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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Search results for: “opendoor”

  • Swiss running brand On opens NYC flagship

    Swiss running brand On recently opened up a new flagship store in NYC’s NoHo district. It was designed by the Swedish architect and designer Andreas Bozarth Fornell (whose firm is called Specific Generic), and I think it’s a good example of the whole push toward “experiential retail.” Before Zappos there was a belief that nobody was prepared to buy shoes online. Surely shoes are something that you need to try on to make sure that they fit properly. But then Zappos and Tony Hsieh came along and decided to offer free returns so that you could just order a few different sizes to try on at home and return the ones that don’t fit. And then just like magic, we’re now living in a world where I myself couldn’t tell you the last time I bought a pair of shoes offline.

    What is obvious at this point is that people will buy pretty much anything online — everything from boats and real estate to shoes and tires — and so, in many cases, the physical retail experience needs to be exactly that — an experience. Something special. What On has done with their flagship store in NYC is try and create a space that, among other things, tells their brand story, acts as a hub for the local running community, and offers up a unique technological experience that is likely pretty difficult to replicate online. One of the key features is a “magic wall” that analyses your technique and scans your feet as you run past it (pictured below). The invisible foot scanner is supposed to help you find the perfect shoe size, accurate to within 1.25mm.

    If you’re a serious runner, I could imagine this being a pretty appealing in-store experience. (And if you’re not a runner, I guess you could just take a selfie in front of the magic wall. People seem to like pink walls). Whatever the case may be, I think On has done a great job trying to rethink the retail experience around its brand story and philosophy. But it leads me to a bunch of questions. Which brands and/or products are suitable for a new retail experience? (Does toilet paper, for example, want a new high-tech warehouse space in NoHo?) Assuming we continue down this path toward experiences, does this ultimately lead to less retail space per capita? Probably. And if we’re destined for less space, what does that ultimately mean for the ground floor experience of our cities? What should these spaces become? How does street life evolve?

    Cities aren’t going anywhere. But change is inevitable.

    Images: On

  • CloudKitchens has spent more than $130 million on property over the last two years

    According to a recent Wall Street Journal review of property and corporate records, Travis Kalanick’s ghost kitchen startup, called CloudKitchens, has spent over $130 million over the past two years buying more than 40 properties in about two dozen cities.

    Travis is co-founder and the former CEO of Uber and this latest startup provides commercial kitchens to restauranteurs who are looking for a low-cost way to launch delivery-only food concepts.

    In some ways, it can be compared to coworking spaces for delivery-only restaurants. Instead of renting a full restaurant space, you lease 200-300 square feet of real estate at a lower cost address. CloudKitchens then handles all of the distribution and fulfillment, effectively lowering the barriers to entry for food startups.

    Some of the properties that they have been buying include a vacant restaurant space in Miami Beach for $9.2 million (May 2020) and an industrial property in Queens, New York for $6.6 million (March 2020). They’ve also bought in cities like Portland and Las Vegas.

    As you might imagine, now is a pretty good time to be buying some of these properties. And if you think about it, there are some real cost advantages to what they are doing, not to mention some co-working-style arbitrage on the real estate.

    The company is apparently going to great lengths to conceal what and where they are buying. But what is perhaps more interesting is their asset-heavy approach. They’re buying lots of real estate, which is inline with what companies like Opendoor are doing, but is distinct from Uber’s asset-light approach.

    It is also different from what many other ghost kitchen startups are doing. It seems that most are leasing their spaces. There has to be a reason for this difference.

  • Weekly link roundup — laneway housing to SPACs

    Here’s a weekly round up of links and articles that you may find interesting. The topics cover the sorts of things that we usually talk about on this blog.

    • The latest Mackay Laneway House update is now live on the Globizen Journal. The ground floor steel is complete, with framing currently underway. The post has some background on the challenges faced in order to get to this stage.
    • Brick comparison. Here’s a recent tweet of mine. I’m curious if any of you can tell the difference between these two brick finishes and if you have a clear preference. One of them is stamped concrete and the other is real brick (precast concrete with brick slips).
    • Pools as art. Apparently this is a trend right now, but it’s not necessarily a new one. Pablo Picasso accidentally created one when he “signed” the bottom of one in Spain back in the early 1960s. A pool would be fun right now. [FT paywall]
    • Alley house in King’s Cross by architect David Adjaye is currently on the market for £6.5 million. Lots of black. I love the mint green room with the exposed concrete ceiling. Oh, and there’s a pool.
    • Nightclubs are, not surprisingly, really struggling. Most have been closed since March. Unlike restaurants, you can’t really hack together a solution with outdoor dining, heat lamps and takeout. They’re predicated on people being proximate to each other. [Sorry, another FT paywall]
    • SPACs are so hot right now, particularly in the world of Chamath Palihapitiya and Social Capital. A good follow-up to this week’s earlier post about $IPOB’s merger with real estate startup Opendoor.
    • Monocle has just published a new book about “gentle living.” It’s a guide to “slowing down, enjoying more and being happy.” I’m trying to do more of this, or at least be more mindful about it. It doesn’t always/usually work. Perhaps I need this book.
    • “Decade of the home.” Opinion piece about the current desire for suburban over urban locations. If you’re a regular reader of this blog, you’ll know that I am steadfast in my belief that urban life is going to prove to be incredibly resilient on the other side of this.
    • McKinsey report about the impact that lockdown is having on digital adoption, e-commerce penetration, and the overall customer experience. You’ll need to enter some information in order to download the PDF, but it’s free.

    Photo: Lost House by Adjaye Associates via The Modern House

  • Revolutionizing the online buying and selling of consumer real estate

    This week it was announced that Social Capital Hedosophia II — a special purpose acquisition company associated with Chamath Palihapitiya — will merge with the real estate startup Opendoor, effectively taking the company public. Without going into all of the details, SPACs are kind of popular right now. They’re a way to take companies public without going through the traditional IPO process. And Chamath is clearly a believer in the approach, as he has gone ahead and reserved all of the symbols from “IPOA” to “IPOZ” on the New York Stock Exchange. $IPOB is what will be merging with Opendoor.

    But SPACs are not the point of this post. The point is that I have written a lot about Opendoor over the years on this blog. (Here are those post.) And I’m pretty sure that, on a number of occasions, I have referred to it as one of if not the most promising consumer-facing real estate startup. So in my view this announcement is a pretty big deal for both the company and for the industry. As Chamath puts it in the below investment thesis, “real estate is the largest, undisrupted form of buying/selling in the US worth more than $1.6 trillion annually.” And it’s only a matter of time before that process moves online.

  • A transactional real estate marketplace

    I would like to revisit the post that I wrote last week about the Brazil-based real estate startup, Loft. In it, I said that they are doing in Brazil what Opendoor, and others, are doing in the US. They are buying and flipping homes using algorithms. This has become known as “iBuying” and we’ve talked about it a lot here on the blog.

    But we have also talked about how this is probably not the end game. These companies are seeding a marketplace, because in every new two-sided marketplace you are always faced with a chicken-and-egg problem. You can’t attract supply if you don’t have demand. And you can’t attract demand if you don’t have supply.

    In reading the investment announcement by a16z, this larger vision is pretty clear:

    They [Loft] are building a transactional marketplace for the biggest asset class in the world, starting in the biggest market in Latin America, on a time horizon that makes it hard to believe it’s been less than a year since the PowerPoint. They buy homes, fix them (often according to formulaic specifications provided by active buyers), and sell them — what is now known as “i-buying,” with the vision of turning this into a transactional marketplace.

    If successful, these companies will transform from just “iBuyers” to fully fledged marketplaces for the buying and selling of homes. And when that happens (I believe it’s a when), it is likely to mean dramatic changes to the commissions landscape. Today, over $100 billion in residential real estate commissions are paid out across the United States each year.

  • Software eats real estate

    At the beginning of this year, a16z announced that they co-led a $175 million investment in the real estate company Loft. Based in São Paulo, Loft is doing in Brazil what Opendoor is doing in the US. They are bringing more liquidity to the residential real estate marketplace, and it turns out that the need for this is even greater in Brazil. That has apparently made Loft one of the fastest growing real estate companies in the world today. Here are some interesting facts about residential real estate in São Paulo. And here is a talk by Alex Rampell (general partner at a16z) on how software is going to eat the real estate world.

  • Algorithmic home buying expands to Los Angeles

    Algorithmic home buying companies (or iBuyers) have now started to expand into Los Angeles. If you recall, most of these companies started in smaller markets where the homes are more homogenous, relatively inexpensive, and generally less liquid. Places like Phoenix.

    By tackling the second largest housing market in the US (after New York City), the algorithms of Opendoor, Redfin, and Zillow will now need to content with an older housing stock, greater variability, and higher values.

    All of these companies have increased their maximum offer price. The sweet spot for algorithmic home buying has typically been in the $150,000 to $300,000 range. Last year, two-thirds of all homes bought by iBuyers were in this range. I can’t imagine that gets you very much in LA.

    I keep expecting these companies to scale into something more beyond just iBuying and flipping. Perhaps we will see that happen once they establish themselves in country’s biggest markets.

    Photo by Josh Rose on Unsplash

  • Why Phoenix is ground zero for algorithmic home buying

    I have been writing about algorithmic home buying on the blog since Opendoor launched back in 2014.

    I don’t have anything new to report on that today, but this recent article from the WSJ is interesting in that it talks about why Phoenix, in particular, has become ground zero for algorithmic home buying, as well as for institutional investors looking to buy cheap rentals.

    Across Opendoor, Offerpad, and Zillow, nearly 500 homes are now being purchased — largely by software — in Phoenix each month:

    One of the reasons why Phoenix is well suited to these platforms is that the housing stock is cheap and fairly homogenous. (The WSJ calls it “stucco sprawl.”) This makes it easier for the algorithms to put a value on the homes.

    A big chunk of the housing stock is also relatively new. Just over 36% of it was built in 2000 or later. And it tends to trade fairly often. Below is the percentage of homes in 2018 that were resold within a year of purchase.

    It’s also worth noting that Arizona is a non-recourse state, meaning you’re typically not personally liable if you default on your home mortgage. You simply hand back the keys. So it’s viewed as a fairly risk tolerant state, which may be one of the reasons why Phoenix’s median home price chart looks like this:

    I’ll end with this quote from the article: “It’s the dawn of e-commerce for real estate,” said Zillow Chief Executive Rich Barton. “Phoenix is ground zero.”

    Charts: WSJ

  • Redfin is rolling out an online purchase option for homes

    There’s a lot of money at work right now trying to reinvent the way that homes are bought and sold. Perhaps the most popular trend is “instant buying” or algorithmic home buying. I have been writing about this for years, mostly because of Opendoor. But now there are lots of companies competing in this space. With this model, home sellers get the benefit of an almost immediate sale, though usually it’s at a slightly lower price.

    Redfin, on the other hand, is returning to something that it first tried out back in 2006: a buy now button on its online listings. It failed back then. But maybe it was simply too early. The feature allows unrepresented buyers — that is, buyers without an agent — to make online offers. Naturally, it’s far from a single click process. But when accepted, the seller ends up paying about half the amount of commission.

    According to the New York Times, the company started testing the feature in late March in the Boston area. Of the 120 homes listed on Redfin with a “start an offer” button, 5 ended up being purchased via an online bid. That’s more than I would have expected. But Redfin positions these offers as being the stronger option because they save sellers money. There’s also an option to tour the home on your own.

    Given this initial response, the company is now working to roll out this feature nationally, market by market. Is this the future of home buying?

  • Real estate startup Knock raises $400 million

    I have been writing about the real estate startup Opendoor for many years here on the blog. Another promising startup in this space is Knock, and today it was announced that they just raised a $400 million Series B round (led by Foundry Group).

    They share some similarities with Opendoor, but they are also different in that their focus is on home trade-ins. They tell you what your current home is worth, help you find a new home, and then coordinate “a seamless swap.” For more on how they work, go here.

    One of the ways in which they are similar to Opendoor is that they front the cash for new home purchases. In the case of Opendoor, they buy your home with the plan of selling it in the future. And with Knock, they buy your home with the understanding that your old home will get sold.

    It is certainly a more capital intensive model compared to the way that home sales are handled today. But many investors are clearly betting that it is exactly what is needed to change the status quo. 

    (Credit to Jeremiah Shamess for sharing the above news with me today.)