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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  • The fastest growing US states

    February 25, 2025 · View original

    Here is a chart, via the New York Times, showing the US states with the greatest net migration in 2023:

    This is calculated by looking at the difference between arrivals and departures for each state, but only within the US. And for the first year since 2014, Texas has overtaken Florida, though admittedly not by much.

    I saw some discussion about this on Twitter, but I think it’s important to point out that this is only domestic migration. Between 2023 and 2024, the US grew by some 3.3 million people. And 84% of this growth (about 2.8 million people) came from international migration.

    So let’s include those numbers (data via the US Census Bureau).

    Here are the most populous states:

    Here are the top 10 states by numeric growth:

    And here are the top 10 states by percent growth:

    When looking at overall numeric growth, Texas and Florida still land at the top. (They’re also among the highest in terms of percentage growth, despite already being the second and third most populous states.) But now states like California and New York show up on the top 10 list, which speaks to their ability to draw people from around the world.

    None of this is particularly surprising, but I still think it’s valuable to see the numbers.

    Cover photo by Courtney Rose on Unsplash

  • Bargain-purchase folly

    February 24, 2025 · View original

    This post is ultimately going to be about real estate, but bear with me for a minute. In Warren Buffet’s 1989 letter to shareholders, he describes something that he refers to as the “cigar butt” approach to investing. This has been talked about a lot since this letter, but the general idea is that if you buy a company cheap enough, it doesn’t matter that there may only be “one puff left.” Your low cost basis will make that puff all profit.

    This has a logic to it, but Buffet goes on, in this same letter, to call this a “bargain-purchase folly.” You may think you’re getting a good deal and an enviable discount to market, but if the company sucks, you’re likely in for a rough ride at some point. This lesson learned is what resulted in his famous adage that it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

    Now, let’s consider something that Howard Marks wrote in the memo that I cited yesterday. He calls it one of his guiding investment principles and goes like this:

    > “There’s no asset so good that it can’t be overpriced and thus dangerous, and there are few assets so bad that they can’t get cheap enough to be a bargain.”

    Interesting. I agree with the first piece. It doesn’t matter how good an asset may be — and we can now start to turn our minds to real estate — there’s of course a way to pay too much. But is this second part entirely or at least mostly true? I’m not so sure. It might be a cigar butt.

    One of my own rules for real estate is that just because an asset is cheaper than it was before, it doesn’t necessarily mean that you’re getting a good price. And that’s because I have seen “bargain prices” drop even further. In fact, when it comes to real estate, including development land, sometimes the value that you should be willing to pay might even be negative or less than zero.

    What this means is that someone would need to pay a rational market participant in order to take on the asset or development project (usually this comes in the form of a subsidy and it means the market isn’t functioning on its own).

    “Buying below market” and “buying below replacement cost” are commonly sought after features in the real estate industry. And indeed, buying well is critically important. But I do think that it’s important to be just as worried about overpaying as you are about buying a shitty asset. Buying too cheap can also be a problem, assuming the market is pricing the asset accurately. It means you probably don’t want to own it.

    Cover photo by Simone Hutsch on Unsplash

  • A few unusually insightful people

    February 23, 2025 · View original

    As many of you will know, I very much enjoy reading the investing memos of Howard Marks. And buried somewhere in one of them is an analogy about the kind of investors who try and time the market and/or who constantly chase the next hot thing (whatever asset class that may be).

    It goes something like this: If you’re trying to catch a bus and you’re running from bus stop to bus stop trying to perfectly time the arrival of the next one, there’s a chance that you might never catch a bus. But if you patiently wait at one stop, eventually a bus will come and eventually you’ll be able to get on it.

    I like this analogy because you see this jumping around in every industry. In tech, a lot of people have moved from the crypto bus stop to the AI bus stop and, in real estate, we’ve seen it, and are seeing it, with industrial, student housing, and other in-demand asset classes. Capital wants its yield.

    Now, it’s obviously important not to ignore macroeconomic shifts and fundamental changes to your sector. If your bus route has been cancelled or rerouted, you don’t want to be waiting patiently at that stop. You want to be on the move.

    But if the long-term fundamentals in your sector haven’t changed and everyone else is distracted by what’s new and shiny, hanging out can be a powerful strategy. And this brings me to something that Marks recently wrote about in a memo called “On Bubble Watch.” In it, he talks about the three stages of a bull market.

    Here’s how he describes stage one:

    > The first stage usually comes on the heels of a market decline or crash that has left most investors licking their wounds and highly dispirited. At this point, only a few unusually insightful people are capable of imagining that there could be improvement ahead.

    In my view, this is broadly the stage we are at in the commercial real estate industry. It’s tough out there. But at some point in the future, we will move past this stage and go from “a few unusually insightful people” to “most people” and then finally “everyone.” These are the exact words used in his 3 stages.

    But here’s the thing.

    There’s lots of opportunity if you can be among the “few unusually insightful people.” It gives you the chance at being right about something that “most people” are overlooking. But that means you need to hang out at the bus stop that you have high-conviction around, which can be hard if everyone has left you in search of another one.

  • Data Center Alley

    February 22, 2025 · View original

    We’ve spoken before about how much electricity is going to be demanded by data centers in the future. According to this study, data center energy usage is expected to represent somewhere between 6.7-12% of total electricity consumption in the US by 2028. And according to McKinsey, demand for data centers is going to at least 4x by the end of this decade. So the consensus is that we are going to need more, not less, data centers in the foreseeable future.

    But if data centers represent the physical infrastructure needed for our digital activities, it’s both interesting and valuable to think about where this stuff wants to go, especially since tech is, in some ways, a decentralizing force for cities. Interestingly enough, they exhibit the same economies of agglomeration as many other urban activities in that they want to be near density and other data centers. Maybe even more so.

    Here’s an excerpt from a Harvard Business School report (2022) called “Where the Cloud Rests: The Location Strategies of Data Centers.”

    > The study finds a pervasive urban bias in the location of third-party data centers. For example, we find that all large metropolitan areas with over 700,000 population have at least one supplier. Less dense areas may or may not have any. Moreover, local entry rises with the presence of local information industries and intensive data users, such as finance, insurance, and real estate. Because less supply locates in the areas with lower density, a high fraction of buyers in small and medium-sized locations must get their services from non-local suppliers—likely located in the closest major city. Relatedly, we also find supply of more specialty services in denser and more competitive locations. We interpret all these patterns as the result of tension between economies of scale and user preference for proximity.

    And here’s a quote from LA-based Rising Realty Partners:

    > Once a data center hub is entrenched, it tends to create its own gravitational pull. Data center tenants want to be near other data center tenants. And the main hubs also boast high levels of connectivity. The calculus is straightforward: It’s far easier to run a fiber optic cable across the street or across town than to run a connection across the state or country.

    This is what is happening in Northern Virginia with “Data Center Alley” and what is now now referred to as the world’s largest data center hub. As of July 2024, Loudoun County, VA (which is located just 34 miles from Washington, DC) had 43 million square feet of existing data centers and ~47 million more square feet in the pipeline. This represents an increase of ~60 million square feet compared to where the area was as recently as 2022.

    Overall, there are only so many “primary” data center markets in the US. CBRE lists 8. This makes it a relatively concentrated real estate asset class in terms of geography.

    Cover photo by Claudio Schwarz on Unsplash

  • Raclette on the Bench

    February 21, 2025 · View original

    Neat B and I were on the Bench this past long weekend. Hidden Bench Estate Winery was doing “Raclette on the Bench” and so, naturally, we went to check that out. We’re suckers for Savoie-like mountain food. Anthony Bourdain was also right when he said, “you can never have too much cheese, bacon, or starch.”

    All of the above ingredients were local and we ended up sitting beside a nice lady from Upper Canada Cheese (the source of the raclette). She told us all about the benefits of A2 milk and explained that it’s why people often feel better consuming copious amounts of cheese in Europe compared to in North America, even if they’re lactose intolerant.

    After Hidden Bench, we decided to go down the street to Domaine Le Clos Jordanne. We had never been before but we actually served one of their wines at our wedding last summer. They specialize in chardonnay and pinot noir. As soon as we walked in the door, we were super impressed by the space, and our host Tamara.

    The interiors are by Solid Design Creative and they collaborated with Pamela Nelson on a really great 16-foot high art installation. It is meant to represent the “terroir” of the winery — namely its strata of limestone, clay, sand, and silt — and that is, of course, what their winemaker is all about. Turning the Bench region into liquid form.

    If you haven’t been, I would highly recommend a visit to both of these wineries, followed by a stopover at UCC for some A2-milk cheese. Or so I’ve been told.

  • Canada announces high-speed rail between Toronto and Québec City

    February 20, 2025 · View original

    Yesterday, the federal government announced that Canada has just awarded a high-speed rail contract to a consortium led by the Caisse de dépôt et placement du Québec. The plan, at least as it stands right now, is for the service to run between Toronto and Québec City, have a total 7 stations, and operate at 300 km/hour. And since this is the most densely populated part of Canada, this 1,000-km corridor is expected to connect and unify roughly half of the people in this country (~20 million people).

    However, many people are rightly reacting to this news with extreme cynicism. Some of the comments: It will never actually happen. It will never happen in my lifetime. The next administration will cancel it as soon as they get into office (and then we’ll have to pay hefty cancellation fees). It’ll be too expensive. This corridor is already adequately serviced by air travel. 300km/h isn’t fast enough and the technology will be outdated by the time it’s ever complete. And the list goes on.

    These are all valid and expected feelings. It’s almost as if we’re accustomed to politicians making lofty promises right around election time! And of course, deep down in side, I too share this same cynicism. History has taught us. I mean, look at John Tory’s SmartTrack proposal from 2014. This thing was supposed to be done by now. But instead, we are now in 2025 and not one station has been built and we’re down to only three on the books. Maybe this year will be the year for construction to start.

    This shouldn’t be the case. We shouldn’t have zero confidence in our country to be bold, get things done, and make transformational investments for future generations. So I’m putting cynicism and politics aside to say: let’s build! This is the right direction and attitude for our country to be taking. It’s positive for our economy, the environment, our international prestige, and our political integration, among many other things. Expect to hear more high-speed rail talk on this blog going forward.

    Image via Bloomberg

  • Which side?

    February 19, 2025 · View original

    Last week in Japan was the first time I had ever driven a car on the left side of road. I spent a summer working in Dublin many years ago but I never once drove while I was there.

    To be honest, I thought it was going to be more awkward than it was. But other than accidentally turning on the wipers a few times (they were on the opposite side to where turn signals typically live), it came to me pretty quickly.

    I also noticed that left-hand traffic seems to impact the flow of many other things in Japan. On sidewalks, for example, people walk on the left. And on escalators, everyone stands on the left (and walks on the right), whereas the opposite tends to be true in Toronto.

    Japan is also an orderly and rule-abiding place and so these conventions are widely followed. On more than a few occasions, I realized I was swimming upstream and then quickly switched sides.

    What’s interesting is how this directional convention permeates so many aspects of everyday life. Which begs the question: where and when did it start? Do the “rules of the road” always influence everything else?

    The answer seems to be that nobody really knows. There are many unproven theories. Some suggest that it has to do with how horses were ridden and walked, and that ~90% of people are right-handed.

    But I couldn’t find anything definitive. What we do seem to know, at least anecdotally, is that once a side is chosen, it broadly impacts how people generally move around. Pay attention the next time you’re on a busy sidewalk.

  • The 10 largest urban areas in the world

    February 18, 2025 · View original

    I have a new not-so-serious goal. I say not-so-serious because I’m busy with lots of other things and who knows if/when I’ll actually get around to this. So let’s just say that this goal is based on a strong interest. I would like to visit the 10 largest urban areas in the world.

    I was careful to say urban areas, because largest cities can be misleading. City proper boundaries are an arbitrary measure. What matters more are the built up areas.

    I have already been to a handful of them, namely the ones centered around Tokyo, Dhaka, and Mexico City. But there are more on the list that I haven’t been to.

    There are, however, two immediate challenges with setting a not-so-serious goal like this one. The first is that it’s not easy to come up with a definitive list of the largest urban areas. It’s nuanced and, for some cities, population estimates are very much rough estimates.

    The second is that population figures are constantly changing. So by the time I get around to this, many of the largest cities might be in Africa (current forecast for this century) and I may be checking off the wrong list.

    But let’s not let perfect be the enemy of good. Here’s what I came up with. And by “what I came up with,” I mean that I asked ChatGPT its opinion. This is the list I got:

    Then I asked the question in a slightly different way and got this list:

    Then I asked it to tell me its definition of metropolitan area vs. urban agglomeration:

    Finally, I asked it why Lagos, Nigeria was not on the list. Current estimates place this urban region at more than 20 million people (which would place it ahead of New York in the first list), but I don’t think anyone really knows for sure. Whatever the current number, it is widely understood to be one of the fastest growing city regions in the world. This is how ChatGPT responded:

    I’m a little torn because high on my list of cities to visit are São Paulo and Seoul. And they don’t seem to be finding themselves on the same list. I’m also very curious to see Lagos, and I have a suspicion that it’s much larger than official estimates. Regardless, there are some clearly big cities to check off. India and China would be good places to start. So I better get to work. Or not. Since this is a not-so-serious goal.

  • A return to local corner stores

    February 17, 2025 · View original

    Here’s a timely article talking about the difference between 7-Eleven stores in North America versus Japan, and why the Canadian company, Alimentation Couche-Tard, wants to buy the Japanese company for $47 billion:

    > So far, owner Seven & i Holdings Co. hasn’t been able to replicate that success at its 13,000 US and Canadian stores, better known for their constantly rolling hot dogs and 30-ounce soft drinks than their fresh food or their ability to inspire effusive posts from social media influencers. The Tokyo-based company, which has been closing underperforming North American stores faster than it’s been opening new ones, is now the target of a $47 billion takeover bid by a Canadian rival that says it can do a better job translating that overseas magic to the market.

    I have no idea if this will happen, but Couche-Tard has been trying to buy the company since 2005. If successful, this will create the largest convenience store operator in the world. It will also go down as one of the largest foreign takeovers in Japan. (On a related note, Couche-Tard tried to buy French grocery chain Carrefour SA in 2021, but that was blocked by the French Finance Minister.)

    What is clear, though, is that there’s an obvious user-experience gap between the stores in Japan and the stores in Canada and the US. As we talked about here, convenience stores in Japan serve solid food and act very much as community hubs. I didn’t know this until right now, but in Japan, people also use these stores to do things like send parcels and pay utility bills, and top chefs regularly judge the food.

    However, this is based on a supply-chain network that is, at least right now, unique to Japan:

    > In Japan, which is much smaller, the chain relies on a robust supplier network, where inventory and food preparation take place at more than 150 factories churning out breakfast, lunch and dinner. Product lineups and displays change quickly based on consumer tastes, with each store responsible for analyzing the sales of every product and adjusting orders to reduce waste and control inventory. It’s a management method known as tanpin kanri, which was even taken up as a Harvard Business School case study. “Japan’s convenience stores’ food preparation central kitchens and logistics infrastructure would be more challenging to establish and operate efficiently over vast areas in the US,” Boston says.

    There appears to be universal consensus that the key to unlocking additional value is more fresh food and overall better offerings. And presumably Couche-Tard is of the opinion that it will be a better operator and that it can figure out whatever supply chain is needed. Time will tell. But I find it interesting that all of this is arguably about creating a kind of “local corner store” that better serves people’s needs.

    Cities used to have these in spades. But then we zoned them away, scaled everything up, and optimized around rolling hot dog cookers and big gulps. So in many ways, this story is about a return to fundamentals. It’s about figuring out a way to serve quality products to local neighborhoods, in a globalized world. That sounds simple enough, but it’s clearly not easy.

    Cover photo by Lisanto 李奕良 on Unsplash

  • A home, an office, and a public space in Japan

    February 16, 2025 · View original

    In my recent post about “takeaways from Japan” I spoke about a willingness to experiment and be playful with the built environment. I said that quite often people design homes around what they want, as opposed to what they think might broadly appeal to the market. So today, let’s look at an example. Below is a site on the outskirts of Tokyo, about an hour from the center of the city. The architect — Kamakura Studio — describes it as being situated in a “new town” where about 75% of the residents have moved in within the past decade. And like Japan as a whole, problems of aging and population decline are expected in the future.

    Using Google Maps to get rough dimensions, the site looks to be somewhere around 8m wide by 11m deep. So this is not a huge site compared to what you might find in the suburbs of other cities, but it’s certainly a very workable set of dimensions. Also noteworthy is the fact that the area has no sidewalks. This is common throughout Tokyo. Ordinarily, this would imply a suburban mental model. But in practice, Tokyo’s streets actually feel very pedestrian-friendly. And that’s because they tend to be narrow and the entire city is oriented mostly around rail.

    What was ultimately developed on the site is this (House F):

    Totalling 169 m2, the first floor of the house serves as an office for the architect and as an open space for the local community. The firm opens up the space to people who may want to stop in for coffee (or just hang out) and for movie nights. There’s even a “plant-sharing network” on the terrace where dozens of households supposedly contribute and participate. On the second and third floor of the house are the domestic quarters. Here there are two generous bedrooms, study spaces, and multiple balconies, one of which provides access to a rooftop terrace.

    It’s a highly livable house, but it’s also designed to meet a particular set of ambitions. I mean, look at the above coffee window. And this is one of the really cool things about domestic architecture in Japan. (If any of you are familiar with how the zoning would work for a site like this, I’d love to understand that.)

    Project images via Kamakura Studio