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.
This past Monday, I got together with David Wex (of Urban Capital) and Rick Sole (my business partner) for a night of DJ’ing electronic music. We called it our inaugural developer rave session and it was a ton of fun. I (mostly) had no idea what I was doing. Rick and David were great. And together, we played to a sold out crowd that consisted of two of our wives.
David was also kind enough to host us at his bar Lisbon Hotel (it’s closed on Mondays). Which is why when I posted some of the above photos on X, Affan Imran asked if we are calling ourselves the Lisbon House Mafia. I thought that was pretty good. And since I’m still in search of a proper DJ name, that’s the title of today’s post.
Maybe when we do this again, we’ll open it up to more than 2 people. Maybe.
I have a very close friend (Peter Vogel) who is in the solar business. He runs business development for a company called Otter Energy. And by volume, I believe they are the largest in Ontario. Since 2009, they have installed over 350,000 panels.
So when Peter and I hang out, I get the benefit of learning about solar. And he is great at reminding me that installing panels on the roof of buildings in Ontario makes a ton of sense from both an environmental and financial standpoint.
Generally speaking, the amount of benefit you will see depends on the building’s ratio of roof area to overall building area. Low-rise buildings with a lot of roof area (think industrial assets), are absolute no brainers. But it can also work very well on many other asset classes, including mid-rise multi-family.
Here are some high-level figures that he recently walked me through:
As a rule of thumb, solar in Ontario typically generates between 12-14 kWh’s per year per square foot of roof area (usable flat roof).
The average payback period for an install is usually somewhere between 4.5 to 7 years.
However, on income producing properties, the permanent decrease in operating expenses and the corresponding increase in net operating income (NOI) will increase your asset value on day one.
Consider spending $100k on solar panels to increase your NOI — through lower electricity costs — by $10k. If you were to then capitalize this increase in NOI by 5%, it would mean your asset value has right away increased by $200k. If the cap rate for this asset is even lower, say 4%, the increase goes up to $250k.
These multiples can get even better with larger installs. Here are some numbers from a real-world 100,000 sf commercial building in Ontario. In this case, the solar system cost about $800k (net) and resulted in annual operating cost savings of about $140k. This means, that at a 5% cap rate, the owner spent $800k to increase the value of their asset by $2.8 million on day one.
Of course, in addition to all of this, you get long-term energy cost certainty. That’s worth something too.
The business case is compelling. So I think more building owners should be looking at solar. We are certainly looking at it from a development perspective. If you’re interested in learning more, feel free to reach out to my friend. There are a lot of details that help strengthen the case for solar, including depreciation allowances and tax credits.
In my humble and partially biased opinion, two of the greatest places on earth to snowboard are the French Alps and Utah. I say the French Alps because, after 13 years of annual trips, I have yet to find better food and better après parties. And I say Utah because it’s, like, pretty hard to beat the greatest snow on earth.
France was the preferred choice since June. And Utah was the only choice for 2034. To host the Winter Games, you generally need to have at least two things: money and snow. And right now, fewer places want to spend the former on something that may or may not generate an ROI, and fewer places are getting the latter.
Remember this post looking at the impact of climate change on the Winter Olympics?
Because of these challenges, there is talk of the IOC adopting a permanent rotation of Winter Olympic cities. And Utah has been eagerly positioning itself to be one of the places. Biases aside, this feels like an obvious choice. Salt Lake City has some of the best and most accessible snowboarding in the world (SLC is a great airport) and — most importantly — it still snows there.
If you do a search for the number of electric vehicle charging stations in the US, you’ll likely get a number somewhere around 160,000. But to better understand what this means, you’ll probably want to ask a few follow-up questions:
Are these individual charging ports (for a single vehicle) or are these stations (locations with multiple charging ports)?
How many of these chargers are private versus publicly-accessible?
And how many of these are DC fast, versus just level 2? Level 2 is what most people have at home (I think), whereas DC charging is what you need if you’re stopping on the side of the road and need to supercharge your car in 20-30 minutes.
Usually the biggest fear with EVs is range anxiety. We have come to expect that we’ll be able to find a gas station when we need it, but, for the most part, we don’t yet feel that way about EV charging stations.
So for this concern, the more precise question would be: How many publicly-accessible DC-fast charging stations are there in the US? This is the filter that gives you stations that would be most comparable to how gas stations function today.
Of course, it’s probably safe to assume that the pace of EV adoption will only increase. And that means that this flip could happen well before 8 years. In my mind, that’s soon.
I’ve never been to Nashville, but I hear it’s a pretty good city for music. According to this new report from PennPraxis, titled the Nashville Independent Venues Study, the city has 252 venues that showcase live music. And more than 100 of them are solely dedicated to music.
This gives Nashville one of the densest clusters of live music venues per capita, anywhere in the world. I also remember reading somewhere that the majority of venture funded startups in the city are in the music industry. So Nashville has a real music ecosystem going.
Of course, when you’re really good at something it can create a dual-edged sword. In the case of Nashville, this success has led to growth, more bachelor/bachelorette parties being hosted in the city and, ultimately, developers wanting to build lots of new things.
Right now, the city seems to be grappling with how best to balance this growth against the preservation of its live music scene. And that’s what this new report is focused on.
Yesterday afternoon, I took the 504 King streetcar from the Bloor-Dundas West mobility hub down to King & Bathurst to meet a friend at the Wheat Sheaf Tavern. In case you didn’t know, this is believed to be the oldest continually-operating pub in the city. It opened in 1849.
My streetcar ride took an obscenely long time (over an hour) and so it was the wrong mobility choice for a peak summer afternoon. I should have biked. But once I did finally arrive at Toronto’s oldest pub, it was great to see all of the activity happening right at the intersection for the new King-Bathurst subway station (Ontario Line).
I’m always a bit cynical when it comes to transit plans. Like, it’s hard for me to believe that something is actually happening. I’m still waiting for SmartTrack to open. So I need constant visual reminders like these:
What you are seeing above is the northeast corner of the intersection, which is where one of the two station entrances will go. Naturally, the station platform and track itself are also aligned on a diagonal so as to minimize “significant construction impacts” to the Wheat Sheaf (southwest corner).
This stop is also one of Infrastructure Ontario’s Transit-Oriented Communities, which means the intent is to have a private developer build things on top of the station. Directionally, this is, of course, the right approach. It didn’t happen on the Eglinton Crosstown line; but we know that the best way to maximize the value of transit investment is to combine it with smart land use planning (the rail + property model). Density is your friend.
From what I could glean during my time on the patio at the Wheat Sheaf, all of this appears to be moving forward. And already today, there is a ton of foot traffic in the area — meaning the future transit station should do very well from a ridership perspective. Now we just need this line extended up to the Bloor-Dundas West mobility hub so that the 504 streetcar can be relieved of some of its duties.
The minimum size of a parking space in Toronto is 2.6 m wide x 5.6 m long. (It can change based on other factors, but this is all you need to know for today’s post.) This works out to 14.56 square meters or ~157 square feet in area for a typical spot.
Building a parking space of this size in an underground or structured parking garage is very expensive. I have seen the former cost over $200k per space once you include everything else that goes along with building below-grade parking.
However, this opinion piece reminded me that if you’d like to rent an equivalent area on the streets of Toronto, you can do that for a lot less. If it’s your first vehicle permit and you have no on-site parking where you live, the 2024 cost is $22.19 (plus HST) per month.
That works out to a monthly land rent of approximately $0.14 per square foot.
This is an important chart from a recent study commissioned by Greater Wellington, New Zealand. The study looks at the cost benefits of urban intensification and the above chart shows the relationship been density and infrastructure costs. For this study, they specifically looked at the costs that local governments face in providing road, public bus transport, and “three-waters infrastructure.” I hadn’t heard this latter term before, but it refers to drinking water, wastewater, and stormwater.
What they obviously found was that there are real economies to higher densities. More density lowers the per dwelling cost of delivering infrastructure. In the case of three-waters infrastructure, it doesn’t even really matter if you’re proximate to reservoirs or treatment plants. The bulk of the cost lies in the local connection pipes. So what matters most is how many dwellings you can service off of the main lines — even if these lines need to be upsized.
The goal of this study is to enable more support for smart growth within the Wellington region:
Regional councillor Thomas Nash says the report should give councils confidence to press on with plans that support compact mixed-use development in and around city centres and connected by high quality public transport.
“Regional growth needs to be smart growth. This report clearly shows that the best bang for our buck is to focus on upgrading existing water, public transport and local roading infrastructure so that we can build better quality, compact residential form, with improved amenities within our cities and towns,” Cr Nash says.
Of course, this doesn’t just apply to Wellington. Every city should read the study.
Urbanation just released its Q2-2024 condominium market survey for the Greater Toronto & Hamilton Area (GTHA), and we should probably talk about some of the data:
The new condominium market reported 1,688 sales in the quarter. Outside of Q2-2020 (the pandemic), this is the lowest in the past 20 years. Note: This number is self-reported by developers.
Of the 3,625 homes launched for pre-sale during the quarter, only about 17% got absorbed/sold. That’s about ~616 homes, which isn’t very much when you spread it out across the region’s projects.
Unsold inventory increased to 25,893 homes. Urbanation equates this to 34 months of supply, versus a more “balanced level” of 10-12 months. This number breaks down to 15,157 homes in pre-construction projects, 9,788 homes in projects under construction, and 948 homes in recently completed buildings.
This is higher than Urbanation’s 20-year average, but the way I see it is that the ~15k homes in pre-construction projects could very quickly evaporate. If those projects don’t get to construction (and most probably won’t in the short term), then that inventory will disappear from the market. On the other hand, the ~11k homes under construction or recently completed is a hard number. These homes exist, or will soon exist, and they’ll need to get absorbed at some point.
There are also going to be homes that are currently sold, but where buyers ultimately say “yeah, I’m not going to be able to close.” So there will be some non-zero percentage of homes that will need to be reabsorbed. I don’t know what this percentage will be, but if it’s something like 5%, that’s not nothing. (See below for the number of condominiums under construction right now.)
Not surprisingly, average asking prices for unsold homes only declined about 2.6% over the past year. Prices have remained markably sticky. And this is how you know that development happens on the margin. Because developers are infinitely better off selling homes and starting construction, compared to holding lots of unsold inventory and starting construction, whenever. The fact that developers aren’t dropping prices to sell more homes demonstrates that they can’t. They’re hitting the floor of financial feasibility.
Finally, last quarter saw 727 new condominium homes start construction. In theory, this could have been a single tall building, though that probably wasn’t the case. As new starts fall, the number of condominiums under construction will naturally also fall. The current number is 87,508 homes, which is almost 19,000 less than a year ago. I expect this number to keep coming down.
One way to describe cities is to call them labor markets. Historically, people have chosen to live in cities because they have provided economic opportunities (among, of course, many other things). That’s why the data is very clear: wages are higher in larger cities.
But what we have also seen over the last few years — and what is causing a lot of dislocation in real estate markets — is an untethering of work. More people are working from home and from locations that offer greater lifestyle benefits (or greater tax benefits).
We spoke recently about what this divide between in-person and remote work might mean, but regardless of this outcome, I think there’s an important truth here: Lots of people would like to live somewhere else. (In my case, my daydreams take me to Paris.)
And for the first time ever, really, it is possible for more people to do this and stay connected to work somewhere else. Earlier innovations, such as the streetcar or car, also compressed geographies and empowered people to travel greater distances. But now the catchment area has seemingly expanded to the world.
I’m not saying anything particularly novel here, but I do think it’s important to point out that this desire exists in many of us. Because this tension between “I do work here” but “I really want to live over there” seems like it’s only increasing.
