Brandon Donnelly

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.

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Tag: development

  • Toronto approves new Rental Housing Supply Program

    This past week, Toronto City Council approved the launch of a new affordable housing initiative called the Rental Housing Supply Program. Here’s the agenda item if you’d like to dive into the details and read some of the supporting reports. There are a number of components to the program, and one of them is a subsidy that will be administered by way of a forgivable interest-free loan:

    Subject to the adoption of the Rental Housing Supply Program, the City will continue to support RGI and affordable rental homes through the allocation of up to $260,000 per eligible affordable rental and RGI home. This is the maximum allowable funding allocation under the Rental Housing Supply Program. Actual funding per project will be determined based on the evaluation of applications on a site-by-site basis, in consultation with the Chief Financial Officer & Treasurer, and based on project parameters and additional sources of funding that can be leveraged to support the project’s financial viability. These funds will be provided as interest free forgivable loans to eligible and approved projects and will be tied to milestones and requirements in agreements with housing providers.

    Total funding for the program is $351 million. And the intent is that these funds will be distributed in the near term to 18 affordable housing projects in the city, all of which are expected to start construction sometime between now and the end of 2025. In total, this is anticipated to create about 6,000 new affordable rental homes. That’s a good thing.

    Now, I don’t know anything about these projects. I don’t know if $260k is the right figure. And I don’t know if a forgivable interest-free loan is the exact right mechanism to deliver these funds. But what the program does do is recognize this: Deeply affordable housing cannot be built without some form of subsidy.

    Developers are often criticized for only building expensive housing. But the reality is that developers are, for the most part, takers of market pricing. In other words, we can’t just decide to build for less. We can reduce build and finish quality to get costs down, but at a certain point, the cost to build is the cost to build.

    And if that cost to build isn’t what the market would view as affordable, then you’re not going to get there without a subsidy. No developer is going to build if their expected revenues are less than their costs. Directionally, that’s what this new program appears to recognize.

  • Build whatever you want

    As a gross generalization, there are probably two ways in which one can approach the building of a new building. The first is based on demand. You believe that there is demand for new housing or new office space or some other use, and so you decide to build new space in order to satisfy that exact demand.

    Sometimes developers get it wrong and build too much space or the wrong kind of space, but the reason for building remains the same: you believe that there is a market waiting for you.

    The second way to build is to completely disregard the market and just build whatever you feel like building because it is going to serve some other alleged purpose. And that is arguably what is happening in Saudi Arabia with The Line and what happened in places like North Korea with its “Hotel of Doom.”

    I suppose that there is a chance that somebody in North Korea believed (or pretended to believe) that there was demand for a skyscraper that was 1,000 feet tall and housed 3,000 hotel rooms, but in reality, the real reason was that leadership thought it looked cool and that it would make for good propaganda.

    To be fair, there was probably also some hope that it would spur demand and attract foreign investment. But it’s still a case of just building whatever you want.

  • Use-it-or-lose-it entitlements

    One of the things that cities often try and stamp out is speculation. Homes should not sit empty (enter vacant home tax). Storefronts should not sit empty (enter vacant commercial tax). And development land should not sit undeveloped. To correct this latter problem, one idea that is sometimes floated around is “use-it-or-lose-it” zoning.

    The way it works today in, I believe, most cities, is that if you do a site-specific rezoning on a property — and secure additional density — you get those special permissions forever. If you want to wait 100 years before starting construction, you are technically entitled to do that. Of course, in the interim, no new housing is actually being created. It’s all just on paper.

    The idea with “use-it-or-lose-it” entitlements is that — instead of these permissions lasting forever — they would expire after a certain period of time, which would mean that the entire rezoning process would need to be done all over again. These take time (at least a few years) and cost money (it’s in the millions). And so it has been suggested that this would incentivize developers to not sit on entitled land.

    While I do understand where this line of thinking is coming from, let me make a few points:

    • Generally speaking, most developers don’t just sit on entitled land for fun. They need things to happen, and to happen quickly, so that value can be realized. If there is a problem of too many developers not actually building, it could be a sign that there are other market factors impacting feasibility.
    • There is nothing wrong with rezoning a property and then “flipping it out” to another developer. This is often viewed negatively. But some developers only rezone properties and some developers only buy zoned sites. These can be different phases of the value chain. A rezoning can take years and millions of dollars, and so sometimes developers don’t have the wherewithal or desire to do both.
    • A use-it-or-lose-it approach unfairly punishes developers during market cycles and bear markets, like the one we are experiencing right now. There is no way to predict when the next global pandemic will hit, when construction costs might surge 40%, and when the fed could start rapidly increasing rates to calm inflation. Maybe waiting out the storm is all you can do.
    • If you’re building condominium housing in our market, you generally need pre-sales in order to secure a construction loan. Let’s call it 70% pre-sold. What happens if this takes longer than expected? And what happens if you sell 50%, your site-specific rezoning expires, and then you have to restart the entire process? At this point and in this current market environment, you would likely have to cancel the entire project and reboot it.
    • Timing is important. To give a specific project example, we had planned to launch condominium pre-sales for our One Delisle project in the fall of 2020. And we were ready to do that. But sentiment didn’t feel right. Too pandemic-y still, and so we waited until the spring of 2021. This turned out to be the right decision. But what would have happened had we had this timing gun to our head? (Truthfully, it always feels like there’s a timing gun to our head.)
    • I have written about this before, but go-to-market strategies are changing in this current environment. It is taking longer to start sales and construction because, among other things, developers are spending more time trying to pin down their construction costs. Would rezoning expiries take all of this into consideration and adjust accordingly?
    • Finally, if one is going to do something like force developers to pull all of their building permits within X months of receiving zoning approvals — or else suffer the consequences — then everything required to get there should also have a maximum timeline associated with it. In other words, cities would also need to do things like commit to issuing permits within Y months of receiving a submission — or else. It’s only fair that this cuts both ways. But just to be very, very clear, I do not think this is a good idea.

    What I am broadly saying is that (1) development is a pain in the ass and (2) developers are already heavily incentivized to move quickly and make things happen. It is not uncommon for projects to take 5-10 years from site acquisition to completion. And a lot of unexpected things can happen during that time period. Hopefully losing your entitlements doesn’t become one of them.

  • Weekend walking tour

    I had a friend — who I know from architecture school — visiting from Detroit for the weekend, so we did a little building tour on Sunday morning.

    This is the elevated (and half-finished) CIBC Square Park that spans over the rail lines leading into Union Station. The benches are beautiful. On the right side of the second photo are also fire pits that are in the process of being setup.

    This is us nerding out (photo credit to Neat B).

    And this is the view looking down Bay Street from the stairs that lead up to the park. We tried to snoop around inside a little but a security guard asked us to leave.

    This is T3 Bayside — a new timber office building going up on the waterfront. Apparently it is the tallest of its kind in North America at the moment. I am also embarrassed to say that I just learned that T3 stands for timber, transit, and technology, and that it is part of a broader office development strategy that Hines is rolling out.

    This is Tridel’s Aquavista. I’m looking forward to the ground floor spaces getting leased up in this area. All of the ingredients seem to be here for a vibrant waterfront community.

    This is the next Aqua-something project. We all assumed that there must be strict umbrella rules in place.

    This is Monde by Moshe Safdie & BDP Quadrangle (architects) and Great Gulf (developer). It kind of reminds me of 56 Leonard Street (New York) from this elevation. I guess I’m not used to seeing it from the south side.

    Finally, this is Sherbourne Common, which is both a park and an important piece of stormwater infrastructure. It treats stormwater before it gets discharged into Lake Ontario and it also helps to reduce poop from flowing into Lake Ontario as a result of combined sewer overflows.

    It’s fun being a tourist in your own city. We should all do it more often. It makes you appreciate what you have.

  • The definitive but crazy guide to creating more affordable housing

    Okay, so maybe this isn’t an entirely definitive guide. But the intent is to make this post a kind of working post. As new ideas emerge (from my end or from your ends), I will endeavor to update it, so that maybe one day it will become a bit more definitive. I also think it’s important to keep it a little crazy. Because housing affordability is clearly a tough problem to solve, so unless we start thinking differently and acting boldly, we may not get there.

    Here goes.

    • Encourage new housing at all scales (low, mid, high)
    • “Upzone” all major streets and transit station areas
    • Allow multi-unit dwellings in low-rise neighborhoods and ensure that any applicable codes and/or policies are not creating unnecessary obstacles to building at this scale
    • Work to make the largest possible housing scale permissible on an as-of-right basis — that is, remove the rezoning process wherever possible and allow builders to go right to a building permit (a lengthy rezoning process can cost millions)
    • Avoid the use of inclusionary zoning policies that do not provide an equal offset or subsidy (such as a density bonus)
    • Ensure that any development charges and levies are commensurate with the burdens created by new housing and that existing property owners are funding their fair share through property taxes
    • Identify the areas that are NOT seeing new housing and then create incentives to make development feasible
    • Search for underutilized land and other opportunities to add new housing — no land parcel should be considered too small
    • Incentivize small-scale prototypes as a way to test out new ideas and foster innovation — specifically with respect to climate change and construction productivity
    • Eliminate all parking minimums – no ifs, ands, or buts
    • Depoliticize the planning process as much as possible — local politicians are not generally incentivized to encourage new housing
    • Eliminate the ability for individuals to block or significantly delay new housing
    • Ensure that there are enough staff to expeditiously review and process development and building permit applications — if builders are hiring “expediters” in the hopes of moving these things along, it means something is broken
    • Put in place strict response and issuance timelines for building permits
    • Bonus city staff (and anyone else who touches housing supply) based on the number of housing units approved and permitted each year
    • Design smaller and more urban-friendly garbage trucks so that less space is lost in every new housing development
    • Reduce/eliminate complex urban design guidelines, such as Toronto’s widely used 45-degree angular plane guideline

    What is missing from this list? And/or what did I get wrong?

    Last updated: July 25, 2022

  • The pre-meeting is often better than most panel discussions

    When you’re preparing for a panel discussion, one of the things you usually do is have a pre-meeting with all of the participants. The purpose of this meeting is, of course, to get to know everyone and decide on what you’re going to talk about. Everything then gets buttoned up and you have the actual panel.

    But one of the things I’ve been feeling lately is that oftentimes the pre-meeting is more interesting than the actual panel. And that’s because everyone is more relaxed and everyone is engaged in a genuine discussion that hasn’t been pre-meditated. Nobody wants to hear boring and overly-scripted answers. Natural and free-flowing discussions are so much more engaging.

    So I’m going to try and keep this in mind and not put on a sucky panel next week at the land & development conference (which, by the way, will be in person). I’m moderating a panel on innovations in project design, delivery, and building operations. If you’d like to join, you can register over here.

  • We’re hiring, again

    The development team at Slate is hiring once again for our Toronto office. We are looking for a coordinator/analyst to join the team and work on all aspects of our projects (which span the full lifecycle of development and are pretty cool if you ask me). If you’ve read some of my past hiring posts (examples here and here), there isn’t a lot more that I can say about our company, our culture, and our approach to development.

    But what I would emphasize is that our culture is paramount. I am biased, but I think we have a great team that works well together and that cares deeply about what we do. All of this is important, which is why in the past I have encouraged candidates to go beyond their resume and share something else like their online presence or a link to something that would help us get to know them a little better.

    If you would like to learn more about the position and/or apply, please do that over here on LinkedIn. And if you have any questions, feel free to reach out to me on Twitter.

  • Being a real estate developer means asking a lot of questions

    I was having coffee with a developer friend of mine this morning and we got onto the topic of asking a lot of questions. We joked that that’s what we do all day.

    Development projects happen because of teams of very smart people all working together toward a common goal. It’s a beautiful thing. And as a developer, there are certain expertises and competencies that you should have.

    But for the most part, we usually sit in rooms as the least qualified person. We are not structural engineers. We are not geotechnical engineers. We are not architects (though I sometimes pose as a fake one). We are not planners. And we are not façade specialists, among many other things.

    But we are the ones taking on most of the financial risk and trying to bring everything together. And what that means is that you end up asking a lot of questions. You collect information, you try and consider what could go wrong, you lean on past experiences, and then you make a decision — often without perfect information or 100% certainty.

    This is how projects move forward. You have to rely on others and you have to make decisions. Because not making a decision is even worse. It burns time, which is why too many cooks in the kitchen can be the kiss of death for development projects.

    I’m sure the same thing can be said for many other things in life.

  • No-cost affordable housing in Toronto

    It upsets me when I read things like this (click here if you can’t see the embedded tweet above). I think it creates a false sense of a free lunch and ignores all of the nuances and complexities associated with inclusionary zoning.

    IZ is an obligation to provide a certain number of affordable units in new housing developments. There’s a lot of detail and debate around where this should apply, how much needs to be provided, and at what degree of affordability.

    But at the end of the day, it’s important to keep in mind that at meaningful levels of affordability, these IZ homes are going to be built at steep losses. More info on the economic impacts of IZ can be found here.

    The simple math is that the costs to build these homes are going to be greater than the revenues that they bring in. Which is why developers aren’t out building affordable housing everywhere. There’s no margin.

    In order to build, somebody or something needs to provide a subsidy so that this revenue-expense shortfall can be made up. How this works its way through the market is where I have tried to focus the discussion when writing about IZ. There are complexities. Some lessons from Portland, here.

    But to just assume that these costs will get magically absorbed by housing developers, with no other knock-on effects or distortions to the market, is incorrect.

  • Innovation in real estate development

    I am moderating a panel at the Toronto Real Estate Forum later this year (it’s on December 2 to be exact). The topic is innovation in development. There is a great panel of speakers (more info here) and the plan right now is to cover everything from new design and construction approaches to the rise of crypto and blockchains. Topics that are all near and dear to this blog.

    But we are still in the early stages of planning and I haven’t yet figured out what the questions to the panel will be. So I thought it would be interesting to hear from all of you: What would you say are the most important topics to cover when it comes to innovation in development? What’s next for our industry, or what should be next for our industry?

    If you have any thoughts, please leave a comment below. That way everyone can see them. Supposedly this is one of the most asked for topics at the real estate forum, and so it’s clearly top of mind for many people.