Tag: development

• Learning about O-zones

  I spent this evening reading about Opportunity Zones, or “O-zones”, in the United States. 

  For a census tract to become an O-zone, it has to have a poverty rate of 20% or higher, or the median household income has to be less than 80% of the surrounding area. Governors are also only able to designate 25% of their eligible census tracts.

  Here is a map of the areas that have been designated as Opportunity Zones.

  

  Here is how these O-zones work. (All excerpts taken from this Forbes article.)

  The law’s engine is a new breed of financial product, the opportunity fund, that offers investors a trifecta of attractive tax breaks. Here’s how it works. Investors who sell assets have 180 days to plow their taxable capital gains into an approved opportunity fund, which must hold 90% of its assets in Opportunity Zone projects. To put money to work fast, the law requires that the funds invest all of their cash within some specified time frame. (The Treasury Department is still deciding on that and other crucial details.) Tax on the original reinvested gain isn’t due until 2026, and the taxable gain is cut by 15%. Meanwhile the new opportunity investment grows tax-free, like a Roth IRA, provided it’s held for at least ten years. (If it’s sold earlier, it can be rolled into another opportunity fund and remain tax-free.)

  Here is how it could get the real estate industry to take action.

  For real estate developers, O-zones offer cheap real estate and unlimited, untaxed upside if a neighborhood takes off. Developers must do more than stash cash in crumbling property. To qualify for tax perks, they must make swift and significant upgrades (at least equal to the cost of the initial purchase). With real estate projects come new office buildings, industrial districts, restaurants and affordable housing—all of which can lay the groundwork for an economic boom. “The real estate aspect is a great catalyst to attract new businesses,” says AOL founder Steve Case, an early supporter of the O-zone initiative, whose Rise of the Rest Fund invests in backwater areas. “But it’s the startups that will be the real job creators.”

  And here is how it could influence where new businesses decide to locate.

  “If Facebook could have chosen to locate itself in an Opportunity Zone, like the Tenderloin in San Francisco, the investors would’ve paid no capital gains on their equity,” says Parker, who presumably would have been one of the big winners. The promise of mega-returns could send VCs, investment banks and private equity firms scrambling to launch their own opportunity funds to create incubators, scour second cities for overlooked talent or move portfolio companies into O-zones. “It wouldn’t surprise me if a lot of Silicon Valley VCs started to tell founders, ‘We’d like you to go over the bridge to Oakland, or we’d like you to go to Stockton,’” Parker says.

  If you’d like to learn more about Opportunity Zones, check out the Forbes article.

  2018.07.20

• Condo rents in Toronto are up 11.2% from last year

  Yesterday Urbanation released its Q2-2018 rental report for the Greater Toronto Area. It tracks both purpose-built rentals and condominium rentals, the latter being condominium units that are listed for rent on MLS. The average condo rent, for all unit types across the GTA, is up 11.2% year-over-year to a face rent of $2,302 per month.

  Here is a chart from the Globe and Mail:

  

  The former City of Toronto, which includes downtown, is actually up 13.5%:

  

  But here are the stats that I really wanted to draw your attention to today (figures from the Globe).

  According to Urbanation, there were some 384,000 condo apartments in the Greater Toronto Area in 2017 and nearly 1/3 of them were rented out. Given that the Canada Mortgage and Housing Corporation pegs the total number of rental apartments in the GTA at approximately 311,596, condo apartments represent about 40% of all our rental housing stock.

  So condo buildings are actually doing quite a bit of heavy lifting when it comes to providing rental housing in this region.

  2018.07.14

• Why Millennial homeownership is so low

  The Urban Institute has a new study out that looks to explain why Millennial homeownership rates are lower than that of previous generations. The typical refrain is that Millennials have a lot more student debt and that the cost of housing in urban centers has risen faster than income levels. But this report tries to put some math behind those explanations. All data is for the US.

  

  Not surprisingly, marriage and kids are significant drivers, and Millennials appear to be delaying both. According to the study, being married increases the probability of owning a home by 18%. If marriage rates in 2015 were the same as they were in 1990 (this is the time period for the study), the Millennial homeownership rate would be 5% higher. Having a kid increases the probability by about 6.2%.

  There’s also a widening spread between the homeownership rates for more educated and less educated Millennials. Presumably the distinction is a 4 year university degree. Between 1990 and 2015, the spread between the two groups increased from 3.3% to 9.7%. This was identified as an area of “great concern” because of the possible long term implications.

  Combine this phenomenon with the stats that white households have a higher homeownership rate compared to all other racial groups and that having parents who are homeowners increases the likelihood of also owning a home (let’s ignore, for a second, the other intergenerational transfers of wealth), and you have a recipe for rising wealth disparities.

  Of course, some of you will undoubtedly argue that in this part of the world we are overly fixated on homeownership as a mechanism for wealth creation. I mean, there are many examples of very wealthy countries with homeownership rates that are far less than what they are here in Canada and the US. But that’s a discussion for a different blog post.

  If you’d like to go through the full Millennial Homeownership report, you can do that here.

  2018.07.13

• How large metro areas are driving the global economy

  “The concentration of economic growth and prosperity in large metro areas defines the modern global economy, creating both opportunities and challenges in an era in which national political, economic, and societal trends are increasingly influenced by subnational dynamics.” -Brookings Institute

  The Metropolitan Policy Program at the Brookings Institute has a new report out for 2018 called the Global Metro Monitor.

  Here are some of the highlights (data is from 2014 to 2016):

  – The 300 largest metro areas in the world accounted for 36% of employment growth and 67% of GDP growth.

  – Metro areas in China and the Asia-Pacific region outperformed, whereas Latin American cities, and in particular the largest Brazilian cities, were weaker performers.

  – The majority of large metro areas had growth rates that exceeded that of their respective regions. So again, cities are the driver.

  And here is an interesting interactive chart (better to click through) that shows the % change in GDP per capita. 

  

  Look at how much of an outlier San Jose is. Though, check out Dublin in the footnote. And if you look at the actual data table, it is all China, except for Dublin at the top.

  

  For the rest of the charts, click here. And to download the full Global Metro Monitor report, click here.

  2018.07.08

• Studio Gang’s first project in Canada

  

  This evening Slate Asset Management hosted the community meeting that I’ve been writing about on the blog over the last little while. 

  And at this open house Jeanne Gang of Studio Gang introduced a new block plan and mixed-use building at the southwest corner of Yonge Street and Delisle Avenue in midtown Toronto.

  I think it went really well. We had over 200 people RSVP, but based on my imprecise head count, over 300 people actually showed up. 

  I would tell you more right now, but it’s very late. So I’m going to instead leave you with this article by Alex Bozikovic, titled, Studio Gang’s new Toronto tower follows the right recipe: tall, innovative and excellent.

  2018.07.06

• Letter from Toronto on Google’s city of the future

  Politico Magazine recently published this article about Sidewalk Toronto. It’s called: Google Is Building a City of the Future in Toronto. Would Anyone Want to Live There? 

  If you’re familiar with what Sidewalk Toronto is up to, the first bit will likely cover things you already know. But later on it gets into an interesting discussion around data privacy, among other things.

  One argument is that if you strip any personal identifiers from the data you collect, then you’ve effectively eliminated the issue of privacy. 

  But what about “collective privacy?” 

  What if you could, for example, identity signs of concentrated drug usage within certain districts, communities, or even buildings? Does that start to get a little too personal?

  This is the great debate surrounding Quayside, the area that Sidewalk is focused on. The article also touches on what Quayside could mean for the future of Toronto.

  Just about all players involved believe that if Sidewalk can be successful at Quayside, it has a shot at the adjoining 800-acre Port Lands, a swath of problem space big enough to become home to a dozen new neighborhoods in a growing metropolis. Townsend, the consultant, says of the Port Lands: “That’s a city they’re going to build there. This is just the warmup, this little piece.”

  Full article, here. There’s also an audio version in case that’s your preferred consumption method. It’s about 40 minutes long if you do it that way (and don’t speed it up).

  2018.07.05

• Architecture’s great injustice

  This morning Jeanne Gang of Studio Gang published an op-ed in Fast Company detailing how her architecture and urban design practice closed the gender wage gap. 

  It is also a call to action and an example of something the firm calls “actionable idealism.” Here is an excerpt from the article:

  What we discovered was that, despite our ideological commitment to equality (and though our numbers were significantly better than all the U.K. architecture firms reporting, in all categories), a small pay gap nevertheless existed between the women and men in my office. We fixed that with this year’s raises and now have no wage gap as an organization.

  To learn more about how they accomplished this, check out the full article. And if you’d like to meet Jeanne Gang in Toronto this week and learn more about what we’re up to at Yonge + St. Clair, click here.

  2018.07.04

• Blackstone enters Canadian multi-family sector

  

  A few days ago it was announced that Blackstone has entered the multi-family space in Canada through a JV with Starlight Investments. They are buying 6 undisclosed multi-family buildings. 5 in Toronto. And 1 in Montréal. The total is 746 units.

  The message in the press release is that apartment buildings in Canada are difficult to find and buy at meaningful scale. Most are held by small private investors and those owners are reluctant to sell. 

  At the same time, places like Toronto and Montréal have built relatively little purpose-built rental over the past few decades. Supply is restricted. 

  This is an interesting stat from the announcement: The Canadian rental market is about 2 million housing units. Dallas, alone, is 500,000 units. But this must only be purpose-built, investment grade, and/or some other subset of units. Because there are over 14 million private households and over 4.4 million rented households in Canada (2016 data).

  They also hint at a longer-term relationship between Blackstone and Starlight. Perhaps that will translate into some purpose-built rental development in the future.

  On a related note, I recently picked up the book, King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone. It was published in 2012, so it’s not new. But as soon as I stumbled upon it, I picked it up. It was new to me.

  Once I’m finished it maybe I’ll report back here on the blog.

  Photo by Warren Wong on Unsplash

  2018.06.30

• Airbnb and affordable housing

  

  Fred Wilson published a good post last weekend on the proposed bill that went to New York City Council this week regarding new reporting requirements for Airbnb and their hosts in NYC. You can read more about his position on his blog, but he is in favor of a comprehensive bill that would properly legitimize short-term rentals. He is also not opposed to city and state taxes on the service.

  What I wanted to focus on today were his comments around housing. This is already sounding like a broken record, but Fred draws attention to the severe supply-demand imbalance that is occurring in the boroughs of Brooklyn, Queens, and the Bronx, precisely because many/most young people were priced out of Manhattan long ago and want to live in these places.

  But I particularly like his comments around what makes for good policy and what makes for good politics. I agree with his view that it is often a case of the latter over the former. I think a lot of the excitement around Airbnb is a red herring. For me, it’s akin to the fixation on foreign buyers and their impact on the local housing market in places like Toronto and Vancouver.

  Yes, they are factors. But the data suggests they are marginal ones. As Fred points out, they are almost certainly not the root cause of the problem. The reality is that we need a lot more housing – both market-rate housing and subsidized housing. The challenge is that nobody wants to pay for the latter and so we’ve instead decided to focus on things that sound like they’re going to help.

  Photo by Jon Tyson on Unsplash

  2018.06.29

• Construction costs are no joke right now

  

  I don’t know what it’s like in your market, but everyone is talking about it in the industry here in Toronto. Combine these rapidly rising hard costs with higher development charges and inclusionary zoning and you get significant upward pressure on condo prices and apartment rents. 

  This is also one of the reasons – perhaps it is the main reason – why you’re seeing some projects get cancelled. These are projects that maybe sold in one market (lower revenues) and are now trying to build in another (higher costs). The math no longer works. Sorry.

  I mention this today not to complain, although I’m always up for a good industry commiseration over beers, but because I often hear people lament that Toronto needs better design. Why aren’t developers using triple-glazed windows? Why aren’t developers thermally breaking the balconies?

  I will always advocate for better design. That is core to my belief system. But everything costs money. There are very real limits in this equation. And markets have a funny way of telling you exactly what those are.

  Photo by Filip Mroz on Unsplash

  2018.06.28