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.

Subscribe

  • Ideal end state

    A friend of mine sent me this X post today.

    It covers two important life questions: (1) How do you define success? (2) Are your actions aligned with that definition? And included in the post is the author’s “ideal end state”, which is a list that includes things like “control 80% of my schedule”, “be top 0.1% fit for my age group”, and “thriving marriage with regular 1-on-1 time.”

    Some of his list has checkmarks, and some of it — things like “small, beautifully designed home with an epic view” — is still a work in progress.

    After I got the message, I immediately responded with: “This is great. I’m going to do this for myself.” I then sent it to my family.

    Now, in some ways, I’m already doing this. I like lists and I have a lot of them. Some of them are “disciplines” that tell me to do things like write every day (that’s what this blog is), lift weights, and continuously practice my French. And some of them deal with aspirational goals like, build a creative retreat in the mountains because you love snowboarding.

    But I think there’s a lot of room for me to be even more intentional, and aspirational, about what success means to me. And so that’s what I plan to do. Maybe some of you will want to do the same after reading this post.

  • Rent-controlled apartment

    It is estimated that about 1% of the total housing stock in New York City is rent controlled (2019 figure), which is something different than rent stabilized.

    Generally the way the former works is that you have to have been living continuously in the home since July 1, 1971, and the building itself needs to have been constructed before 1947. If this is the case, then in theory, you should have seen relatively minor rent increases over the years.

    This was the case for the late real estate agent, Alice Mason, who died at the beginning of this year at the age of 100:

    She never left the rent-stabilized [controlled?] apartment where she held her storied dinners, in a century-old building on East 72nd Street. (In Manhattan real estate parlance, it was a classic eight, a gracious prewar layout that included three bedrooms and two maid’s rooms.) In 2011, the developer Harry Macklowe bought the building for a reported $70 million and began to turn the units into condos, buying out the tenants to do so. But Ms. Mason refused to give up her apartment. When she moved there in 1962, the rent was $400 a month. At her death, it was $2,476. The apartment below her, in the same line, was recently on the market for just under $10 million.

    Green, Penelope. “Alice Mason, Real Estate Fixer and Hostess to the Elite, Dies at 100.” The New York Times, 13 Jan. 2024, www.nytimes.com/2024/01/11/style/alice-mason-dead.html.

    For better or for worse, this is an obviously awesome deal, and reason enough to never move and have family members move in with you before you die so that you can try and pass down this asset for generations to come.

  • How I’m displaying my NFT art

    I recently got a Samsung Frame TV to use as an NFT display at home. I had been looking for one for a while and I finally pulled the trigger last week. The way the Frame works is that it’s a TV when it’s on, and it’s an art display when it’s off. But I really don’t care about the TV part. I just wanted a good looking art display.

    There are a lots of purpose-built NFT displays on the market right now, including Tokenframe, Blackdove, Muse, and others. And I was very close to getting a Muse Frame.

    But ultimately I decided on the Samsung Frame because it was (1) cheaper for its size (50″), (2) it looks cool, and (3) I was fine with just a simple high-quality display. I think there will be lots more software and dongles created in the future for people who want to showcase their NFTs on whatever they happen to have at home.

    However, if you’re a crypto and NFT purist, this maybe isn’t the display for you — at least right now. Out of the box, it doesn’t connect with any crypto wallets. And so you’re not going to automatically see the provenance of each art piece (more on this below). Instead, the default method is to just upload JPEGs to the TV from Samsung’s SmartThings app (insert right-click-save-as jokes here).

    Overall, I’m really happy with the display. Here are my initial thoughts:

    • I have it set to randomly rotate through my art every 3 minutes. There’s also a motion detection feature that works reasonably well. If it doesn’t detect any motion, the display will go completely to sleep. But for some reason, it occasionally gets possessed and the TV will randomly turn on. Last week it kept turning on old Baywatch episodes. Possibly user error.
    • Samsung’s SmartThings app is bad. It’s buggy and a pain to use. For example, even though I’ve given it complete access to my phone’s photos, they never seem to show up. I have to limit access and then go and select the ones I want to use in my gallery.
    • I have found that I prefer when the art is full bleed versus within the Frame’s skeuomorphic picture mat. This is a new form of art and so I like the idea of breaking past traditions. But unless your images are 16×9 and a high enough resolution (I have generally found > 3000px wide to work), then you’re going to get prompted to insert and select a mat design.
    • I have solved this problem by manually cropping and editing the individual pieces. Some NFT collections, such as CyberBrokers, also give you vector files which allows you to play around as you see fit. Again, if you’re an NFT and/or art purist, you’re probably not going to like this. But I think of it as curating the pieces.
    • Most of my art is on Ethereum, Solana, and Tezos. Being able to upload whatever I want is helpful, because not all NFT displays support all of the chains. The Muse Frame, for instance, only supports Ethereum and Polygon right now.
    • PNG files and video files aren’t supported natively. This is a significant drawback and so eventually I know I’m going to have to change up the software that powers this display. And there are options. Bright Moments offers display software for holders of its NFTs. Fred Wilson’s venture firm USV created this setup. And I’m sure there are countless others. These can solve the provenance issue mentioned above by pulling directly from the various blockchains.

    In the end, I knew what I was getting into with the Frame. I knew it wasn’t a purpose-built NFT display and I was fine with that. It’s still early days in this space. But it sure is nice to finally see my NFT art in large format.

  • Does every real estate developer really do this?

    I am not a lawyer. Nothing I write on this blog should be construed as legal advice. In fact, it is highly questionable whether anything I write here should be construed as any sort of advice. Still, Trump’s fraud trial is an interesting one for us to discuss. The case, as I crudely understand it, accuses him of “inflating his net worth to dupe banks” and “issuing false financial statements every year between 2011 and 2021.” And possibly some other things, too.

    Now there are some people who are saying that there’s nothing actually wrong with the way Trump conducts his real estate practice. Kevin O’Leary, for instance, was just on CNN saying, “every real estate developer everywhere does this.” His position was that if you’re going to fault Trump, then you need to go after every developer out there. Here’s the video interview where he says this:

    Let’s break this down. Kevin is right in that people who own real estate ordinarily want it to be worth as much as possible. This is true for individual homeowners and it’s true for large real estate companies. And there are various reasons for this. One reason is that it maximizes your debt proceeds. For example, if you buy a building for $100 and the banks are willing to give you a loan based on a LTV (loan-to-value) of 70%, then you will get $70 in debt proceeds and you will need to put in $30 of your own cash equity.

    However, if you buy a building for $100 and it ends up being worth ~$143, then this same 70% LTV will result in $100 of debt proceeds. This means that you won’t need to put in any of your own cash and that, for all intents and purposes, you just got a building for “free.” By most metrics, this would be considered a good real estate deal. (Of course, you could also buy a building for $100 and have it be worth only $50. And this would be much less fun than getting free real estate.)

    One important question, though, is how does the building end up “being worth $143?” Well, one scenario could be that you just bought really well. It was an off-market transaction (i.e. it wasn’t formally listed), the seller was highly motivated, and so you negotiated a below-market purchase price. You then went out and hired a reputable third-party appraiser who did a bunch of rigorous research and issued you a report that said, “your building is worth $143.” And this would be perfectly fine.

    But one can also imagine ways in which someone could lie and do nefarious things to try and convince people that their building is worth $143, even if it clearly isn’t. Now, at the end of the day, I don’t know the facts of this case. So I can’t comment directly. But I did want to use this as an opportunity to add some nuance to Kevin’s claim that “every real estate developer everywhere does this.” Ultimately, that depends on what “this” is. Are we talking about doing customary things to maximize value creation? Or are we talking about fraud?

  • The rise of global citizens

    Leisure travel, according to Resonance, is growing:

    In fact, spending on leisure travel and recreation has outpaced the overall growth in consumer spending over the last decade, and inflation-adjusted spending on leisure activities as a share of overall consumer spending grew from 9.5% in 2013 to nearly 13% by 2022. This means that the travel and tourism industry is getting a growing share of a growing pie, which bodes well for the long-term future of those hotels and destinations that cater primarily to leisure travelers.

    And so are blended trips (trips that combine business and leisure). Though the way people are going about it has evolved:

    What used to involve adding a day or two on the weekend to a weekday business trip has shifted to the mixing of business and pleasure throughout the week. With a greater percentage of the workforce in the U.S, Canada and the U.K. only going into the office 2-3 days per week, workers from these countries are free to blend their travel for up to a week. And with as much as a quarter of professionals in the U.S. now working remotely, a whole new class of nomadic travelers has emerged who are able to travel anywhere, anytime—as long as their accommodations have adequate high-speed internet and appropriate workspaces.

    At the same time, cities are really clamping down on short-term rentals, which is a common way people do blended trips. Resonance believes this will create new opportunities:

    But while increased regulation and enforcement of the sector will wipe out the businesses of many “professional” hosts and investors, it’s also creating new opportunities for cities and developers to create new neighborhood-oriented hotels that satiate travelers’ desire for local experiences while also being additive to the quality of life of local residents.

    It might be the case that these two things are inversely correlated. More people are traveling for fun and for work, and so now cities are trying to manage that demand; more travel leads to more regulation. Whatever the case, I do agree that this is an important consumption trend.

    My working theory is this: if money wasn’t an object, a lot of people would love to have homes all around the world and live in multiple places. I certainly would. And the list of places is already in my phone. But since this isn’t practical for most, we have Airbnbs, neighborhood-oriented hotels, Soho House global memberships, and the ability to buy fractions of second homes.

    These solutions all respond, at least partially, to our desires for new experiences and for a deeper attachment to places. But now that tech is expanding the reach of cities, these desires are becoming further untethered. And so my view is that there’s going to be a lot of opportunity in the world of “making people feel like they’re global citizens.”

  • Rescue reflectors vs. avalanche beacons

    Last week, I decided to order a RECCO rescue reflector for my snowboard helmet (the red strip pictured above). My new jacket — a wonderful Christmas gift — doesn’t have one built in, so I decided it couldn’t hurt to just stick one on. They cost about $50.

    However, a passive RECCO reflector is not an avalanche beacon. These reflectors only work if a rescue crew has active RECCO detectors on hand. I don’t know what percentage of resorts have them, but if you’ve ever been cat or heli-skiing, or if you do backcountry skiing, you’ll know that what you need is a beacon.

    Avalanche beacons generally have two modes: a sending mode and a receiving mode. When you’re riding, you want it in sending mode, meaning you’re automatically transmitting your location. No further action is needed.

    If something bad were to happen, and someone gets lost, everyone in the group will then switch their beacon to receiving mode. And this is how you go about finding someone if they’ve been caught in something like an avalanche.

    I don’t know that many people who do this while skiing inbounds, but today’s tragedy at Palisades Tahoe is a reminder that sometimes bad things can happen even within managed resort areas. My heart is heavy for the skier who died today.

  • Toward positive ZOPAs

    This example, by Matt Levine, is a funny way to understand how many negotiations work:

    In negotiations, it is often helpful to have someone else, some “absent principal,” to blame for your position. You go to a car dealership, the salesperson says “this car costs $25,000,” you say “I want to pay $21,000,” she says “I like you, I want you in this car, but my boss won’t let me go lower than $24,000,” you say “$22,000,” she says “I really want this to work out, let me check with my boss,” she goes into the break room and watches TikToks on her phone for five minutes, she comes back and says “my boss is really mad at me but I talked him down to $23,500.”

    The boss is a crutch, an excuse. The salesperson is adversarial to you — she wants to charge more, you want to pay less — but wants you to feel like she’s on your side, so you trust her and agree to her proposals.

    Now, Matt ultimately goes on to talk about how in some situations, such as in the financial industry, this could be considered criminal behavior. But that’s a more nuanced topic for his column, and not for this blog. Here, we’re just going to use it as a lead-in to say that negotiating is kind of important for real estate.

    In fact, when I was in grad school, my mentors used to always say to me, “everyone should take a negotiating class.” And so I went and did that. It was a lot of fun. I remember us being given “positions”, and then we’d have to go out and see what we could negotiate.

    One particular concept that I often find myself coming back to is something referred to as the “ZOPA.” The Russians in my class were quick to point out that this sounds like the word ass in their language, but in the world of negotiating it stands for “Zone of Possible Agreement.”

    What it describes is whether there’s an overlap between what both parties are willing to accept. For example, if a buyer is willing to pay as much as $100 for a particular piece of real estate, and the seller is willing to go as low as $80, then there is a positive ZOPA of $20.

    This means that a deal should theoretically happen. However, interestingly enough, I discovered in my classroom simulations that negotiations can still arrive at an impasse, even with a positive ZOPA. Some people want to do deals, and some people like to extract everything they can from a negotiation.

    Of course, if you have a negative ZOPA (i.e. no overlap in what the parties are willing to accept), then it’s obviously pretty hard, if not largely impossible, to come to a deal. And since 2022, you could say that the real estate industry has been characterized by a greater number of negative ZOPA scenarios.

    But if my predictions for this year are correct, then 2024 will be the year where we start to see some more positive ones.

  • Building a home on a constrained site

    I’m so predictable. This is the kind of house that tends to grab my attention: modern design, relatively small footprint (~7.8m x 12.3m), narrow street (~4m), and panoramic views (of Seoul). But what does it take to actually build a house like this in an urban fabric as dense as Seoul’s?

    If you read TIUM Architect’s description (using Google Translate for those of us who don’t speak Korean), you’ll see that the house was built out of concrete and steel, but that concrete trucks couldn’t stage on the narrow and dead-end street.

    So what they ended up having to do was build a 100-meter concrete conveying pipe (~328 feet) and staging somewhere else. It was such a pain in the ass that they only wanted to do this for the foundations. The rest of the house was built out of steel. (I think because of the clear spans that they wanted.)

    Sometimes small infill projects aren’t as simple as they may seem. In this case, the lot size is 92 m2. The building footprint is 51.53 m2 (56% lot coverage). And the total floor area is 136.52 m2.

    Photo: Lee Hanul via ArchDaily

  • More retailers are buying real estate in New York

    Last week we spoke about how many businesses don’t want to own their own real estate, but that some do. We then spoke about Prada’s recent acquisition of 720 and 724 Fifth Avenue for $835 million. However, they’re not the only ones. According to New York’s The Real Deal (thank you John Bell for the article), last year saw the following transactions:

    • Swiss fashion house Akris bought a property from SL Green for $40.6 million
    • Japanese coffee retailer Geshary bought a property on Fifth Avenue from the Riese Organization for $38 million
    • And Dyson bought a building in Soho for $60 million

    Now, some, or a lot of this, is strategic. New York is New York, and global brands need to be there. Another part of this is that there was less competition last year. Fewer real estate companies wanted to buy retail and office buildings, and so end users seem to have stepped in at what they presumably saw as favourable prices.

    But it’s also not totally foreign for retailers to want to own their own real estate. Perhaps the most famous example is McDonald’s, which owns its own real estate and then leases it out to franchisees. Though as I alluded to last week, it’s important to know what business you’re ultimately in. And McDonald’s knows it’s in the real estate business.

  • Live from the co-working space at Junction House

    Yesterday’s post was written in the co-working (/lobby) area of Junction House. I wrote about this space nearly a year ago when it was under construction, but now it’s complete and people like me are using it:

    I spent a few hours working in the space yesterday, and it was amazing to see residents and guests coming and going. Some people were waiting to meet someone. Some people were just playing on their phones. And others, like me, were jumping on and off calls and writing blog posts. Later in the evening, it transitioned to guests carrying bottles of wine and flowers.

    This was always the intent of this “amenity.” We wanted to create a social space for residents and guests, replicating a bit of the feeling that you might get in a hotel lobby bar. But ultimately, this is the kind of space that will almost certainly evolve over time, depending on how residents choose to use it. It’s not rigidly defined; it’s more of a flex space.

    It’s also worth mentioning that this space was designed well before COVID. A lot of people have asked us if this was in response to that, hoping to identify tangible ways in which design has responded to the pandemic. But honestly, we didn’t change anything. Gathering spaces were important before, and they remain important today.

    I guess in many ways this is a space that sits somewhere in between a “first place” and a “third place.” It’s almost a first place in that it’s in a building that people call home. But it’s also a more public social environment that isn’t technically home or work. So I’m really looking forward to seeing how it settles in and evolves over time.

    I’ll report back.