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.
There’s a lot of interest right now in micro apartments. Here is a recent example from New York City. Generally speaking the model is driven by a need to increase housing affordability: shrink the apartments; lower the prices.
To compensate for these smaller units, the buildings are often equipped with larger shared spaces and a desire to create a sense of community.
The below TED talk by architect Grace Kim is an interesting case study of a project that started, first, with a desire for cohabitation. Her thesis is that cohousing can make us happier, less lonely, and more socially connected.
The cohousing community that she profiles is one that she both designed and developed and one that she now lives in and practices architecture out of.
If you can’t see the video below, click here. It’s only 10 minutes. After you’ve watched it, let us know in the comment section below if this is a community you could see yourself being a part of.
It’s a good summary of the differences between these two markets and why over the last five years less than 4% of all new residential units built in Seattle have been condos. The story is obviously very different in Vancouver.
It’s also a good reminder that incentives matter. Capital has a funny way of flowing to where the returns are greatest.
A new startup out of San Francisco, called Rentberry, has just launched, allowing tenants to openly bid on rentals in the city. Think of it like a rental auction. Landlord lists property. And then tenants compete for it by submitting offers.
Not surprisingly – especially since we’re talking about San Francisco – there’s concern that this will do nothing but drive up the city’s already high rents.
But I think the key detail is that the platform will make public the total number of applicants. As a tenant, it’ll even tell you how your credit score compares to those of the other bidders (presumably, so you can gauge how aggressive you might need to be on your bid).
The real estate industry is rife with information asymmetries. So anything that improves transparency is something that catches my attention. If you’ve ever bought or rented a place in a competitive market, you know that one of the worst things you can hear from the broker is: “We have another offer.” (Even worse: “We have 12 other offers.”)
It’s frustrating because it now means you’re competing. But even more frustrating is the fact that you have no way of assessing whether or not that statement is fact or fiction. Yes, I realize that there’s a code of ethics that’s supposed be followed, but you and I both know that games are played all the time.
In fact, I think someone could easily make a full career out of just trying to correct the information asymmetries inherent in the real estate industry. Who knows what sort of impact they might be having on the market. So I’m excited to see how things pan out for Rentberry.
Earlier today I attended a lunch and learn talking about the renewed interest in rental apartment development here in Toronto. Since this is a topic I’ve written about a few times here on Architect This City, I thought I would summarize some of my key takeaways from the panel discussion:
Market fundamentals are strong for purpose-built rental apartments. Vacancy is very low and demand will likely outstrip supply for many decades to come given the barriers to building (land availability, planning/approvals, and so on).
As of September 2014, CMHC reported 2,212 purpose-built rental units under construction in the Toronto region. And yet the annual demand for new rental housing is likely somewhere between 10,000 to 30,000 units (clearly some of this demand is being absorbed by condo rentals – the secondary rental market).
Millennials and retirees are seen as core markets for new rental apartments. Millennials want to live in urban centers and they like the flexibility that renting provides. Retirees want to know that they won’t be asked to move out because the owner wants to sell their condo unit.
It’s almost impossible to compete against condo developers when it comes to buying land (despite the next point). They (condo developers) will pay more. Therefore intensifying our “tower in a park” building stock is going to be a critical component of meeting rental demand in the region.
Part of what’s driving this interest in purpose-built rental (on the part of developers) is a softening condo market. So don’t be surprised when some developers flip back to condos when it makes financial sense to do so.
It was interesting to hear this last point. It’s something that has been on my mind, but for whatever reason wasn’t really being talked about by the industry. That’s not to say that I think the condo market is in trouble though. It has just become more balanced. And ultimately that’s probably a good thing.
Either way, I think that more rental and more housing options are a positive for the city and for consumers.
“The two greatest stores of wealth internationally today is contemporary art….. and I don’t mean that as a joke, I mean that as a serious asset class,” said Fink. “And two, the other store of wealth today is apartments in Manhattan, apartments in Vancouver, in London.”
In case you wondering, Laurence Fink is the founder and CEO of BlackRock Inc., which today is the largest asset manager in the world. They have over $4.77 trillion in assets under management according to their website. That’s a mind boggling number.
And if you read the Bloomberg article cited above, you’ll see that this interest in both art and apartments represents a shift away from gold as the de facto safe haven.
“Historically gold was a great instrument for storing of wealth,” the chairman of BlackRock Inc. said at a conference in Singapore on Tuesday. “Gold has lost its luster and there’s other mechanisms in which you can store wealth that are inflation-adjusted.”
What’s interesting and probably most relevant to the Architect This City community though is this investment focus on apartments.
When people talk about a possible housing bubble in Canada they often cite house prices to median household income as a key ratio. The question then becomes: How can house prices be such a high multiple relative to local incomes?
That’s relevant, but it’s not the entire story for cities like New York, London, and Vancouver. That ratio alone assumes that real estate isn’t a global investment vehicle. And for some people people it is exactly that.
Earlier this week, I wrote about the Charlotte Apartments in Berlin and tried to back into some of the numbers for the project. I wanted to compare the economics behind a mid-rise project in Berlin to one in Toronto.
After I wrote that post I forwarded it to Michels Architecture – who are the architects behind the project. I thought they might be interested in reading about my (crappy) back of the napkin type of assessment and I was also hoping that they might be able to shed some additional light on the details.
Well, they responded and graciously offered to do exactly that. So today I thought I would write a follow-up post with some additional details. I obviously don’t have everything – because they weren’t the developer for the project – but I still think you’ll find the information I got interesting.
The building has a total of 3 parking spots and they’re all on the ground floor (you can see them in this post in the second photo towards the right). They were for the penthouse maisonette/duplex units. This means that there’s only one level below grade and it’s basically for mechanical systems, storage, and waste disposal. So why does this matter?
It matters because it means lower construction costs and the ability to develop smaller sites where you may not be able to properly layout a parking garage without car elevators and other clever strategies. This is possible because, unlike Toronto, Berlin doesn’t have any parking minimums or maximums.
With respect to unit sizes, the penthouse units are 135 square meters or 1,453 square feet which, according to the architect, are small. From the 2nd to 6th floor, there are 4 units per floor and the sizes are 37 sm / 398 sf, 65 sm / 699 sf, 68 sm / 732 sf, and 81 sm / 872 sf. On the ground floor there are 5 units and they’re at 34 sm / 366 sf (x 2), 42 sm / 452 sf, 45 sm / 484 sf, and 76 sm / 818 sf. I would say that this is comparable to what you might find in a downtown Toronto condo project. Side note: Apparently the smallest units sold the quickest.
As of December 2011, the average sale price was 4,120 € per square meter. At today’s exchange rate, that would convert to $5,815 per square meter or $540 per square foot (in Canadian dollars). If we translate that into 2014 dollars, that’s about $575 per square foot, which would be low for prime locations/buildings in Toronto.
A big thanks to Michels Architecture for providing this additional information. It’s always great to get local insights. I hope you all enjoyed it – happy Friday.
Last month Oxford Properties submitted a site plan application for the redevelopment of the rundown Cumberland Terrace in Toronto’s Yorkville neighborhood. If you’d like to browse the full application (including all the drawings), you can do that here.
The proposal is a departure from previous plans and now includes 3 buildings: a 4.5 storey building, a 2.5 storey building, and a midblock 54 storey residential tower (the lobby is shown above). There will be both retail and residential uses.
For those of you familiar with the mall, it should go without saying that Cumberland Terrace is in desperate need of redevelopment. So I’m not going to talk about that today. Instead, I’d like to mention 2 other points that stood out to me about the application.
The first is the 2 midblock connections on either side of the tower, running from Cumberland Street to Mayfair Mews in the rear (see below). Yorkville has a history of intimate laneways, and so it’s nice to see some of this being carried through in a new development. It also opens up the opportunity for an improved Mayfair Mews.
Secondly, it’s somewhat surprising to see that the 54 storey residential tower is being proposed as rental. Toronto doesn’t build a lot of purpose-built rental apartment buildings. There are some (from the likes of Morguard and Concert Properties), but we haven’t done it at scale for decades. And that’s largely because the demand for condos has been so great.
But recently I’ve been noticing a renewed interest from the real estate community in multi-family rental assets. Cadillac Fairview also proposed a 65 storey rental building at the north west corner of Yonge Street & Queen Street last year – though they later withdrew their application.
In the US, rental apartments as a share of all new housing is also at record highs – over 30%. And that’s partly because credit remains tight (certainly compared to pre-2008) and economic growth has been tepid. But also because of demographic changes. People are having fewer children, later in life, and so many are putting off buying.
So I think we’re going to see even more rental apartments being built in Toronto in the coming years.
