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.
I’m giving away a free t-shirt on April 1st, 2015 exclusively to Architect This City subscribers. There’s no catch. And no this is not an April Fool’s joke! I just want to say thanks to the people who read ATC on a regular basis. It’s that simple.
So how does it work?
You need to be an Architect This City email subscriber (either daily or weekly). If you’re not yet a subscriber, you have until midnight on Tuesday, March 31st, 2015 to make that happen. You can do that by clicking here. It’s free.
You need to visit architectthiscity.com and pick the t-shirt you want. There are currently 5 different ones to chose from (the original ATC tee comes in both ATC orange and black).
Finally, you need to leave a comment at the bottom of this post telling the community 2 things: which t-shirt you want and your favorite thing about your own city. That’s it.
On April 1st I will randomly select somebody from the comments, check to see if they’re a subscriber, and then send them a free t-shirt.
Simple, right? I’m really looking forward to giving away a t-shirt.
Over the past week I’ve had 2 separate people ask me my thoughts on the future of the condo market in Toronto. One of them was working on a University study and one of them was trying to figure out what (condo) property managers would look like in the future.
To be clear, the questions weren’t motivated by the typical “bubble” debate that the media loves to headline, rather these were questions about the long term future of condos in this city.
I haven’t written about this topic explicitly, so today I thought I would summarize my responses for the Architect This City community. There’s probably a touch of aspiration in the responses I gave, but it’s more or less what I’m thinking and what I believe has a good chance of happening over the next 10-20 years.
Here are some of my thoughts (not an exhaustive list):
Intensification is going to continue in Toronto and that is going to mean more condominiums and other types of multi-family dwellings. Rental apartments is the product type du jour right now within the real estate community.
As intensification continues, I think we’re going to see a tipping point in the near term with more families opting to have and raise children in condos in the city. Part of this will be driven by a desire to stay in the city (walkable communities), but part of it will also be driven by the economics (i.e. high price) of low-rise housing in the city.
As families begin to fill in condos (not just young single professionals and empty nesters), we’ll see developers and cities respond with more family friendly buildings, amenities, and program choices. This could mean anything from children’s play spaces within buildings to redesigned public spaces and parks.
In line with this shift, I think we’ll also see more sophisticated executions of “mixed-use.” Rather than just stacked uses (retail at the bottom, a few levels of office, and a residential condo tower above), developers and operators are going to start thinking about the ecosystem they are creating. (Related discussion in the comment section of this post.)
It’s probably a bit safe to predict that sustainability will become more important going forward. But I think that as more families and long-term end users opt for condos, that consumers will become more interested in building and energy performance. Technological advancement (both hardware and software) will also give this a boost.
Finally, and this applies somewhat to real estate in general, I believe that we’ll see a lot more openness and transparency all across the industry. There will be much better access to data and information. Similar to above, this will be aided by advances in technology and networks.
Now it’s your turn. What do you think of the above list? And what will the condo market — either in Toronto or in your city — look like in 10-20 years?
We all know that the Greater Toronto Area is growing and intensifying at an incredible pace. In fact, last year the region set a record with 25,571 new condominium units completed.
If you listen to industry experts, such as George Carras of RealNet, they’ll tell you that this level of intensification — which usually means condominiums — is really a decade in the making. That’s when the government set out to explicitly encourage this type of growth.
But in the decade since that decision, we’ve seen both government and the market evolve in terms of what that intensification should look like. It started out with a largely high-rise building typology. Tall buildings were to be allowed in the downtown, as well as in specific growth nodes throughout the region. But for everything in between — the officially designated “neighborhoods” — there was to be no development.
This is what I’ll call the first stage of intensification.
Then, we started to think about mid-rise intensification along the avenues. Most of these “avenues” (also an official term) cut through those same stable neighborhoods, but the main streets were seen as an appropriate place to allow additional growth. It makes perfect sense and so guidelines were created to help dictate what this new building typology should look like.
This is what I’ll call the second stage of intensification.
And it’s one that I’d argue we’re currently living through with new mid-rise projects like DUKE in the Junction (TAS project), Kingston&Co in Kingston Road Village (another TAS project), Abacus Lofts on Dundas West, and The Hive in Etobicoke. These are all mid-rise buildings going up in established neighborhoods.
With the recent decision to also allow wood frame buildings up to 6 storeys in Ontario (instead of 4), we’ll probably see an even greater surge in mid-rise buildings once the private sector gets its head around this shift.
So what’s next?
I think it’s inevitable that we’ll eventually see low-rise intensification within our established neighborhoods. We started by avoiding them altogether, and then deciding that it was desirable to build along their periphery. But as demand for urban housing continues to increase, I believe it’s only a matter of time before we start to loosen the reins on our single family neighborhoods.
Some of you might be thinking that this is going to be a bad thing, but I actually think the opposite. Projects such as Vancouver’s Union Street EcoHeritage prove that it’s entirely possible to intensify existing neighborhoods through sensitive and beautiful infill interventions. And of course, let’s not forget about laneway housing.
The fact of the matter is that Toronto has already been intensifying its neighborhoods for a very long time — likely since the beginning — by converting single family homes into duplexes, triplexes, and other multi-family dwellings. We just haven’t been doing it in any sort of structured way.
I don’t know when this will change, but I think it’s only a matter of time. And that will be the third stage of intensification.
Retail is one of the hardest – if not the hardest – real estate category to get right. If you don’t have the right setup, the right location, and the right tenant mix, you can fail pretty easily. It’s a bit of an art. And that obviously applies to both landlords and tenants. I mean, we all know what recently happened with Target Canada.
This past weekend I had the opportunity to visit the Aura Condos in Toronto, which is supposedly the tallest and largest residential condominium in Canada. There’s about 1.1 million square feet of residential space across 79 floors and somewhere around 150,000 to 180,000 square feet of retail space (the estimates I found online varied). The main anchors include Bed Bath & Beyond, Marshalls, and Hard Candy Fitness (which also serves as the gym for the residences above).
But what’s probably most unique about the retail component of this building is the P1 level (the first underground level). It’s made up of small retail condos, some of which looked to be about 90 square feet. That means that each retail unit is individually owned, just like a residential condominium, and there’s no singular landlord focused on curating the tenant mix and ensuring the entire retail center does well.
Now, I’m told that this approach works perfectly well in other parts of the world and I know that we’re trying it in other parts of the Greater Toronto Area, but I worry about the long term viability of this (P1) space in particular. When I was there on Saturday there was almost no foot traffic and probably half of the retail units were vacant.
Maybe it’s because there isn’t enough employment density in the area. Maybe it’s because it’s not well connected to other P1 level retail. Or maybe it’s because the anchors all sit above this space, as opposed to around it (as they do in traditional malls). Whatever it is, I wasn’t feeling product/market fit.
Really enjoyed reading this post about being a real estate developer. I was just wondering if you could do a write up on the various jobs and functions in a typical real estate development company so that people like me, who intend to work for a developer can roughly know what kind of skills are required or demanded in order to work there.
It’s a great question and so I will try and answer it today. The first thing I should say though is that real estate developers are typically very lean on people. I’ve worked for big publicly traded real estate companies and small boutique ones, and the development teams are always fairly small.
It’s that way because development projects can be messy and intermittent. The industry itself is also prone to regular market cycles and so the strategy is generally to remain fairly lean and outsource a lot of the work. You ramp up consultants and suppliers on a per project basis – as you need them.
With that said, let’s talk about the typical development process and some of the key skill sets required. A simplified process might look like this:
Buy development site (Acquisitions)
Design a project (Consultant Coordination)
Make sure project is feasible (Finance)
Obtain approvals for said project (Planning & Approvals)
Sell/lease space (Sales, Leasing & Marketing)
Build project (Construction)
Make money (The goal)
Depending on the size of the firm, one person may be responsible for managing many if not all of these steps, or they may be split up into different departments. So you could end up with a department list like this:
Acquisitions
Development/Project Management
Finance
Sales, Leasing & Marketing
Construction
From my experience as a developer, you’re going to be involved in all aspects. And that’s part of what makes development so exciting. But let’s talk about some of the key areas:
Planning & Approvals
After tying up a winning development site, securing your approvals (commonly referred to as “entitlements” in the US) is usually the first major step. The reason this step exists is because oftentimes what you want or hope to build isn’t what you’re actually allowed to build as-of-right.
So you have to go through a process to make that happen. It can take years depending on where you might be doing business, but there’s typically a significant amount of value creation at this stage. Some developers only focus on this stage and don’t actually build.
City planning is a good background for this function. You need to understand the local planning policies and frameworks.
Consultant Coordination
As I mentioned before, development teams are often small. And that’s because all developers rely on outside consultants to make a project happen (architects, engineers, and so on). So a big part of being a strong developer is just being a strong project manager. The expression often thrown around the industry is that development is like herding cats.
Having some sort of a technical background helps for this function. You end up dealing with a lot of technical details (which I find super interesting), and so it helps to have a bit of a background or an interest. If you’re not inclined in this way, you might find this area boring.
Financial Modeling
Building project pro formas and managing budgets is obviously a key component of the development process. From the moment you first look at a site up until project completion, you’ll be building financial models and constantly refining them as you get more information. The first version might be on the back of a napkin and the last version might be a complex Excel spreadsheet.
Banking and finance is obviously a good background for this function. But you also need to understand the real estate business. Models are only as good as the information you feed it, so your assumptions have to be sound.
Sales, Leasing & Marketing
I cannot over emphasize the importance of this function. If you are not selling units or leasing space, then you do not have a project. So no matter how amazing you might be at all the other functions (even fundraising from investors), if your firm is not bringing in money from your customers (purchasers or tenants), then you are dead.
When I was at Penn, a lot of the real estate professors used to tell us that leasing is the best way to get started in the industry. And I don’t disagree with that – even though I didn’t start there. This is often handled by a separate department and/or outside team, but you’ll need to be intimately involved.
Construction
If you’re at this stage, that’s usually a good sign. It usually means you’ve managed to sell a bunch of units and/or lease a bunch of space. Some developers (with enough scale) will have a construction team in-house, but many others will just outsource it to a 3rd party. Regardless of the setup, it once again helps to have a technical background.
If I missed anything or you want to add more detail, please let me know in the comment section below. I’m always happy to receive questions and post ideas, so feel free to tweet or email me. Tweets will almost always get a faster response.
Venture capitalist Chris Dixon recently published an interesting post called, Two eras of the internet: pull and push. In it, he describes two patterns that have emerged within the internet over the past decade and a half.
Pull (2000s):
Pull is when you are seeking information, usually an answer to a question. You want to know the closing time of a restaurant, the description of a hotel where you are thinking about staying, the details of an historical event you heard about, etc. You go to your computer and pull the information. The killer app for pulling information was Google.
Push (2010s):
Push is when you are using the internet in a more passive way and content comes to you. The killer app for push is social networks, the most popular being Facebook. Information is pushed from user to user via likes, shares, tweets, etc. People tend to push things they find funny, interesting, moving, outrageous, etc.
Now let’s think about this for a second, because it’s a pretty significant change.
Google’s mission is to organize the world’s information. And they have certainly made it easier for us to get the information we want. Instead of physically searching for something, you just type in a few keywords and it pops up. But, it still involves us deciding we want something and then pulling the information.
What’s fascinating to me about push is the idea that content and information comes to you. And it’s one of the reasons that I’ve always found Foursquare more interesting than Yelp – even though Yelp is far more popular as a tool to help you find somewhere to eat, drink and so on.
When I walk into a restaurant or bar now, oftentimes I’ll see a Foursquare notification popup on my phone showing me a tip that somebody has left: “Try the meatballs – they’re to die for”. I didn’t search for that. I didn’t ask for a recommendation. But Foursquare knew where I was and presented me with that information.
Now, there are obviously potential downsides to constant interruption, but let’s focus here on the opportunities. How could these same principles to be applied to other industries such as, say, real estate?
I think there’s a pull and push parallel.
Today MLS operates in a way like a search engine for homes. You decide you might be interested in buying a home and so you go online and start pulling listings.
Of course, the vast majority of people also work with a real estate agent. And in a way they’re kind of like your push. They get to know you, they figure out what you’re looking for, and then they push relevant listings and information to you.
And maybe that’s why nobody has killed off real estate agents – despite the numerous attempts. Everybody has been focusing on new pull platforms (listing platforms) as opposed to a new push platform.
Who knows.
But I think it would be naive to think that these emerging push platforms won’t reach far beyond social media.
Yesterday Opendoor.com finally launched their product in Phoenix. If you’re a regular reader of Architect This City, you might remember that back in July of this year I wrote about how they had just raised $10M of funding to make selling your home as easy as a few clicks.
Well, since then, I’ve been following them like a hawk. I had all the founders on Twitter notification (so I got notified every time they tweeted) and I was eagerly anticipating their launch.
Now that they’ve launched, we have a much better idea of how their business model is going to work. I say “better idea” only because there’s still portions of it that are a question mark for me.
In any event, Opendoor basically provides instant liquidity to homeowners. You go on, tell them about your home, and they then make you an offer to buy, which looks like this and lasts for 3 days. The offer they make you is calculated using comparable sales and adjustments based on your home’s unique characteristics.
Upon accepting their offer, they then schedule a home inspection (at their cost) to confirm your home’s condition. Once this is done, you just select your move out date and Opendoor handles the rest. The fee for all this is 5.5%, which the company claims is less than the 6% that realtors typically charge (this would be high for Toronto).
After buying your home, Opendoor plans to turn around and resell it.
What this reminds me of is a “bought deal.” In the world of investment banking, a bought deal is when the bank itself agrees to buy the entire offering of a particular security, as opposed to going out to the market and trying to raise the money. The advantage to the company (offering the securities) is that there’s no financing risk. They know they’re going to get their money. But it usually means the company gets a lower price.
So what I wonder, is if this is what’s going to happen here. Since Opendoor is effectively taking on the selling risk, does that mean their offers will be lower? Or are all their costs built into that 5.5% and that’s truly their core business model? I’m sure some of this will surface in the coming weeks.
I do, however, think they are smart to be focusing on the supply-side of the marketplace and offering virtually perfect liquidity to homeowners. Real estate is a unique asset in that it’s difficult to bring supply to the market. And so if control the supply-side, I think you have a pretty good shot at controlling the market as a whole.
His main criticism was the faux facade that has been integrated into the base of the building:
Then there’s the question of the historic 1907 building the RCMI occupied until recently. Though listed as a heritage site in 1973, the city approved its demolition. Planners also allowed the neo-classical front façade to be replaced with a replica that will fool no one, another example of the city talking out of both sides of its mouth.
But faux facades aside, one of the things that makes this development project unique in Toronto is actually something that you can’t see from the outside: there’s no resident parking. Apparently there’s 9 spots for deliveries and other short-term uses, but for the 315 suites in the building there’s no parking.
Depending on where in the world you’re from this may not seem like a big deal. I’ve written before about minimum and maximum parking requirements, and how some cities – such as Berlin – don’t have them. But here in Toronto, we do. And the city generally takes them very seriously.
“To assume a residential development of the project’s scale might be totally car-free runs counter to expert study and experience,” municipal staffers argued. “Although there are many households in the downtown without cars, it would be highly unlikely to find 315 of them permanently concentrated in one building.”
The fact planners were dead wrong is a shocking sign of a department either out of touch or that doesn’t believe its own hype.
In so many ways – as Hume pointed out in his article – this is complete hypocrisy. We’re always talking about building walkable communities and encouraging alternate forms of mobility, but when it comes time to build anything new, we force a certain number of parking spots to be included. And so we end up encouraging the exact opposite.
This also has a significant impact on the way we build our cities. Parking minimums can actually render smaller sites “undevelopable” simply because there isn’t enough room to lay out the required parking. In fact, it might surprise you how much of what we do ends up being governed by cars, parking, and traffic.
But I’m certain that a lot of this will change as Toronto continues to grow. Progressive cities all around the world are rethinking their positions on parking, and on cars in general.
Earlier this year Sao Paulo joined the club and got rid of parking minimums for sites along major transit corridors. And they actually imposed a parking maximum: 1 spot per residence. The expectation is that this will reduce traffic and improve housing affordability.
Parking minimums may not seem like a big deal, but the reality is that their impacts are far reaching. They change development patterns, they change project economics, and they send a message about the kind of city you hope to build.
Image: Looking south on University Avenue in Toronto (Flickr)
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.
Every now and then a piece of architecture comes along that makes you feel like your city should be more beautiful – or at least very least: bolder. In this case, it’s the new Market Hall in Rotterdam, which has been making the rounds on the internet since it opened last week. It may not be everyone’s cup of tea, but I find it really exciting.
Designed by Dutch architecture firm MVRDV, the Market Hall is a 1.1 million square foot mixed-use building consisting of residences (102 rental apartments and 126 for sale apartments), a food market, a supermarket, a public space, and a 1,200 stall parking facility. But before I say anymore, here’s the money shot:
And here’s what it looks like from the inside of the market:
In the middle of the building is the food market. At night when it closes up, it then becomes a well-lit public space. The entire central area is enclosed, but well connected visually to the outside through a big and fancy glass facade.
The apartments wrap the central market and were constructed using standardized modules (despite the unique form). The spaces that require natural light face outward and all the spaces that do not require natural light (by Dutch law), such as the kitchens, face inward towards the market.
There’s a grocery store 1 level below grade (to help supplement the market) and all parking and loading is done underground. This means that the building itself has no real backside. Most buildings typically have an ugly loading and “back of house” area – the building’s ass if you will. In this case, the entire perimeter of the building is urban and accessible.
Finally, on the ceiling of the market is a massive mega-mural designed by Dutch artists Arno Coenen and Iris Roskam. Click here for a 360 degree panorama. It’s wild.
So what do you think of this building? Would you like to have it in your city? And would you consider living in one of its apartments? I would.
