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.
The Wall Street Journal’s recent piece about “Silicon Valley invading Toronto” is, in my view, describing a generally positive outcome.
We are one of the largest cities in North America (the exact ranking depends on where you draw the urban boundaries).
We have more enlightened views around foreign and high-skilled workers (I was given a short window in which to leave the US after I finished my first graduate degree there).
And we have a large and highly educated pool of tech talent (the salary differential discussed in the article looks to be, at least partially, a result of the weaker Canadian dollar).
US companies are gobbling up office space in Toronto. And presumably, this is one of the reasons why 139 new flights were added between Toronto and Francisco over the last two years. (Source: WSJ)
However, I do agree with the remarks from people like Jim Balsillie (Blackberry) and Harley Finkelstein (Shopify) that a better outcome would be the creation of more massively successful Canadian tech companies.
As Finkelstein points out, there’s a big difference between 100,000 square feet of space for the HQ of a new and growing Canadian tech company and 100,000 square feet for a new branch or satellite office.
The stats we read in the papers about the number of tech jobs being created in Toronto generally don’t speak to composition. Where in the value chain do these people sit? Where is the value accruing?
The intellectual capital is here. And we should be doing everything we can to foster and finance new homegrown ideas and businesses.
When I was 18 years old, I
moved from the suburbs of Toronto to Waterloo, Ontario, which is about an hour
west of the city.
I largely did this for two reasons.
Firstly, I had started
visiting friends at both Wilfrid Laurier University and the University of
Waterloo while I was in high school, and I thought that I wanted
that kind of University town experience.
Secondly,
I started University as a Computer Science student and I figured that Waterloo
was a pretty good place to study that. Research In Motion (later renamed to
Blackberry) was an important company at the time and interesting things were happening.
Though
to be clear, I was a student at Laurier and not at the University of Waterloo – the better of the two schools for Computer Science – because I didn’t have
the grades for the latter.
But a
funny thing ended up happening. I hated living in Waterloo. I felt so out of
place. So much so that I spent every weekend back in Toronto visiting my
friends who had instead decided to go to the University of Toronto.
And I
remember vividly how I felt during those weekends. I would stand in my friend’s
apartments – most of which had dens and solariums that were hacked into
bedrooms so that they could afford to live there – and I would look across the skyline and
think to myself: why the hell do I not live here?
So I
transferred to the University of Toronto. And that solved that.
The
reason I bring up this story today is that I was reminded of it while reading a recent CityLab article by Richard Florida called, The
Self-Confident City.
The three
main arguments in the article are:
(1) Where
we choose to live has a massive impact on our life outcomes.
(2) Self-confident
people – according to a recent study – seem to be drawn to big cities.
(3)
Self-confidence can also be a self-fulfilling prophecy
for people in big cities.
Now,
I don’t know if it was really self-confidence and youthful hubris that told me I needed to live in a bigger city than Waterloo. (It was probably part of it.) All I know is that I
wanted to live in a super dynamic place that felt bigger than me. I wanted to
feel like I was a small fish in a big pond trying to make some sort of
meaningful dent.
That
was true for me when I was 18. And it remains true for me today at 32.
As a recent graduate of Rotman’s Morning MBA program (and presumably because somebody over there reads Architect This City), I was asked to write a guest post for their MBA blog. More specifically, I was asked to share my thoughts on the real estate industry and on my time at Rotman. And since I haven’t really done a post like this before, I thought it would be worthwhile to do.
But before I begin, I think it’s important to explain a bit about my background and my motivations for doing an MBA in the first place. Before going to Rotman, my first master’s degree was in architecture and real estate from the University of Pennsylvania. Basically it was a Master of Architecture combined with their MBA real estate concentration. So it included everything from real estate finance to real estate development.
Having already done this 3-year program, there were a couple of things I wanted out of an MBA program. First of all, I wasn’t prepared to go full-time. Five years out of the workforce was simply too high of an opportunity cost for me and so part-time was all I considered. I also only applied to Rotman because I didn’t want to waste any time traveling outside of the city (or to other parts of the city). I also saw Rotman as a rising star and one of, if not the, best option in Canada.
At the same time, I didn’t give much thought to the real estate curriculum being offered even though I fully planned to stay working in the real estate industry. I felt like I already had that sort of formal training and so, unlike some of my classmates who were looking to switch into real estate, I was after something else. I ended up majoring in Innovation & Entrepreneurship.
What I was trying to do was really round out my skillset and fill in some of the missing holes: accounting, marketing, and so on. But even more importantly, I had drunk the kool-aid around Rotman’s focus on integrative thinking (renamed “business problem solving”) and “design thinking”. And since there will always be a part of me that thinks of itself as a designer, it seemed like the perfect program for me.
Because at the end of the day, it’s not that hard to learn how to create a real estate development pro forma or calculate your expected exit cap rate on some piece of real estate. That stuff is all fairly mechanical. It might seem quite mythical when you don’t know how to do it, but once you do, you quickly realize that a financial model is only as good as the assumptions you put in. As we’re told in school, garbage in = garbage out.
The real value gets created in the assumptions. It’s created in the way you think about the market, your product, and your customers. And a lot of the time, the most value is created when you know or believe something that nobody else believes to be true. If you’re a lemming, you’re going to get lemming like returns and outcomes. So in a lot of ways, I went to Rotman to help me think better and think differently.
In some industries, resting on your laurels can kill you in a relatively short period of time. See Blackberry. Real estate, on the other hand, is generally a bit slower moving. But that doesn’t mean that change doesn’t happen and that there isn’t room for loads of innovation.
Just look at the Toronto of today versus the Toronto of 10-15 years ago. We’ve transformed ourselves into a city of high-rises where more and more people now want to live in the core of the city. This has brought commercial landlords back to the city center so that employers have downtown office space to attract the best human capital (see South Core) and it’s brought suburban retailers into the core to sell to these same urbanites. We’re seeing a complete reversal of the trends experienced with the last generation.
Amidst all of this, I’ve been noticing a growing awareness and passion around cities. My blog Architect This City started as a forum for architects, planners, and developers, but it has grown into a community of thousands of people who simply love cities. They’re passionate about everything from architecture to grade-separated bike lanes (as geeky as that probably sounds).
So I think that it’s not only the real estate market that’s changing, but also the professions involved with it. I’ve written a lot about the future of the architecture profession because I think we’re starting to see the emergence of new business models. Architects are becoming developers and developers are starting to become much more heavily involved in the shaping of the communities in which they build. Which is why in many ways, I think of my self as a city builder more than anything else.
Finally, to make matters even more complicated, technology is starting to have a huge impact on the business. Zillow.com just bought Trulia.com for $3.5 billion to form a portal that will now serve around ¼ of the online US residential market. And Opendoor.com is getting ready to launch a product that seems entirely poised to disrupt the way homes are bought and sold in America.
So what I’m getting at is that there’s absolutely no guarantee that the way we used to do something, is the way we’re going to continue doing it. In fact, I operate under the assumption that everything can and will be changed by somebody at some point. And if this is the way you approach things, then it should become abundantly clear to you that being able think critically is going to be one of your most important assets.
When I was just starting at Rotman, I met for lunch with an upper year classmate who told me that one of the best things he’s taken away from the program is the ability to think about the way he thinks. That may sound silly to some, but in our uncertain world, it’s actually a great skill to have.
Over the past few months on this blog, I’ve started to introduce business terms into the way I describe and talk about cities. I’ve referred to residents and visitors as customers of a city, experiences within a city as products and services, and cities themselves as businesses. Until now though, I hadn’t explicitly talked about this parallel or fleshed it out in any sort of detail. But I think it’s an interesting one so I’d like to do a bit of that today.
The reason I started referencing cities with business terms is because I think it speaks to 3 important characteristics of cities. First, cities, just like businesses, are in direct competition with each other. We rank cities. We compare GDP per capita. And they fight, or at least should, to attract the best people and to achieve economic dominance.
Second, city prosperity can be ephemeral. We tend to think of cities as being quite permanent–centuries old–but history is littered with failed cities or cities that simply lost their economic importance (see Detroit). Consider this: The center of trade at one point was the Mediterranean Sea. Then, as the New World emerged, it shifted to the Atlantic. And now, one might argue that it’s moving over to the Pacific (and Asia). Either way, these macro shifts push certain cities to thrive and others to decline. The time horizon is longer than, say the rise and fall of Blackberry, but it’s similar nonetheless. Nothing is guaranteed.
Third, cities have become centers of lifestyle and consumption. That’s why I previously argued that any economic development strategy should consider lifestyle, and whether or not people actually want to live in the place. In business terms, you need to offer products and services that people actually want. You need to respond to customer needs.
And if you think of cities in this way, I think you’ll come to the conclusion that, just like businesses, strong cities require strong leadership and management. They need to ensure that they’re delivering the right products and services to their customers and that they’re staying ahead of the innovation curve.
The switching costs may be higher for cities compared to, again, something like a mobile phone, but that doesn’t mean people won’t eventually vote with their feet and leave for somewhere better.
