Tag: commercial real estate

• Checking in on office utilization in Toronto

  

  Let’s check in on office utilization (in Toronto). The last time we talked about this was in April. At that time, the average weekly utilization figure was 63%. The peak day — Wednesday — was 73%. And the low day — Friday — was 40%. Today, well as of September 15, these numbers are now 69%, 79%, and 39%, respectively (see above chart). So we continue to climb. The only slight downward trend is Fridays. People don’t like coming into the office on Fridays. Still, the average is up 6% over the span of about 6 months. This makes you continue to wonder: When does this level off? I also don’t know what this index looked like before 2020. Are we back, or not yet?

  2024.10.10

• My last day at Slate

  

  As some of you may have gleaned from this recent RENX article, I have moved on from my development position at Slate Asset Management to focus exclusively on Globizen. After 8 very productive and exciting years at the company, it was time.

  I joined Slate in 2016 to help start the development group. Here is the post that I wrote back then. And it all came about because of a coffee meeting at Starbucks at the corner of Yonge & King.

  At the time, Lucas Manuel was looking to hire someone, and so our mutual friend, Kieran Boyd, connected us with the expectation that I would make some industry introductions. But at the end of our meeting, Lucas was quick to say, “actually, I think you should come join Slate.”

  And obviously, that’s what I did.

  Fast forward to today, and Slate has grown into a global investment and asset management company with $13 billion of assets under management across Canada, the US, and Europe. And within this platform is a supremely talented development group with an awesome portfolio of sites and projects.

  Thankfully though, this is not a goodbye. Myself and the Globizen team will still be working very closely with Slate on a handful of development projects, including One Delisle and Corktown. And the intent is that we will continue to work on new projects together in the future.

  I learned a lot during my time at Slate, and I have so much respect for Blair and Brady Welch and the rest of the partners. They have built an incredible global company and assembled some of the most creative, entrepreneurial, and smartest people I have ever worked with.

  Thank you for everything over the last 8 years.

  So what’s the plan for Globizen? This will be the topic of a follow-up post.

  2024.07.01

• The 1% club

  Knight Frank just published the 2024 edition of its annual wealth report and, it turns out, that 2023 was a reasonably good year for rich people. Below are some of the charts that I found interesting as I flipped through the report.

  The first is their Prime International Residential Index, which tracks the pricing of the most desirable and expensive properties in the following 100 locations. Generally, they define this as the top 5% of each market.

  

  Moving on, this is how much square meterage that US$1 million will buy you in select city and second-home locations.

  

  These are the cities that saw the greatest cross-border investment flows into commercial real estate.

  

  This is their prime property price forecast for 2024.

  

  This is what it looks like for prime rents.

  

  And finally, this is how much net wealth you need in order to join “the 1% club” in select countries/territories.

  

  To download a full copy of Knight Frank’s 2024 Wealth Report, click here.

  2024.03.06

• What rich people plan to do with their money in 2023

  Each year in March, Knight Frank publishes something called, The Wealth Report, which typically includes things like its Prime International Residential Index (PIRI) and a general overview of what ultra high-net-worth individuals (UHNWIs) are up to with their money.

  (An UHNWI is typically defined as someone with a net worth greater than $30 million. And as of last year, there were nearly 400,000 of them around the world, with Hong Kong being the city with the most.)

  In anticipation of this year’s report, Knight Frank has just published the key findings of an “Attitudes Survey.” This is them talking with and surveying private bankers, wealth advisors and family offices about some of the key themes for 2023.

  Here are a few of my takeaways:

  • Globally, about 1/3 of UHNWI wealth is allocated to primary and secondary homes. This is expected. Generally the richer you become, the more your net worth gets diversified away from your primary residence. It is also worth noting that of this 1/3 allocation, more than a quarter is being held outside of their country of residence. This outside-of-country-of-residence percentage is highest for UHNWIs in the Middle East (41%).
  • The average UHNWI owns 4.2 homes around the world, with UHNWIs in Asia owning the most: an average of five homes. This is the kind of stat that might provide motivation for a foreign buyer ban, but I continue to believe that there are other bigger drivers impacting housing affordability/supply across our global cities.
  • About 15% of UHNWIs said that they want to purchase a residential property this year (2023). This is down from 21% last year. Inline with bullet point number one, the greatest appetite/stated intent is coming from the Middle East. (Related article: The new Gulf sovereign wealth fund boom)
  • Real estate was identified as the top investment opportunity. About 1/3 of UHNWIs want to invest in real estate — either directly or indirectly — in 2023. And the top asset classes are: healthcare, logistics/industrial, office, multi-family rental apartments, and hotels. It is interesting to see office in the top three. A positive sign that it is maybe being viewed as an oversold opportunity.
  • Finally, environmental sustainability is being increasingly considered by UHNWIs when it comes to investment properties: 57% are considering energy source(s), 33% are considering opportunities for refurbishment, and 30% are considering the materials used/the embodied carbon footprint inherent to the asset.

  For the full findings, click here.

  2023.01.10

• A real estate sea change

  Earlier this month, Howard Marks published a memo called “Sea Change“, where he argued, among other things, that it is “nearly impossible to overstate the influence of declining [interest] rates over the last four decades.” In fact, he goes on to say that he would be “surprised if 40 years of declining interest rates didn’t play the greatest role of all” in the success that investors have seen since the 1980s. Of course, the reason the memo is called “Sea Change” is because his overarching point is that this tailwind is now over.

  Let’s consider this in the context of commercial real estate. If you bought a real asset at a 4% cap rate (calculated by dividing net operating income by the price of the asset) and were able to put debt on it at say 3%, you would be receiving positive leverage. Your cost of debt is less than the yield that your asset is generating, and so you are in effect magnifying your returns.

  Now let’s imagine a scenario where interest rates decline even further and somebody could put debt on this same asset at 2%. This is likely to put downward pressure on the cap rate, meaning that somebody might be willing to pay more for the same amount of yield. That is, they’re willing to accept a lower yield. This phenomenon is what Howard is describing in his memo. Declining interest rates tend to create upward pressure on asset values. And in the world of real estate, this is referred to as a compression of cap rates.

  But what happens when things go the other way? Well if you had the same real asset generating a 4% yield, but now the only debt you can find is at 7%, then you are in a scenario where, unless you can afford to pay with all cash, you will be receiving negative leverage. Your cost of debt is greater than the yield that your asset is generating. And that’s the thing about leverage: it cuts both ways. It can magnify your returns, but it will also magnify any losses.

  If the only debt that you can find for your asset is now at 7%, then your 4% cap rate is almost certainly going to need to widen/increase. That is, investors are going to want to pay less for the exact same income stream. This is significantly less fun than cap rate compression, where values just seem to always go up. But, it does also create new opportunities for well-capitalized investors.

  All of this is playing out right now. And it is part of the “sea change” that Howard has called.

  2022.12.28

• A headquarters in the cloud

  Venture firm a16z just announced that it will be “moving its headquarters to the cloud.” At the same time, it announced 3 new offices in Miami Beach, New York, and Santa Monica. These will be in addition to their existing offices in Menlo Park and San Francisco.

  Part of their argument is that hybrid work is weakening the network effects and agglomeration economies associated with being right in Silicon Valley. So they’ve deiced to be virtual, but still have offices where they can “materialize physically” when needed.

  They acknowledge that physical presence is important for developing a company’s culture, building relationships, and helping entrepreneurs (their core business).

  What’s interesting about all of this is that it’s further validation for Miami (Beach). Here is one of the most important venture firms out there saying that when they quickly materialize in real life, they want to be able to do that in Miami Beach.

  It also raises some interesting questions. Because even if the network effects of Silicon Valley are weakening when it comes to tech, this announcement still speaks to the importance of agglomeration economies. These three new office locations were chosen for a reason.

  2022.07.21

• My 2021 predictions

  Life will feel a lot more normal by spring/summer (Q2). By this time, the various vaccines should be broadly available (at least in the developed world). This is something that never happened during the Spanish Flu. From what I have read, the Spanish Flu lasted about two years and there were four major waves, the second of which was by far the most deadly. Ultimately, a vaccine was never found. It just petered out as people developed immunity. But medicine then was not what it is today, so surely we are destined to do better.

  What happens with working from home is going to be one of the most important outcomes of 2021. Right now it feels like tech vs. commercial real estate. The tech industry has been quick to renounce offices (while many large tech companies continued to lease more space through 2020). And the commercial real estate industry has naturally pointed out that we’re all still going to need physical offices.

  My view is that, yes, people appreciate the flexibility of being able to work remotely, but that we’re greatly exaggerating the extent to which work is going to disperse in the short-term. I think it comes down to three main things. 1) It’s nice being around other humans, both in the office and for those after work drinks. 2) Collaborative and knowledge-intensive endeavors work better when people are in the same room. And 3) corporate politics will encourage people to return to the office. Who do you think is going to get promoted first, the person who Zooms in from the Caribbean for meetings or the person who shows up to the office and grinds it out every day?

  As the world returns to normal, we will, however, see an explosion in global travel. Many will be questioning how Airbnb’s sky-high valuation makes any sort of sense, but it’ll have the right story for what’s going on in the world (some people call these “story stocks”). The reality is that there will be a massive amount of pent up demand that starts to come out as soon as people start to feel safe and governments start to allow people to travel en masse. I’m already looking forward to the 2021-2022 ski season, which I fully expect to be a blockbuster season.

  Because of this, we will see a decline in recreational real estate. The kind that was fulfilling people’s need for local travel during this pandemic. Instead, people will turn their attention to more international experiences and try and make up for lost time. Many will also come to realize that the whole working from home thing didn’t stick as expected and so they’ll start deriving less utility from their property outside of the city. Expect a kind of reversion to the mean when it comes to prices.

  Urban/downtown real estate will strongly rebound in the second half of 2021. As restaurants reopen, as people return to offices, and as urban life in general resumes, we will see an increase in demand for condos/apartments, and probably larger urban spaces given the run-up in prices for single-family homes that many cities saw last year. (A bit more on this point can be found over here.)

  The trends that are being accelerated as a result of this pandemic are not going to stop, though their rate of increase will temper. The apps and platforms that people started using in 2020, perhaps for the first time, have established new habits. People’s credit cards are now on file and it’ll be very easy for those online habits to remain. But the opposing force to all of this will be the strong desire for socializing, travel, and novel experiences. It’ll be the more routine stuff that will continue to live entirely on our phones.

  The restaurant/food industry will bounce back in a slightly different form. Sadly, many businesses will have failed. But we will also see an explosion in new ideas and new concepts, satisfying our demand to be out socializing and trying new things throughout the new roaring twenties. Ghost kitchens and on-demand food delivery companies will continue to disaggregate how some restaurants are setup. Companies like Uber will see their ride-sharing businesses quickly snap back, which will more than offset the decline in food delivery as people resume eating out.

  Public transit ridership probably won’t return to its pre-pandemic levels until at least the fall. Possibly late fall. This is going to be a serious problem for the various levels of government that subsidize virtually all public transit authorities. Many transit networks have seen ridership declines of 70% or so and, if my timing projections are correct, that will have been the case for about a year and a half.

  The migration from high tax states (like California and New York) to low tax states (like Texas and Florida) will continue. This trend was well underway before COVID-19 and so I don’t see it reversing. What is perhaps more interesting to consider is how this dispersion of economic activity will ultimately play out against some of the centralizing/polarizing forces of the global economy. Urban agglomeration economies aren’t going to go away.

  To end, I will say that I think it’s safe to assume that we’re all looking forward to the world getting back to normal, whatever that happens to mean. But ironically, once that happens, I reckon that some of us might look back on this period of time and feel hints of nostalgia. Perhaps you learned a new skill or perhaps you were able to spend more time with love ones. Time and distance may better reveal these silver linings.

  Onward, my friends. What a time to be alive.

  2021.01.01

• Slate closes on $1.14 billion asset portfolio

  Today, the Slate Canadian Real Estate Opportunity Fund I closed on a 6.2 million square foot portfolio that it previously announced it was acquiring from Cominar Real Estate Investment Trust for approximately $1.14 billion.  

  The portfolio includes office, retail, and industrial properties in the GTA, Atlantic Canada, and Western Canada. This brings Slate Asset Management’s total assets under management to over $5 billion.

  Great work team Slate.
  

  2018.03.28

• What I’m doing next

  

  A number of you have asked if I’m moving to New York. I can see why that was inferred from some of my posts, but that was actually not my intention. I am not moving to New York. (Sorry New York friends. I’ll visit soon.)

  Toronto is home base. I hope it’s clear how much I love this city. Sure, I’m a big fan of New York and Miami and Vancouver and Berlin and Tokyo and Jackson (to name some of the places I have on my phone’s weather app), but I made a deliberate choice to station myself here.

  Because unlike some of the other industries I write about on this blog, city building is hyper local. What I do involves the built environment. And that doesn’t generally happen via a laptop on a beach in Bali (at least not for extended periods of time).

  It happens by being on the ground, interfacing with local communities, meeting face-to-face with the city, and poring over drawings with smart people who know far more about their respective disciplines than I ever will. It is a collaborative and local effort. It’s about getting into the details.

  And so to be successful in this business, I think it helps to find a home and take long bets. I’m not saying that I will never work on projects in other cities (I have and I would), but I am saying that I’m not moving to New York right now and that home remains Toronto.

  On that note, here’s what I have to tell you. Later this year I’ll be joining Slate Asset Management as VP of Development.

  A bit about Slate:

  Slate is one of the most active acquirers, owners, and managers of real estate in Canada right now. Founded in 2005 by two brothers (Blair and Brady), Slate has over $3 billion of assets under management across over 16 million square feet and over 130 properties.

  All of this is done through four main investment vehicles: 

  1) The first is Slate Advisors. It acts on behalf of and alongside private institutional investors — such as Greystone.

  2) The second is Slate Office REIT (TSE:SOT.UN). It is a pure play Canadian office REIT focused on downtown and suburban properties all across the country.

  3) The third is Slate Retail REIT (TSX:SRT.U). It is a pure play REIT entirely focused on grocery-anchored U.S. retail properties. (Remember how many times I’ve written on this blog about how grocery has one of the lowest online shopping penetrations?)

  4) And the fourth: Slate is also starting a grocery-anchored retail platform in Germany. It is similar to #3, except that it’s in Germany.

  Most recently, Slate has been in the news because of the position it has taken at Yonge + St Clair in midtown Toronto — a perfect example of “finding a home and taking long bets.” Slate, in partnership with Greystone, owns all 4 corners of the intersection and about 60% of the properties along the St. Clair corridor.

  Here’s a diagram of those Slate buildings:

  

  In case you didn’t put two and two together, the 8-storey mural I wrote about two weeks ago is going up (right now) on the side of a Slate building (1 St Clair Avenue West — shown above). The British street artist known as Phlegm is doing it.

  Up until today, the focus of Slate has largely been on acquiring undervalued / overlooked real estate and creating value through re-leasing and overall repositioning. That will certainly continue. But given what I do, I am sure you can posit what’s also next.

  I’m genuinely excited to be joining such a talented group of real estate professionals. As I mentioned last week, I wasn’t in the market for anything new. I was heads down working on cool projects. But life happens. And Slate quickly demonstrated to me that the incredible success they have seen to date is precisely because of how progressive, nimble, and entrepreneurial they are.

  On that note, I have “one more thing” to share today.

  In parallel to all of this, and with the support of Slate, I am also starting a boutique city building company called Globizen. The name is derived from Global + Citizen.

  The objective is to build a company that embodies everything I write about on this blog. I want it to be lifestyle and design-driven. I want it to leverage technology to improve the way that cities and the building industry operate. And I want it to function as a vertically integrated real state + design firm, focused on sustainable urban infill development. Think of it as city building by and for the responsible global citizen.

  It’s still early days, but the thinking is that this new platform could compliment the larger Slate platform in some way. It’s too early to say how exactly, but everyone is open to having those discussions. And that’s what matters at this stage.

  I am going to end with a quote. It’s by Partner and Co-Founder, Blair Welch:

  “On all of our deals we have had people say ‘can’t’ to us. They say ‘Can’t be done, can’t do that, can’t raise money, etcetera.’ At Slate, we don’t do ‘can’t’ well.”

  I like that a lot. So here’s to finding a home, taking long bets, and not saying can’t. Onward my friends. 

  2016.07.20

• 133 Wai Yip Street, Hong Kong

  Dutch architecture firm MVRDV recently converted an old industrial building in Hong Kong into new office space. The overall project size is roughly 200,000 sf. What’s unique about the project is the obsessive focus on transparency and glass.

  Here’s what the interior looks like:

  

  And here’s how the architect has described the project:

  “We are moving into a transparent society, businesses are becoming more open with the public, and people care more about what goes on behind closed doors. In that way, a clear workspace leaves nothing questionable, nothing hidden; it generates trust.” Tells MVRDV co-founder Winy Maas, “But also it is an opportunity for the building to become a reminder of the industrial history of the neighbourhood, monumentalised in a casing of glass.”

  I have written quite a bit about how I believe we are shifting towards a more transparent world – perhaps even a radically transparent world. And so it’s interesting to see an architect pick up on this broader theme and translate it into physical space.

  The floor is transparent. The partitions are transparent. The furniture is transparent. And you can clearly discern the interfaces between old and new.

  Good architecture, at least in my opinion, should reflect what is happening in our broader society. That’s why I believe that studying the history of art and architecture is really like studying the history of the world.

  For more photos of the project, click here.

  Image by Ossip van Duivenbode via MVRDV

  2016.06.04