Tag: developer

• It sold for what?

  Today I spent the day at the Land & Development conference here in Toronto. If there was one running theme throughout the day, it was: “Holy shit, I can’t believe that X piece of land sold for $Y million. How will they (the developer) ever make the numbers work?”

  Outside of the real estate development community, there’s often the perception that developers are building everywhere and that there’s lots of land left in cities, like Toronto. When you see all the cranes in the skyline, it naturally seems like we’re building a lot. Things seem easy.

  But the reality is that it’s extremely difficult to find “land” in markets like Toronto and Vancouver. And by “land”, I mean properties that can be feasibly acquired/assembled, entitled, developed, and then brought to market. The way the speakers today spoke about land it’s as if it were a rare precious commodity.

  I say all this, not to complain about how tough things are, but simply to shed light on the process. A developer’s job is to take a piece of property and figure out a way to create additional value. But to do that, they need to find a suitable piece of real estate. “Land” is an input.

  This has implications for consumers, because inputs turn into outputs. And if one of the inputs is becoming scarcer, then it’s pretty safe to assume that the outputs, such as new housing, are also becoming scarcer.

  2016.05.11

• What is this a building for ants?

  One of the things you’ll often hear people deride at cocktail parties is the trend toward smaller urban dwellings. They get called “shoeboxes” and “cubby holes in the sky.” So let’s unpack that a bit today and try and better understand the economics behind it all.

  When a new building is being developed, pretty much everything gets normalized to a per square foot (or square meter) number. 

  This is important because saying that building X cost $50 million to build and building Y cost $100 million to build doesn’t tell you much if the buildings are completely different. 

  However, saying that building X cost $500 per square foot to build and building Y cost $475 per square foot to build, tells you that building Y, despite being more expensive in absolute terms, was actually cheaper and/or more efficient.

  The same is true on the revenue side. And typically, developers are looking (struggling) to meet a certain per square foot number in order to make the project financially feasible. 

  For instance, let’s say you’re building a 100,000 sf condo building. Once you subtract the non revenue generating spaces, you might determine that you need 85,000 sf x $600 per square foot in revenue in order to make the project feasible.

  But there’s a back and forth game that needs to be played here. You have to ask yourself: for the product that I’m hoping to build, does $600 psf translate into something that people can actually afford?

  You might think: everyone keeps telling me at cocktail parties that condos in this city are too small. So I’m going to build a bunch of 1,800 sf, 3 bedroom condos. Based on the above, these homes would be priced at around $1.08 million (1,800 sf x $600 psf). Your on-site signage would read: “Condos coming soon. From the low $1 millions.”

  But wait a minute, how many families can afford a condo north of $1 million? Some could, but definitely not the majority. So then you determine through rigorous market analysis that $600,000 would be a better number. That is something that is within reach of more families.

  But then you look at the math and realize that if you build that same 1,800 sf home, your per square foot revenue number now drops to $333 psf ($600,000 / 1,800 sf). 

  Given that you bought the land for $100 psf buildable (market price in the area) and that your construction costs alone are going to be $250 psf, you realize that you’re now underwater ($100 + $250 psf > $333 psf) without even adding in any soft costs (consultant fees, city fees, and so on). If you showed this to your investors on the project, they would throw you out of the room.

  So instead of building that 3 bedroom condo at 1,800 sf, you say to yourself: what if I made it 1,000 sf? You’re confident that your architect could lay out a terrific condo at that size and it now magically gets your per square foot revenue number back up to $600 psf. 

  This solves two problems: it returns the project to positive feasibility and it keeps the total sale price within reach of more people. It promotes greater affordability. So you go ahead and do it. Boom – shrinking urban dwelling.

  All of this is not to say that this is fair or unfair, good or bad. It is simply to say that this is the way it often is.

  2016.04.24

• Mr. Robinson — Architect as Developer

  I first learned about the work of Jonathan Segal back when I was in architecture school. And he was somebody I immediately admired. 

  At the time, I was struggling to figure out where I wanted to position myself between architecture and real estate development, and he was somebody who had seemingly figured it all out: he simply merged the two.

  For those of you who are unfamiliar with Jonathan Segal, he has made a name for himself by being a pioneer of the “Architect as Developer” business model. That is, he acts as both the architect and the developer/client.

  This business model isn’t going to suit everyone, but I suspect that we’ll see more of it in the future.

  Of course, it doesn’t just have to be an architect acting as a developer. It could also be an architect and a developer joining forces or some other permutation. Whatever the case may be, design and innovation are central to business today and that’s why I think this model will only become more relevant.

  Below is a short 3 ½ minute video about Segal’s latest project, called Mr. Robinson. It is located in San Diego. If you can’t see the video below, click here.

  [vimeo 155403927 w=500 h=211]

  If you’d like to see the typical floor plans or rent one of the apartments (they start at $2,400/month), click here.

  Now I’d be curious to hear your thoughts. Do you like the project?

  2016.02.17

• My approach to blogging

  In yesterday’s post about the city as an egg, I received a comment basically saying that I use this blog to carefully curate my own image and that I would never argue against “dumb Toronto planning” because, after all, I’m a developer. I am going to do what breads my own butter.

  I welcome intelligent debate on this blog. That’s why it is open to anyone who would like to comment. But since I’ve received similar comments in the past, I thought I would use the opportunity to talk broadly about my approach to blogging.

  Firstly, there will always be some level of curation involved. That’s inevitable. We see it all over social media. But I’m a big believer in transparency and I try to do exactly that on this blog. I am keen to push the boundaries in this regard.

  At the same time, part of what makes blogs unique is that they’re often personal. That is the origin of blogging. Some of my favorite blogs to read are the ones that have figured out how to combine a particular niche topic with personal stories. And since ATC is ultimately my personal blog, I am going to continue taking that exact same approach.

  Secondly, I only write about things that I’m passionate about. I get asked all the time to write about and promote specific projects, causes, and events. But almost all of them do not get written about it. Because if I don’t care about it, then I’m not going to write about. It’s as simple as that.

  Thirdly, I believe in positivity over negativity. I believe that optimists, not pessimists, change the world. President Obama won his first term with a message of hope, not despair. To me, that is a stronger motivator.

  I’ve been told before that I’m overly optimistic and that my youthful exuberance will one day wear off. Boy, I sure hope it doesn’t. Because would you rather have a beer with someone who is optimistic or someone who is pessimistic? I will always take the former.

  However, this is not to say that I want to be blind to the realities of the world. Last summer I disagreed with Toronto’s decision to rebuild the elevated Gardiner Expressway East along the waterfront, and I continue to disagree with that decision. 

  When I believe something is a mistake, I am happy to make it public and put it in writing on this blog. But as a developer, I suppose I have certain biases working against me. That’s just the way it is.

  In any event, this is my rough and ever-evolving approach to blogging. As usual, I welcome any and all comments.

  2016.02.12

• Pocket two bedroom

  I recently started reading the blog of Michael Mortensen. Michael is a real estate developer and urban planner based in the UK. And if you like my blog, I think you’ll also like his.

  Last week he published a post talking about a UK development company called Pocket and a recent design competition that they organized called “Pocket two bedroom.”

  Historically the firm has been focused on well-designed and compact one bedroom apartments (38 square meters) that they deliver at a minimum 20% discount relative to typical market rate housing in London.

  But over time, they found that they had to turn people away because they were looking for larger – yet still affordable – two bedroom apartments. So the firm decided to figure out how to scale their model to larger units.

  To do this, they went out and asked 19 architects to come up with ideas for a two bedroom Pocket apartment. They then published all of the ideas online.

  Firstly, I applaud them for making their competition results public. Most real estate companies wouldn’t do this.

  Secondly, it’s interesting to take note of the recurring design themes, as they have on page 24-25 of their competition book. 

  Some of the themes include “deep thresholds” that blur private and communal spaces; “thick walls” that allow for storage and servicing; flexible spaces and fewer dedicated spaces; and dual entry apartments.

  This last item was particularly interesting to me. It’s a simple idea – two separate doors leading into one apartment – but it can allow for a number of flexible sharing scenarios. I am already imagining somebody creating an Airbnb rental out of their second bedroom.

  Housing is certainly undergoing a transformation.

  2016.02.09

• What tax policy could be doing to home sizes in Ontario

  

  https://500px.com/embed.js

  In yesterday’s post I made a remark that we have antiquated tax policies here in Ontario that encourage the building of smaller new construction condominiums. There seemed to be a lot of interest in that comment, and so I’d like to talk about that today.

  Some people thought I was referring to development charges, but I was actually thinking of the GST/HST New Housing Rebate in Ontario. 

  The way it typically works in Ontario is that when buy a new construction home, the price you pay is inclusive of HST (harmonized sales tax) and net of any applicable rebates, such as the rebate program mentioned above. 

  This means that the price you see on your agreement is usually the price you pay. I say usually only because there are ways that you could disqualify yourself from the New Housing Rebate program. But that’s a different post.

  So what does this mean in practice?

  Let’s say you went out and bought a new construction condo for $368,200 (there is a reason I’m picking what seems like an arbitrary number). If there was no such thing as the New Housing Rebate program, then the sales tax owing on this home would be the full 13%. And that would mean that the price paid before any taxes is actually $325,841 (x 13% = $368,200). This is an important number because it represents revenue to the developer.

  But since there is a New Housing Rebate program, the effective tax rate actually works out to be 5.20% for this particular sale price, which means that the price paid before any taxes is now $350,000 (a nice whole number). And so because of rebates and because they are now paying less HST, the developer’s revenue number has increased. It has gone from $325,841 to $350,000.

  The way this logistically works is that purchasers usually assign the New Housing Rebate benefits to the developer who then processes all the paperwork. This is what I mean when I say that the “sticker price” is inclusive of HST and net of any rebates – it already factors in the possible deductions.

  So far things are looking good. And I want to be clear that I don’t have concerns with the New Housing Rebate program in its entirety. In fact, it’s a hugely important part of the new home industry. Without it, many projects would simply not be feasible to build.

  However, as the price of the new home increases (which typically happens as the home gets bigger), the rebates start to fall off. The federal portion of the rebate maxes out at a base purchase price of $350,000 (which is why I chose that number) and the Ontario portion maxes out at a base purchase price of $400,000.

  What all this means is that as the unit sizes get bigger and more expensive, the effective tax rate is no longer at 5.20%, as was the case in the example I gave above. It increases. And if you hold prices constant for the purchaser, it means that the developer’s revenues now start to drop.

  To illustrate why this matters, consider the following chart:

  

  In the first scenario, the developer builds and sells 2 units for a price of $368,2000. This translates into revenue of $700,000. However, if the developer instead decides to combine those 2 units and sell the larger single unit for $733,100 (roughly double the price) then the effective rate of HST goes up and revenue drops by $30,000.

  The second scenario is similar to the first one except that instead of 2 units, it’s 3 units which then get combined into one. Here revenue drops even further – by $50,000.

  Now, you could argue that there are some cost savings associated with building fewer suites, but I don’t think it would offset the differentials shown above, especially if you multiply those revenue numbers across an entire project. So what this all means is that it can be more profitable for developers to build smaller units priced below the thresholds mentioned above, as opposed to a smaller number of larger units. 

  Again, I’m not saying that HST rebates are bad. They’re critical to the industry. I love them. But I do believe we should be thinking about the possible implications that the current set up could be having on what we’re building and in particular on unit sizes.

  If you’d like to learn more about how the rebates work, check out this PDF from the Canada Revenue Agency. I tried to keep things simple in this post.

  2015.10.18

• I would make a terrible politician

  Ever since I was a little kid, I have thought that I would one day get into politics. 

  A lot of it has to do with me wanting to affect positive change, which is also one of the reasons I love real estate development (and one of the reasons I write this blog). Developers might have a bad rap in some circles, but I view it as a mechanism for positive change in the built environment.

  However, I have also felt that politics is something that’s better to do when you have grey hair and you don’t actually need the money to live. That way people take you more seriously and you can, hopefully, just do what you feel is right as opposed to playing the political game.

  But more and more I find myself thinking: Brandon, you would make a terrible politician.

  I don’t want to play games. I don’t want to have to think about which stance will win me the most votes. And I don’t want to have to dance around questions so I can avoid upsetting certain constituents. I’d rather be clear and decisive about what I think is the right thing to do.

  But that doesn’t always work so well in politics. So I think I’ll just stick to building things and writing this daily blog.

  2015.05.17

• Architect and developer partner to build affordable prefab housing in Sweden

  

  In this month’s issue of Monocle magazine (#80) they profile an interesting prefabricated and affordable housing project in Knivsta, Sweden.

  A collaboration between architect Andreas Martin-Löf and developer Junior Living, the project contains 124 single occupancy units, each of which has 32 square meters of interior space (that’s about 344 square feet).

  The way it was built is quite simple. The modular housing units were fabricated off-site and then inserted on-site into a prefabricated concrete frame. Think bottles going into a wine rack. Here’s a diagram showing how it works:

  

  What’s truly amazing about this project though is how quickly it was built and how cost effective it actually was for end users. Construction started in January 2014 and residents started moving in about 3 months later. The sale prices ranged from €50,000 to €87,000 per unit. That’s roughly $62,000 to $98,000 in US dollars.

  Finally, here’s a shot of one of the interiors:

  

  What do you all think of this project?

  Photography by Åke E:son Lindman via Andreas Martin-Löf Arkitekter

  2015.02.27

• How are you attracting and retaining top talent?

  Yesterday I received a comment on my post about service and product companies with a suggestion to check out an interesting Fast Company article talking about the future of work (thank you Amy). The article was based on a research report – commissioned by CBRE and a real estate developer in China (Genesis) – called Fast Forward 2030: The Future of Work and the Workplace.

  This is a topic that’s getting a lot airtime right now because Millennials are starting to impact work in a big way. But what’s interesting about it is how broad these impacts will be. Changes in how we work will affect the way we design our cities; the way architects and developers build and lease space; the type of people and roles companies will need to hire and create; and so on.

  Here’s a snippet from the report:

  “Providers of commercial buildings and places to work will need to develop new, sometimes counter intuitive, business models and work with partners who understand service and experience in order to compete with emerging workplace competitors. Successful providers will work with tenants to unlock ‘win win’ solutions that reduce occupier costs, increase flexibility, and simultaneously provide enhanced levels of community, amenity and user wellbeing. Cities will have a role to lead and nurture changes that will support the changing landscape of work.”

  I plan to go through the report in more detail this weekend, but I did want to point out one thing. When business leaders from around the world were asked what their biggest competitive advantage would be by the year 2030, the top choice was: the ability to attract and retain top talent. This topped organizational vision and even the ability to innovate.

  This might not come as a surprise to some of you, but it’s worth repeating. And in many ways, it’s a chain that begins first with cities. 

  If you’ve ever watched The Startup Kids documentary, you’ll know that when Alexander Ljung (CEO of Soundcloud.com) was about to found his company, he actually started by first traveling around Europe looking for the coolest city in which to base his company. The last city on his trip was Berlin and that just so happened to be the team’s favorite. So that’s where Soundcloud was founded.

  My point with that story is simply that the “workplace” of today – forget the future – means so much more than just your rentable area. Yes, that’s important. But there’s a lot more to consider when trying to get the best people. Cities play a huge role.

  2015.01.22

• $30 million class-action lawsuit against condo developer

  Last Sunday the Toronto Star ran this article talking about a $30 million class-action lawsuit against developer Elad Canada. The claim is that the developer failed to deliver on the promise of direct underground subway access from its project—Emerald City Condominiums—to the Don Mills subway station.

  The developer, however, doesn’t feel that they made such a representation:

  The lawyer for condo developer Elad disputes the claim saying, “there was never any representation that there would be underground access” from the condo building to the subway or directly to Fairview Mall: Both are easy to reach by walking out the lobby doors and six metres to the subway entrance right out front.

  But when you check the project’s website, it says the following:

  Emerald City is also a commuter’s dream come true. With easy underground access to the Don Mills subway, you can be in downtown Toronto in just minutes.

  Now, I suppose you could argue that, since it’s the subway, that all access is underground. And that it’s certainly “easy”. But when I read the above statements, I can understand why somebody might think there’s underground access to the subway station from within the building. That’s what I would think. It’s misleading.

  But I want to hear from all of you (especially if you’re a lawyer).

  Do you think the developer unfairly led purchasers into believing that they would have direct and underground access to the subway station from their building?

  2014.04.29