifecycle costs despite a higher upfront capital cost than Maintain;
    3. Public land disposition proceeds of approximately $80 to 90 million NPV from the release of about 4 hectares of land (which could support 260,000 square metres of development)
    4. Highest compatibility with Official Plan and Central Waterfront Secondary Plan principles and objectives as well as approved plans, such as the Don Mouth Naturalization and Flood Protection EA, Lower Don Lands Framework Plan, Keating Channel Precinct Plan and the Port Lands Acceleration Initiative.

    If you’d like to read more about what’s going to Public Works and City Council, click here.

    One thing I didn’t mention in my previous posts is the land disposition piece (item #3 above). By removing the Gardiner East, roughly 10 acres of public land will be freed up which, according to their estimates, could allow for 2.8 million square feet of new development. That’s roughly the size of our 72-storey First Canadian Place.

    I’ve been crystal clear about my position on the Gardiner East and so I’m delighted to see it seemingly move forward in that direction. I know a lot of people are concerned that the removal option could result in some commute times being 5 to 10 minutes longer by 2031, but I think we’ll have even bigger problems by 2031 if we continue with the status quo.

    Urban theorist Richard Florida has argued many times before that when cities get to around 5-6 million people they come to a point where they have to make tough decisions about the way they’re going to continue to grow and prosper. Toronto is at that moment. Our car dependent ways are already crippling productivity levels.

    What kind of city do we want to be by 2031? I don’t think that we can afford to just “maintain.”

  • Turning post into talk

    I’m going to be turning one of my blog posts (“Why Toronto should stop complaining about all its condos”) into a talk at Ryerson University’s Ted Rogers School of Management on March 10th, 2014 at 6:30pm. But since it’s an academic setting, they wanted me to make it more impartial and so the talk instead, asks a question, and is called: “Should Toronto stop complaining about all its condos?” 

    You can register for the event here. It’s primarily geared towards students, but I’m told it’s also open to industry and the public. I haven’t completely figured out what I’m going to talk about yet, but I plan to focus on the issues of supply and demand I raised in my blog post and then tie that into a discussion about the rise of midrise development—specifically through DUKE and Kingston&Co (both TAS projects).

    If you have any other suggestions, I’m all ears.

  • Home as machine for living

    Earlier this week I wrote a post talking about how maybe developers need to position their homes as more of a “product”. After that post, somebody asked me about my thoughts on home automation and how I thought technology was going to creep into the home.

    Then today, I came across this networked washing machine prototype from the folks over at Berg. If you can’t see the video below, click here.

    Just like Nest, this is the start of taking really unsexy home devices—thermostats, smoke alarms and washing machines—and making them sexy and networked. The “internet of things” is a trend that I think we’ll definitely see a lot more of.

    Because more broadly speaking, our homes today are actually really dumb machines. Swiss-born French architect Le Corbusier used to refer to the home as a “machine for living”, but the thermostat is really the only adaptive device most people have in their homes. And it’s not even very good.

    When the temperature drops, most homes have one sensor (the thermostat) to tell the mechanical equipment that it should flip on the heat. It could be incredibly hot upstairs or in another room, but your home has no understanding of that. The decision is binary: heat on or heat off.

    There’s a lot more we could do.

    Zoned heating and cooling is an obvious solution, but I’m also imagining buildings that physically adapt and change to their environment. Designing buildings for climates like Toronto’s—where we have both extreme heat and cold—is incredibly challenging, particularly because our buildings are so static (other than operable windows in most cases).

    So while I do think that networked devices are great progress, I also think that we need to be looking at the bigger picture. Let’s think about the actual architecture of our homes and how we can truly make them responsive machines for living.

  • What I see as the fundamentals of real estate investing

    Earlier this week my father sent me this article containing an excerpt of Warren Buffet’s upcoming shareholder letter. His annual letter—which started in 1965—is well known in the investment community. And in many ways, it’s like his own annual blog, started well before anybody knew what a blog was. His letters are personal, genuine and engaging—just like a good blog should be.

    But for me, what was really interesting about the letter is that it provided a number of lessons about investing in real estate. Lessons which, in my view, really represent the fundamentals of the business. The way I think about it is that there are really 2 ways in which to make money as a real estate investor over the long term. You can develop/reposition real estate and/or you can collect rent.

    Develop/Reposition

    If you’re developing or repositioning real estate, it means you’re doing something to increase the value of the property. It could be by rezoning, building new, or through an aggressive leasing strategy. It’s whatever you believe will unlock additional value. Once you’ve done this, you then either sell the property or you move onto the 2nd way of making money in real estate.

    Collect Rent

    By collecting rent, I really mean that you’re buying yield. This means you’re saying to yourself:

    I can buy this property for $1,000,000 and the net operating income on it is $100,000 (per year). So that means I’m buying at a 10% cap rate (or return). 

    Or maybe you’re saying:

    I can buy this property for $1,000,000, but the net operating income is only $25,000. However, the rents are well below market and I think I can easily get this thing up to a “10 cap.”

    Either way, you’re buying a stream of cash flows and you have an understanding of where that cash is going to come from.

    Speculate

    If on the other hand, you’re buying solely on the expectation that prices are destined to rise, you are—as Buffet points out in his letter—speculating. You’re not doing anything to create value and so you’re not developing. And if you’re counting on price growth to generate your investment returns, then you aren’t buying yield either.

    While many people have made large sums of money by speculating on real estate, I don’t consider myself capable of doing that in any sort of sustainable way. Hell, if Warren Buffet doesn’t think he can do that, why should I think I’m special.

    But some of you may disagree with this framework. If so, I’d love to hear from you in the comment section at the bottom of this post.

  • Do homes need to become more of a product?

    Yesterday evening I moderated a panel on innovation in real estate at the Rotman School. The panelists included Subhi Alsayed (Innovation Manager at Tridel); Michael Lio (President of buildABILITY Corporation); Alison Minato (VP of Sustainability at The Minto Group); and Tad Putyra (President and COO, Low Rise Development at Great Gulf).

    Though the general consensus was that the real estate industry is terrible at innovation, it was comforting to hear that a number of both low-rise and high-rise developers are working on and/or towards building “net zero” homes. A net zero home is a home with no net energy consumption. What this means is that the home produces as much as energy as it consumes.

    The general strategy with these homes is to design the building so that it’s as energy efficient as possible (as in R-40 walls and triple-pane glazing) and then use renewable energy sources (such as solar) to fulfill any remaining energy needs. Of course, the next step would be homes that actually produce more energy than they consume so that they become net contributors to a city’s energy grid. But let’s not put the cart before the horse.

    There are a number of challenges to achieving this goal—one of which is on the consumer side. Many of the panelists mentioned that consumers simply don’t care enough about building performance and energy efficiency. Instead of worrying about air tightness, they’re worried about cosmetic things, like granite countertops and hardwood floors. That’s not to say that these pieces aren’t important, but they’re only one aspect of a home.

    So what’s the solution? Do developers and home builders need to get better at consumer education? Or should utility companies be the ones shouldering this responsibility? After all, improving energy performance means lower utility costs.

    One thought that came to mind (and I’m testing this for the first time with the Architect This City community), is that maybe homes need to become more of a product. Today, developers often market projects and communities ahead of themselves. But maybe that’s not the best way to drive innovation within the real estate industry.

    For example, think about how car brands segment the market. When you buy a Mercedes, you expect a certain level of performance and quality. You probably don’t know about every little technological innovation in the car, but you assume that they’re pretty damn good.

    With a new home on the other hand, you’re buying (insert generic name) on the Park or the Residences of (something regal sounding). The developer’s brand is secondary. And maybe that’s the wrong approach. Maybe it’s making consumers believe that the only thing that matters is whether you’re getting stainless steel appliances and granite countertops.

    Maybe consumers need to know whether or not they’re buying from the Mercedes developer or from the Ford Pinto developer. After all, consumers make decisions based on heuristics. They need to be able to say to themselves:

    “This home is $50,000 more, but it’s from the Mercedes developer so I can justify it. I’ll have less problems in the future, I’m sure.”

    Instead, consumers are saying to themselves:

    “This home is $50,000 more. Why is that? They both have stainless steel appliances and granite countertops. I’ll just go for the cheaper one.”

    I refuse to believe that the real estate industry can’t be as innovative as other industries. There’s always a way. We just need to figure it out.

    What are your thoughts?

  • John Tory is running for mayor of Toronto

    Yesterday I was at brunch for a good friend’s birthday and a few of us started talking about politics and the future of Toronto. We immediately became depressed by the fact that Rob Ford, could actually, get in again. For those of you outside of Toronto, I know this sounds like pure lunacy.

    We then speculated as to whether John Tory would ultimately run again. Though it would split the conservative vote (between Ford and Karen Stinz), I was hoping he would. Then, just like magic, Tory announced his candidacy. Here’s the video:


    While some would call it an oxymoron, John Tory is often painted as a “Red Tory”. He’s fiscally conservative, but then holds socially liberal views on issues such as same-sex marriages.

    But perhaps more importantly for the Architect This City audience, Tory is also a city builder. He’s Chair of the Greater Toronto CivicAction Alliance, which is non-profit group focused on transportation and economic development in the region. And this comes through in his clear support of the Yonge relief subway line (see above video).

    So even though this risks splitting the conservative vote, I will be supporting John Tory’s candidacy during this year’s mayoral election in Toronto.

  • Gentrification, animated

    A friend of mine sent me a link this afternoon to an art project called “Vacated”. The artist (Justin Blinder) reverse engineered Google Street View images to create a series of animated GIFs intended to demonstrate New York’s “changing urban landscape during the Bloomberg administration.”

    In his description of the project, Blinder ends by saying that “it’s up to the viewer to decide whether this change represents widespread gentrification.” Given the recent discussion we’ve had (here on Architect This City) about gentrification, I thought this post might be a good addendum.

    One of the big takeaways from our discussion, I think, was idea that there’s good gentrification and bad gentrification. Gentrification, after all, is really just another word for investment. And so generally I would consider this to be a good thing for communities.

    But there are instances when investment comes in and ruins what made the community worth investing in, in the first place. Perhaps the investment brought about the destruction of heritage buildings or the loss of the fine grain urban character that initially made it a great place to be.

    In these cases, I would say that this is bad gentrification. Sure there has been investment, but now the community has lost what made it cool. And as Jane Jacobs rightly pointed out: “When a place gets boring, even the rich people leave.”

  • It’s all about people

    Yesterday evening I met up with a talented Toronto-based technology entrepreneur who also happens to be passionate about cities. The conversation meandered between both worlds, but we ended up coming back to one central theme: It’s all about people.

    Facebook didn’t just buy WhatsApp for the technology. It spent $19 billion on almost half a billion active users. That’s what matters. Do people want to occupy your (real or virtual) space? Have you created a community? Whether it’s an app, a building or a neighborhood, you’re useless without engaged participants.

    And to be perfectly honest with you, that’s my ultimate goal for this blog. Ideally I’d like each and every post to inspire conversation and debate (just like this one did on gentrification). A one-sided conversation can only take you so far. The real value happens within communities.