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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  • Real artists ship

    Last night at 10pm I finished my last MBA exam, ever.

    I’ve spent the past 2.5 years completing my MBA part-time at the Rotman School (at the University of Toronto). Since I had already done a 3-year masters (I know, it’s a lot of school), I had decided that my opportunity costs were simply too high and I wanted to remain working.

    But in order to do that, it meant I had classes from 7-9am and then went to work for the day. This past semester I had those morning classes 3 times a week. It’s made for an intense 2.5 years, especially when you add in group meetings, tutorials and other commitments.

    But as much as I’m happy to be finished the program (I fast tracked to finish a semester early), there’s always something bittersweet about closing one chapter and moving onto another.

    Since 2011, being a “MBA student” has been part of my personal brand. I would talk about the classes I was taking, and I would try and apply what I was learning to what I was doing in real life—both professional and personal. Believe it or not, I once had a debate with a Baptist Minister over the discount rate I used in one my calculations for a lease agreement.

    And while I have learned a lot through almost 6 years of graduate education in both Canada and the US, this is in many ways only the beginning. When I was younger I used to tell myself that my 20s should be about formal education, exploring, and crafting my identity, and that my 30s should be about execution.

    Well now it’s time to execute. In the words of the Steve Jobs: “Real artists ship.”

  • How well do you know your neighbors?

    One startup that’s been on my radar (which isn’t yet available in Canada) is Nextdoor. They describe themselves as a “private social network for your neighborhood” and are active in more than 22,500 American neighborhoods. To date they’ve raised $100M in venture funding.

    From what I can tell, their primary focus (and big value proposition) has been around safety and security. Residents can use it to report incidents, such as a car break in. There are obviously other use cases, but I keep hearing this one come up. And I think it works because the community is so closely controlled. Every address is verified.

    But a few things come to mind as I read about their success and growth (400% neighborhood growth over the past year). How many social networks can people handle? Why can’t this be done using an existing platform (and perhaps a closed group)? And is there an opportunity to create the same kind of closed social network for condo and apartment buildings?

    There are lots of social networks out there. Whether you’re a wine snob or a pet owner, somebody has thought it. But if Path’s recent struggles are any indication, niche social networks can be tough. Which is why Nextdoor seems like a bit of an outlier to me.

    But I think the success of Nextdoor stems from the fact that, even in our hyper connected world, a lot of us, paradoxically, still don’t know the people who live right beside us. And I think this is also the case in multi-family dwellings. It’s a problem I’ve thought about and discussed with an number of my condo-dwelling friends.

    So I look forward to seeing how Nextdoor evolves and also seeing if they end up expanding to condos and apartments.

  • Why flying delivery drones are a big deal

    One of the biggest news pieces of the last few weeks—at least in retail and tech circles—has been Amazon’s unmanned aerial delivery drones (also known as Amazon Air Prime). In case you missed it, here’s a video from Amazon showing them in action. 

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    The goal:

    “To get packages into customers’ hands in 30 minutes or less using unmanned aerial vehicles.”

    Now, this won’t happen for another few years, if even that soon, but I think it’s pretty clear that this is something epic in the making. If successful, it’s going to completely rewrite, not only the retail landscape, but probably the landscape of our cities.

    If you think about it, cars enabled a certain kind of retail. They enabled big box stores and those, in turn, changed our cities (for the worse, I would argue). Now what happens when the undifferentiated products of a big box store can be flown to my door step in less than 30 minutes? Suddenly getting into my car seems archaic.

    There’s a great article covering Amazon’s drones and the history of American retailing in Atlantic Cities. They do a better job conveying the potential magnitude of Amazon Air Prime and so I suggest you have a read if this topic interests you.

  • Halfway assimilation in Canada’s arctic

    Yesterday, I discovered a Jerusalem-based Italian photographer by the name of Vittoria Mentasti. She has an ongoing project called “A Woman With Two Names”, that’s exploring the identity of Canada’s Inuit community in Iqaluit, Nunavut. Click on the photo below to see the entire gallery.

    Here’s her language on the project:

    “Iqaluit, the capital of Nunavut, is a city of 7000 people surrounded by tundra and the sea. The only way to get in or out of Iqaluit is from the air. I was interested in the cultural identity shift the Intuit community is experiencing and its consequences. The community, especially its younger members, are trapped between two worlds; they are losing touch with their past and are headed towards an uncertain future.

    The process of forced assimilation carried out by the Canadian Government and the Church during the first half of the 20th century, deprived the Inuit of their social and spiritual customs. The transition away from their nomadic roots to modernized living has led to alcoholism, domestic violence and unemployment; symptoms of a society that is floating between its past and present.

    Photographing off-moments of everyday life, I was looking to depict the sense of isolation, their ancestral connection to a harsh land, and the feeling of not belonging to “The South”, the way Inuit refers to the rest of the world.”

    As one of the most remote and sparsely populated regions in the world, it’s easy to overlook what’s happening here in our country. But there are real problems in our north. In 2011, the Globe and Mail published a Focus Feature on Nunavut where it asked: Is Nunavut a failure of Canadian nation building?

    “The rate of violent crime per capita in Nunavut is nine times what it is in the rest of Canada. The homicide rate is around 1,000 per cent of the Canadian average.”

    I’m not an expert on this matter, but it seems like everybody is picking up on the same phenomenon. We’ve created an in-between society. A society that’s completely ill-equipped to compete in the modern world, but that’s too far removed from its roots to turn back now. They were nomads and now they’re not.

    This is hugely problematic and it’s only going to get worse. Already we’re seeing rising income inequality within “The South.” The returns to being smart are being amplified and twenty somethings with a killer app are turning down billion dollar acquisition offers.

    What do you think this does to the north? I’d bet it makes it much worse.

  • Mirvish+Gehry and the story of 4 heritage buildings

    I am a real estate developer and I believe in progress. But I also fundamentally believe in balancing progress and preservation. I’ve said this before.

    This morning, Alex Bozikovic of the Globe and Mail, published a piece on the epic Mirvish + Gehry proposal for Toronto’s Entertainment District. It’s called, “Frank Gehry and David Mirvish’s tall order in Toronto.”

    Now, I’ve said before that I like this project. I don’t mind the height and I don’t buy the argument that there aren’t enough public spaces in the area. There’s David Pecaut Square directly to the south that could use a few more warm bodies in it.

    But as I also said before, I think the key concern here is one of heritage. There are 4 heritage designated buildings on the site dating back to as early as 1901. Here’s where they sit:

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    The Anderson Building (1915) is particularly unique. Here’s a larger photo (via blogTO):

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    So while I’m excited by the prospect of a real Gehry project in Toronto, I think we need to figure out a way to find a balance. Preserve the facades, build on top, or relocate them. Do something besides wipe the slate clean.

    As Bozikovic rightly points out in his article, “Toronto has a sophisticated culture of working with heritage buildings.” There are lots of great examples of how we managed to move forward as a city, without erasing our past.

    And in many ways, I see this ability to work with and build upon heritage buildings as an emerging Toronto vernacular. I mean, what could be more appropriate for the most diverse city on the planet than an architectural style—of our own—that blends and layers history with disparate design ideologies.

    I sense an opportunity.

    We could have Gehry’s white sinuous curves drape over the heritage buildings. Make them become a literal unveiling of Toronto’s past and a metaphor for the sophisticated way in which we build upon legacy.

    It’s too easy to just demolish everything. We’re better than that.

  • How different generations buy and sell real estate

    I just came across the following generational home buying data from the National Association of Realtors in the US (via Curbed SF):

    It was initially published in July 2013 and so I think the data represents what happened in 2012. The report isn’t exactly clear about the timing. In any event, what I found more interesting is how the various generations perceive the utility of agents. There are different use cases.

    Millenials feel the need to have an agent help them navigate the purchasing process. This makes sense, as many of them would be first time buyers. However, Millenials are also almost 4x more likely to engage agents for “a limited set of services as requested by the seller”, as opposed to just a conventional full service brokerage agreement.

    On the other hand, older buyers like to have an agent help them identify property deficiencies and sellers over 32 years old use a full service broker more than 80% of the time. I find this interesting because it starts to speak to potential changes in the marketplace.

    Looking at a more recent report from the NAR (2013 Profile of Buyers and Sellers), I found it surprising to learn that the share of buyers who used an agent went from 69% in 2001 to 88% in 2013. Even with the internet disrupting so many industries, realtor market share has actually grown over the last decade.

    Not surprisingly, the percentage of sellers who used an agent is also 88%. This is because the dual-agency model requires that both sides of the marketplace be represented.

    Finally, the percentage of sellers who sold their home without an agent is roughly 9%. And 46% said it was because they wanted to save on commission. I’m assuming that the reason the math doesn’t add up (9% for-sale-by-owner + 88% agent) is because of estate sales, auctions and so on.

    The real estate marketplace is an interesting one. What do you think we’ll see in the future?

  • Toronto’s schism is hurting the city

    Instead of talking about the latest Rob Ford scandal (honestly, how is he still mayor?), I’d like to focus on his abilities as a transportation strategist.

    Here’s an excerpt from a Toronto Star article published this morning that talks about the urban vs. suburban divide in this city and our inability to depoliticize transit planning. It’s called, “Suburban envy only makes things worse: James.”

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    In another committee room, councillors were debating the proposed downtown relief subway line — only, they were afraid to name it such. Downtown is a section of the city that dares not voice its name, for fear that aggrieved suburbanites will rise up and object.

    This is not hyperbole. Not long ago, the mayor indicated he is not interested in the relief line until there are subways on Sheppard East and on Finch West. Why? Because downtown “has enough subways.”

    Downtown has enough subways? Do you think Ford looked at population density, number of stops, ridership levels, and so on, in order to come up with this position? Or did he just look at where his voter base resides?

    We need to get past this downtown vs. suburban schism. We’re all in this together. In fact, the whole Golden Horseshoe region is in this together. And until we start acting as a unified entity, we’re not going to reach our full potential. 

  • Q&A on Toronto’s condo rental market

    Earlier this week I connected with a Ryerson student doing a piece on Toronto’s condo rental market. She emailed me and asked if I would mind answering a few questions. Here are my responses.

    Generally speaking, why is Toronto continuing to see such a rapid increase in the number of condos in development? 

    A lot of what we’re seeing is policy driven. It stems from the Places to Grow Act and the continued push towards intensification. It actually mirrors a similar boom we saw in the 70s. In both cases, it was policy driven and the market responded.

    The other factor is a growing consumer preference for more walkable and urban neighborhoods. People are sick of long commutes and so we’re seeing a return to city centers and downtowns. This is happening across all demographic segments, though Millennials and Baby Boomers seem like particularly strong ones.

    Is that boom, and the consequent rush by developers to create new units for rapid sale, affecting the quality of design and accessibility in new condo developments in Toronto?

    When you have a hot market, you’re going to get lots of people rushing in and trying to make money. Whether it’s real estate, tech or some other industry, it’s to be expected. And I’m sure it impacted some projects negatively. But that market is gone in Toronto.

    And regardless of the pace of development, there will always be varying degrees of quality across builders. The unfortunate thing for consumers is that it’s not always easy to tell which is which.

    One of the things we’re trying to do (at TAS) is integrate consumer education more into our sales and marketing programs. Mechanical equipment, as one example, isn’t the most exciting thing to to talk about, but we want consumers to know what they’re buying into.

    Prices are rising (you could buy a house outside the city for the price of some of Toronto’s tiny bachelor units, if I’m not mistaken…) – So what is making condo ownership so desirable in spite of the high cost relative to space? 

    Again, it’s being driven a lot by lifestyle. People want walkable communities, they want to be close to amenities and they want to drive less. And they’re willing to give up space for that. 

    When considering and comparing the cost of a home, I think it’s important to consider some of the indirect costs, such as transportation costs, travel times, quality life and so on.

    Sure a home in the suburbs may be a lot cheaper, but what’s my total, all-in, cost? If you need to own 2 cars and you spend 2 hours commuting everyday, there’s a real cost to that. If you place a big value on your time (as I do), the cost equation isn’t so skewed all of a sudden.

    Are more people choosing to live in rental condos instead of buying, because of the inaccessible cost? If so – why are we still seeing so many new ‘rental condo units’ being built, rather than purpose-built apartment units?

    Condos are being built because, in most cases, it’s the highest-and-best use for the land. It’s the most profitable. And investors have been more than willing to step up and fill the rental needs of the market. But with the condo market now coming down from record levels, I wouldn’t be surprised if we start seeing more purpose-built apartments.

    Would you say that the majority of condo rentals on the market are owned by foreign investors who depend on building management to liaise with renters? If so, why are they choosing to buy units in Toronto?

    I have no idea. It’s even hard to tell how many units are just investor owned, let alone local versus foreign. Because there are tax implications if you don’t owner occupy a unit, buyers have an incentive not to disclose. Overall, I find it problematic that the marketplace is so opaque. I wish there was a way to bring perfect information.

    With respect to why they choose to buy in Toronto, there are a bunch of reasons. Real estate has been a phenomenal investment in Toronto over the past decade and that’s attracted a lot of investor attention. There are also segments that just want capital preservation in a safe and stable country. Even without great returns, that’s a valuable proposition for some foreigners. And of course, Toronto is a great city. Talent wants to live here and that’s important.

    Generally speaking, is there a certain LOCAL demographic (ie, boomers, post-boomers) that are investing in condos for the purposes of renting them out? What makes that investment so desirable?

    Again, there isn’t great data on this. 

    What I will add to the investor topic is that, despite the fact that investors often get a lot of flack, they do serve two important needs in the marketplace for both developers and consumers. The first one we’ve already talked about. Investors provide rental housing in Toronto at a time when few, new, purpose-built rental apartments are being constructed.

    The second one is that investors help to get projects under construction and built. I’ve heard one developer refer to them as providing a kind of short-term financing. Because consumers don’t always want to commit to a unit that might be built 4-5 years out, developers rely on investors to buy pre-sale units so that the project can get underway. Once construction is complete, these units then often get sold to end users who are now ready to commit and move in.

  • Taking the bus

    According to Salvador Dalí and Margaret Thatcher I’m a loser and a failure. I came across these quotes on Tumblr (via goingurban) this morning:

    “A man of forty who still rides the metro is a loser.” -Salvador Dalí

    “A man who, beyond the age of twenty-six, finds himself on a bus can count himself as a failure.” -Margaret Thatcher

    Now as much as I like dislike buses (and prefer the train varietal), I’ve made it pretty clear that I’m a believer in mass transit.

    If anything, I think these quotes show how much the world has changed, although perhaps only in certain geographies. Depending on where you live (I’m thinking Los Angeles or, maybe, Oklahoma City), it probably still sucks not to have a car.

    That’s too bad.

  • More on electronic road pricing

    We recently started a Lunch & Learn program at TAS. I did the first one on electronic road pricing and followed-up with the blog post below. Let me know what you think. It’s also cross-posted here on TAS’s website.

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    Last week at TAS I kicked started our new Lunch & Learn program with a talk on electronic road pricing. It was based on an HBS case that I had prepared for a pricing class I took at the Rotman School.

    The case is essentially about traffic congestion in Hong Kong and a decision to either build more road (a bypass road running adjacent to the harbour: The Central-Wan Chai Bypass) or implement an Electronic Road Pricing (ERP) system, similar to what was implemented in Singapore in the 70s and in London in 2003.

    My own view is that road pricing makes a lot of sense. And I’ve written extensively about it on my own personal blog. But to quickly summarize the economics behind it all, take a look at this graph:

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    What this graph plots is the marginal cost of products and services with a fixed capacity.  An example of a product or service with a fixed capacity would be a road. Roads can only handle a certain amount of drivers before it becomes unusable (gridlock). What this graph tells us is that once you reach that capacity—variable k in the graph—the marginal cost goes from zero to basically infinity.

    In laymen terms, it’s telling us that at 4am when nobody is on the road, the cost—to society, to productivity levels, and so on—of adding each one additional driver is basically zero. But, as soon as you hit capacity, at say 830am, and traffic is at a standstill, the cost shoots way, way up!

    So how do you solve this problem? Well, you price congestion. This invariably removes or forces drivers to other times of day and makes it so that demand for the road drops below the available supply. Then the road is able to function as it’s intended to. I don’t know about you, but this makes a ton of sense to me. What good are roads if they’re clogged with traffic?

    What I’d like to do now is bring the discussion back to Toronto. For those of you with an interest in transit, you’re probably aware that Metrolinx has a “Big Move” transit and infrastructure plan that’s going to cost the region $2 billion a year to implement. I view this as investment in our region and so I think it’s absolutely the right move.

    However, the billion dollar question is, where is the money going to come from? Earlier this year Metrolinx proposed 4 main revenue tools. They are:

    – A 1% sales tax (estimated to raise $1.3 billion annually)
    – A business parking levy (estimated to raise $350 million annually)
    – A $0.05 fuel and gasoline tax (estimated to raise $330 million annually)
    – And a 15% increase in development charges (estimated to raise $100 million annually)

    What I would suggest is that there should be a road pricing plan in this list in addition to—or instead of—some of the items listed above. Taxes are just taxes. And they discourage consumption depending on the elasticity of the demand for those items.

    However, I would argue that a well executed road pricing model should be considered not as a tax, but instead as an incredibly accurate way to price roads according to actual usage patterns and costs incurred. Think of it like time-of-use utility billing. Do you think of high-peak utility billing as a tax or as simply the price to use the service when demand is the highest?

    The benefits of a road pricing system would be numerous:

    – We’d get a consistent revenue stream for transit investment in the region (instead of having to rely on government hand outs)
    – We’d be helping to decouple transit building from the political process (because Metrolinx would now make its own money)
    – We’d eliminate traffic congestion (yes, it can be done)
    – We’d increase productivity levels across the region (people will actually be able to get around)
    And we’d be reducing our impact on the environment by encouraging alternate forms of transportation

    This is an incredible list of benefits. However, I think one of the challenges with implementing electronic road pricing is that it’s often misunderstood. People just view it as a tax. Hopefully by looking at the economics behind it all, it has become clearer that it’s actually a bit more nuanced than that.