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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  • What real estate developers do and why I became one

    I met up with a friend yesterday after work and the topic of my blog came up. He said he loved the content, but that he would like to learn more about the inner workings of what it means to be a real estate developer. His belief was that there are lots of city blogs out there, but rarely do you get the candid perspective of a developer.

    I immediately thought this was a good idea for one simple reason: When I’m at a party and I tell someone that I’m a real estate developer, oftentimes they have no idea what that means. They usually think I’m a real estate agent. Or they ask me to explain a typical day. Either way, I’ve found it generally smoother (and more impressive) to just lie and say I’m an architect.

    So I’m going to do just what my friend suggested. I’m going to make an effort to talk more about what it means to be a real estate developer. And to kick it off, I thought I’d start with some of the basics and then talk about how I got into the business.

    Real estate developers are effectively the entrepreneur that make a new building happen. They go out and buy the land, they put a team in place (architect, engineers and so on), they get the necessary approvals to build (with the help of the team of course), they finance the deal, and then they get a builder to actually construct the project.

    Developers are like an orchestra conductor. They don’t play any instruments, they just direct the performance.

    But at the same time, developers assume 100% of the risk of the project. If the building fails (because you can’t sell the condo units or lease out the space), that all falls on the developer (and his/her investors). All of the other team members are getting paid based on the services they provide. They’re consultants.

    This distinction is what (can) make real estate development so lucrative—with risk comes reward. And I’ll be completely candid in saying that this is part of the reason I decided to get into development. I was training to be an architect and I started realizing that I could make more money as a developer.

    But I also came to the realization that as a developer I would likely end up having more say over the built environment. That’s the unfortunate reality of my industry. Even though architects spend far more time than your average developer thinking about what makes buildings and cities great, I would argue that they don’t have nearly the same amount of say. Because if they did, we probably wouldn’t have so many crappy buildings in our cities. But it’s this way because architects aren’t assuming the risk.

    Part of me used to actually feel bad about switching over to the dark side, which is how some architects refer to the development game. But the best way to summarize how I feel today is through what an architect friend told me a few years ago: “Brandon, cities don’t need more architects that care about design. We have lots of those. Cities need more developers that care about design.”

    And so that’s what I became. A developer who loves design and cares deeply about one of our greatest assets—cities.

  • Transit vehicle capacities compared

    I was cruising the twitter sphere yesterday when I came across the following chart, outlining the various transit vehicle capacities here in Toronto. It was created by Cameron MacLeod of #CodeRedTO, which is a grassroots group advocating for “a rational, affordable, and achievable rapid transit strategy for Toronto.”

    image

    On the left you have the vehicle type and then you have the capacity in terms of number of seats and standing room. The planned capacity is essentially the sum of those two numbers and the “unsafe crush load” is the number of people you could fit if you really put your back into it.

    Articulated buses refer to the longer (1.5x) bendy ones and, similarly, ALRV streetcars are the longer, articulated version of our regular streetcars. The low-floor streetcar is similar to what Toronto will be getting. And SRT is the Scarborough Rapid Transit system.

    The chart also compares between vehicle types: How many cars would you need to move the same number of people? How many buses? And so on. As one example, you would need 15.9 buses or 982 cars to move the same number of people as the Yonge subway line!

    What’s missing from the above chart though is light rail transit (LRT), which is comparable to the linking of up to 3 low-floor streetcars. In the case of the under construction Eglinton Crosstown LRT line, the planned capacity is 750 people!

    This is an hugely important takeaway because many people, including our own Mayor, do not properly distinguish between streetcar and light rail. The two are not one and the same. LRT has the potential to move a lot more people.

    In fact, at 750 people, the Eglinton Crosstown could move more people than the Sheppard subway line, which is only operating on 4 cars (as compared to 6 on our other subway lines).

    So while it’s all fine and dandy to bang our fists on the table and advocate for subways, they don’t make economic sense in all parts of our city. With the Sheppard line, we’ve been leaving capacity on the table and wasting taxpayer money.

    Of course this chart is also useful for those outside of Toronto. What I like about it is that it clearly shows the tool chest available to cities when it comes to building transit. Every city and neighborhood is different. And I think it’s important to have intelligent conversations about what makes sense in each.

    Thank you to Cameron and #CodeRedTO for allowing me to post their work.

  • Road pricing chicken and egg

    Regular readers of this blog will know that I’m a big supporter of road pricing. I think it’s an incredibly efficient way of reducing congestion, improving regional productivity, making us more sustainable, and funding other infrastructure, like transit.

    But one of the arguments I often hear against road pricing is that it’s unfair to force a segment of the market out of their car if there’s no good alternative (ie. proper transit). And even if the revenue produced from road pricing goes towards transit, we all know that new infrastructure takes a very, long, time.

    So we end up with a chicken and egg problem: Road pricing is a great way to fund transit, but it’s difficult to implement without the proper transit in place. So what should we do? What comes next?

    I have two thoughts.

    First, road pricing doesn’t necessarily mean that you can no longer drive without paying. Effective road pricing matches price with demand. Therefore if there’s nobody else on the road, you wouldn’t be paying (or at least wouldn’t be paying much). This is what makes it efficient—it adjusts. So for somebody without the willingness to pay for peak congestion pricing, they could still have the option of driving at another time. Go in early or go in later.

    But what it does mean is that no matter what time you’re driving, the road could be priced so that it actually functions again. In Toronto today, many of our roads are completely failing. Demand greatly exceeds available supply (the amount of road we have) and so you can’t use them to get anywhere in an efficient way. So what we have is equal access to terrible non-functioning roads.

    Second, there’s no such thing as a free lunch and nobody said it was going to be easy to build phenomenal infrastructure. We all complain and say we want it, but when push comes to shove, are you willing to open up your wallet and pay for it?

    So I say forget pontificating about chickens and eggs and just do it. If we priced roads and setup other appropriate revenue tools, I’m sure there are some financial wizards in this city that could use tax increment financing or other mechanisms to ensure that we get shovels in the ground today for the new infrastructure that we so desperately need.

    These are important discussions to be having no matter what city you live in. I would love to hear your thoughts in the comment section below or on twitter.

  • Right answer to the wrong question

    Yesterday I wrote a post on why Norway loves Tesla Motors. The lesson was that if you want people to adopt sustainability, just make it cheaper. But here’s something to ponder: Are electric vehicles the right answer to the wrong question? (Jeff Speck in Walkable City)

    Now, don’t get me wrong, I think electric vehicles are great. They’re certainly better than gas vehicles from a sustainability standpoint. But is the ideal city of the future one where everyone is driving around in electric vehicles? Or is it one where the majority of people walk, bike and take transit? It’ll likely be a mixture of both scenarios, but I think it’s important for cities to know where they want to go.

    Switching from gas to electric solves some problems, but it doesn’t solve all of them. Traffic congestion and lost productivity, for example, don’t go away. So I would say that electric vehicles are part of the right answer—but there’s still lots of other work to be done.

  • Why Norway loves Tesla Motors

    Norway imposes big levies on the sale of fuel burning vehicles. They can amount to more than 100% of the sale price—effectively doubling the price of a vehicle. It’s a supertax.

    Exempt from these taxes, however, are electric vehicles. This has not surprisingly made Elon Musk’s Tesla Motors an incredibly popular choice. In fact, Norway has become Tesla’s best overseas market with the highest per capita sales.

    And it’s because it makes economic sense, at least for some. Here’s how a Norwegian would save by buying the Tesla Model S: 

    “EV drivers enjoy breaks on levies the government imposes on vehicle purchases to the tune of about $135,000 for the Model S, which has a local starting base price of about $112,000. In other words, if the Model S had a gas engine, like comparable luxury cars, it would cost nearly $250,000 to own one in Norway.”

    But this approach has been criticized as a subsidy for the wealthy. People are buying a Tesla S instead of a Porsche. However, you could argue that the intent of the supertax is being fulfilled: more people are buying electric vehicles. Which is why the per capita fleet of plug-in electric vehicles as a whole in Norway is the largest in the world.

    So the lesson here is that if you want people to adopt sustainability, just make it cheaper.

    Credit to Evgeny of 500px for giving me the idea for this post.

  • Condo maintenance fees explained

    One of the objections I often hear from people regarding condominiums is that they don’t like the idea of paying maintenance fees. So I’ve been meaning to do a post for some time now that breaks down and explains exactly where that money goes.

    Here is a simplified example. It ignores some of the miscellaneous income that buildings usually receive (from guest suites, the party room, public parking and so on). And of course, these numbers will vary based on the age of the building, specific amenities, and any deficiencies it may have. Nonetheless, it should give you an idea.

    image

    So assuming you pay $400 per month as a common element fee, a percentage of that will—or at least should—get immediately stripped away as a reserve fund contribution. Again this will depend on the age the building and the periodic reserve fund study that’s typically required to be done.

    After that you have the operating expenses. The biggest items you’ll notice are contracts and utilities. Contracts are things like janitorial services, snow removal, property management fees, security/concierge services and so on. They’re contracted items. Utilities are self explanatory. 

    Once all the operating expenses have been paid, any remaining money then goes to retained earnings and sits in the condo corporation to handle any other expenses that may arise.

    Looking at the total operating expenses ($263), you should notice that it’s only about 66% of the total common element fee ($400). A big chunk of your common element fee is actually going towards saving for the future. Assuming the building is being properly managed, I’m okay with this.

    If you have any feedback on my numbers, I’d love to hear from you in the comment section below or on twitter.

  • SKATE city videos

    Two weeks ago I wrote a post called “Skateboarding and the city.” If you liked that post, I recommend you take a look at this 5 minute video called SKATE Toronto. It’s part of a series where local skateboarders provide a guided tour of their city.

    [youtube=http://www.youtube.com/watch?v=SEb4QvJzFVU&w=560&h=315]

    You’ll find similar videos for New York, Los Angeles, Miami, Philadelphia, Hong Kong, etc. What I like about them (other than the skating, of course) is that they clearly demonstrate the unique way in which skateboarders examine and engage with cities.

  • Car as prosthetic

    I spent a lot of time in the suburbs over the holidays and it got me thinking.

    For all the talk about intensification here in Toronto, adapting our car dependent suburbs to become, well, less car dependent is going to be an enormous challenge. Once you’ve built out an area around the car, it’s almost impossible to go back. 

    One of the biggest challenges is going to be figuring out how to turn the suburbs from inward to outward. If you think about it, the suburbs are an incredibly inward type of development pattern.

    Retail plazas typically have their entrances—not off main streets—but off internal parking lots. And residential areas often have backyards facing the main streets because nobody wants a house fronting on a major thoroughfare. These are the design principles we’ve used to create our suburbs.

    But the result is that we’ve created environments that are inhospitable to pedestrians. What enjoyment would you get out of walking along a street where everything has its back turned to you? This is the anthesis of animated street life. And in this case, Margaret Thatcher would probably be right: I would feel like a failure taking the bus.

    To compensate for this kind of environment, we’ve made it virtually mandatory to have a car. It’s the only reasonable way to get around. Writer Rebecca Solnit put it best when she said:

    “In a sense the car has become a prosthetic, and though prosthetics are usually for injured or missing limbs, the auto-prosthetic is for a conceptually impaired body or a body impaired by the creation of a world that is no longer human in scale.”

    And that’s precisely it. We built around the car and not around people. And in doing so, we made ourselves dependent. I don’t know about you, but there’s something liberating about being able to walk to all the things I commonly want—food, money, coffee and so on. But maybe that’s just me.

  • Innovating amongst the haters

    Whether you’re developing a building, planning transit, starting a company or just trying to do something different, there will always be haters. But pessimists don’t change the world—optimists do.

    I came across a great post last night by venture capitalist Ben Horowitz. It’s called, “Can-Do vs. Can’t Do Culture.” And I think you’d be well served to keep a copy of it on file and read it before every single meeting where you’ll be asked to provide input on something new.

    He’s specifically talking about a growing and discouraging trend of naysaying in the tech community, but the lessons apply more broadly to innovation as a whole.

    I love these lines:

    “The trouble with innovation is that truly innovative ideas often look like bad ideas at the time. That’s why they are innovative — until now, nobody ever figured out that they were good ideas.”

    “From a psychological standpoint, in order to achieve a great breakthrough, you must be able to suspend disbelief indefinitely. The technology startup world is where brilliant people come to imagine the impossible.”

    But the best part of Horowitz’s post is an excerpt from an internal Western Union report (then the largest telegraph provider in the US) recommending that the company not purchase Alexander Graham Bell’s invention (the telephone) and patents for $100,000.

    The Telephone purports to transmit the speaking voice over telegraph wires. We found that the voice is very weak and indistinct, and grows even weaker when long wires are used between the transmitter and receiver. Technically, we do not see that this device will be ever capable of sending recognizable speech over a distance of several miles.

    Messer Hubbard and Bell want to install one of their “telephone devices” in every city. The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?

    The electricians of our company have developed all the significant improvements in the telegraph art to date, and we see no reason why a group of outsiders, with extravagant and impractical ideas, should be entertained, when they have not the slightest idea of the true problems involved. Mr. G.G. Hubbard’s fanciful predictions, while they sound rosy, are based on wild-eyed imagination and lack of understanding of the technical and economic facts of the situation, and a posture of ignoring the obvious limitations of his device, which is hardly more than a toy …

    In view of these facts, we feel that Mr. G.G. Hubbard’s request for $100,000 of the sale of this patent is utterly unreasonable, since this device is inherently of no use to us. We do not recommend its purchase.

    It’s a classic example of The Innovator’s Dilemma (a book written by management guru and HBS professor Clayton Christensen). Many firms see their businesses disrupted because they blindly stick to the innovation that made them successful in the first place—ignoring what’s coming up on the horizon.

    In the case of Western Union, they could not imagine “telephone devices” in every city. The idea was pure lunacy to them. Of course to us today, they look like myopic fools. We now not only have telephone devices in every city, but a full fledged computer in every pocket. Imagine that.

    Which is why I think it’s important to remember that the way to drive the world forward is—to use Horowitz’s terminology—through hope and curiosity. Suspend disbelief. Think big. Dare to be crazy. Because you’re only crazy until you’re proven to be a genius.

  • Measuring urban form

    Last night the Toronto Transit Commission offered free service starting at 7pm. This is typical of Toronto on New Year’s Eve, as it is with many other cities. I think it’s great thing to do and I love seeing so many people taking transit to get around. I took it everywhere last night.

    Since I knew I would be doing a lot of walking, I charged up my Fitbit Flex and strapped it on around lunch time. Here is my New Year’s Eve according to Fitbit. I took 11,239 steps yesterday afternoon/evening.

    Activity tracking and health monitoring devices have really taken off over the past year. And I absolutely do think they help motivate. But beyond an individual level, I also think this data could be really interesting in aggregate and overlaid with other data points, such as where people live, where they work, how they travel/commute, and so on.

    Many have speculated that urban sprawl makes people fat since it privileges driving over walking. But with all the data that companies such as Fitbit and Nike are collecting, it would be interesting to see some hard data on how much more urbanites really walk compared to suburbanites.

    One idea would be to use Walk Score and examine the correlation between the walkability of a person’s neighbourhood and the average number of steps they take everyday. Intuitively, it seems like there would be a strong one. But it would be cool to see it quantified. I’d happily share my data if somebody would like to take this on.

    Happy New Year, everyone. Welcome to 2014.