Tag: development

• Why can’t cities reach equilibrium?

  The October issue of The New Yorker has an interesting piece called: Naked Cities – The death and life of urban America.

  I find the article ends up rambling a bit, but I like the idea presented right at the beginning. The idea that cities can never really find equilibrium. They’re either dying, or victims of their own success.

  Here’s that paragraph:

  Cities can’t win. When they do well, people resent them as citadels of inequality; when they do badly, they are cesspools of hopelessness. In the seventies and eighties, the seemingly permanent urban crisis became the verdict that American civilization had passed on itself. Forty years later, cities mostly thrive, crime has been in vertiginous decline, the young cluster together in old neighborhoods, drinking more espresso per capita in Seattle than in Naples, while in San Francisco the demand for inner-city housing is so keen that one-bedroom apartments become scenes of civic conflict—and so big cities turn into hateful centers of self-absorbed privilege. We oscillate between “Taxi Driver” and “The Bonfire of the Vanities” without arriving at a stable picture of something in between.

  I like this because there’s truth to it. But at the end of day, this is just one of the many challenges facing great city building. 

  To solve the problem of affordable housing you could just be a city in decline. But that’s not much fun. So the better option, however difficult it may be, is to figure out how to manage the negative externalities associated with winning.

  2015.09.30

• Toronto housing — where we came from and where we’re probably headed

  This morning I’m working on a presentation that I’m going to be giving one evening next week to a delegation coming in from the US. The title of the presentation is the title of this blog post: Toronto housing – where we came from and where we’re probably headed.

  My plan is to start in and around the 50s and 60s and talk about Toronto’s first tower boom following the war. For this time period, I’m relying a lot on the work of Graeme Stewart of ERA Architects, who is one of, if not the, expert on post war towers in this city.

  

  I’m then going to move onto our current high-rise condo boom and compare the two.

  Because the interesting thing about the first boom is that, after it finished, we basically returned to the typical North American housing model: building single-family homes. And it wasn’t until this recent boom of the early 2000s that we once again resumed building more high-rise than low-rise housing. That is still the case today.

  But the question I want to address is really, what’s next? Where are we headed? Is history going to repeat itself or is – dare I say – this time different?

  I’ll eventually get to those questions here on Architect This City, but first I want to hear from you. So here’s what I’m proposing: leave your thoughts in the comment section below and I will feature the best ones in my presentation next week as the voices of Toronto. I’m sure many of you know that I’m a big fan of crowdsourced information.

  So here goes. Where is Toronto housing headed and how will we be living in the next 10+ years? Will we be raising families up in towers or not? Please comment by Sunday, September 27, 2015 at 6pm (ET) to make sure I have time to feature you in the presentation. 

  Thanks for participating 🙂

  2015.09.26

• Affordable housing and the economics behind developing new rental apartments

  

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  In most big cities around the world, there is a pressing need for more affordable housing. We know that inclusive cities make for better cities. But from San Francisco to Hong Kong, you always hear people talking about how expensive housing is.

  So why is this such a difficult problem to solve?

  Part of the problem, I think, is that many people don’t understand the economics behind building a new building. Oftentimes I hear people say that because developers make so much money, they should just build more affordable housing. Done. Simple.

  But things are not that simple.

  To illustrate my point, let’s walk through the thought process for developing a new rental apartment building.

  In its simplest form, developers are concerned with: revenue – costs = profit. And since many of the costs associated with building a new building just are what they are, it all starts with revenue, which in our case would be rents.

  To build a new rental tower in Toronto, your rents typically need to be at least in the high $2′s per square foot per month. Otherwise the economics don’t work. But to make the math simple, let’s say you need $3 per square foot in rent. That means a 1,000 sf apartment would rent for $3,000 per month.

  That’s not cheap. There are only so many people who can afford these kinds of rents and only so many areas where you can command these kinds of rents, which means there are only so many areas in Toronto where new rental apartments will be built by the private sector.

  If the rents instead happen to be $2 psf – meaning that same 1,000 sf apartment now rents for $2,000 per month – then for-profit developers will not build (barring any unique deal circumstances). Even at $2.50 psf / $2,500 per month, it would be difficult to make the numbers work here.

  And by the numbers, I am talking about tight returns that really only start to make sense in our environment of record low interest rates. Which means that when interest rates start to rise (pushing cap rates up), it may not even make sense to build rental apartments when the rents are in the high $2′s per square foot. This is particularly true if you’re competing against condo developers to buy the land. They can afford to pay more. 

  In this scenario (of rising interest rates), many real estate firms might simply opt to buy existing assets instead of taking on the risk of building anything new. Now all of a sudden your supply of new market rate apartments (not to mention affordable apartments) has dried up. Remember, it’s been decades since Toronto built rental apartments at any sort of meaningful scale.

  It’s for reasons like this that Vancouver launched a program called Rental 100. In a nutshell, it helps to reduce the “costs” variable in the equation mentioned above so that developers are able to meet minimum project returns and build more rental buildings. They do that through things such as reduced parking requirements, additional density, development charge waivers, and so on.

  In some ways, these items are subsidies. The city is giving up revenue that it could have otherwise collected from a developer building, say, a condo. But in other ways, they are freebies. The city could be unlocking development sites that may have otherwise not been developed. In which case it’s not really forgone revenue.

  Vancouver’s Rental 100 program is a market rental housing policy. But there’s no reason that similar thinking couldn’t be applied to create an affordable rental housing policy. It has been done and is being done in many cities.

  2015.09.10

• How high are your ceilings?

  

  I’ve been having a lot of discussions lately about ceiling heights. The clear height from the top of the floor to the underside of the ceiling.

  In Toronto there has been a bit of an evolution in ceiling heights. Older apartment and condo buildings often have 8’ ceilings. Newer buildings today often have 9’ ceilings. And we’re now seeing 10’ ceilings creep into the market, though I wouldn’t say it’s close to becoming the standard. It’s more at the top end. Of course there are also loft buildings with even higher ceilings.

  I am personally big on ceiling height. But I would be very curious to hear from the Architect This City community on this one.

  How high are your ceilings? What do you consider ideal? Do you even care? And is there a ceiling height where it would become a deal breaker for you when it comes to buying/renting a new place? I also think your actual height might have an impact on preference, so it would be great to also hear how tall you are.

  I have 10’ ceilings in my place. Not because my place is all that special, but because my suite is on the same floor as the building amenities. So the higher ceiling height is carried through (the rest of the building is 9’). I think it makes a big difference, particularly since my place isn’t all that big. I’m 6’3".

  Let me know your thoughts in the comment section below. This is great market feedback that will certainly be taken to heart.

  2015.09.05

• Towards a post privacy world — what the Ashley Madison hack could mean for cities

  

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  Ashley Madison is a website that helps married people have affairs. 

  Recently the website was hacked and over 33 million accounts were exposed. This included full names, email addresses, mailing addresses, and so on. Not surprisingly, this has gotten a lot of press. The site was/is marketed as being private and secure. And clearly that is not what it is right now.

  But there are people in the tech community, such as venture capitalist Albert Wenger, who believe that is merely a glimpse into the future – a “post privacy future.” He even argues on his blog that we as a society should be more accepting of the leak and that the release of this data could lead to a “more measured view of affairs.” (There are many who argue that humans are not intended to be monogamous.)

  For many, or probably most of you, I’m sure this position seems pretty radical. After all, this leak will likely destroy many marriages.

  But Wenger’s position on privacy is a fascinating one and he’s written a lot on the topic. The tension he sees is one between individual privacy vs. collective intelligence. In this part of the world, our society values the former over the latter. But he believes that we are headed towards a world where almost everything, yes everything, will eventually become public. Again, radical position. But consider how much we publicly share about our personal lives today versus 10 or even 5 years ago.

  What’s perhaps more relevant to the Architect This City audience though is what this could mean for many other industries beyond tech.

  I often think about what a “post privacy future” could mean for city building. Imagine if every architect, real estate developer, engineer, and other participant made public all of their work. This would mean that all designs, financial models, sales data, and so on were made widely available to anyone who wanted to see them.

  The thought probably scares many of you in the industry, but consider what it would mean for our collective intelligence. There’s a strong argument to be made that we would all be better off and that the process of building would become far more efficient. In fact, if truly everything were public, it could in theory eliminate most of the market’s concerns about overbuilding, a condo bubble, and all the other stuff that gets talked about.

  The reason people speculate on these market factors is because we don’t have all the data. We don’t actually know what’s going to happen. We have no idea. I know I certainly can’t predict the real estate market.

  So why aren’t we quickly becoming more public?

  Wenger raises the game theory principle known as the prisoner’s dilemma:

  “So one way to think about secrecy is that it leads to lots of prisoner’s dilemma style situations. Individuals (or companies) would be worse off if they were the only ones disclosing, but if everyone disclosed (or at least the majority), then everyone would be much better off. In the language of game theory, we are in a bad equilibrium.”

  In other words, if only one real estate developer disclosed her project’s financial information to the public, then she would probably be worse off against her competitors. But if every developer in the city did it, then the market as a whole would be better off because everyone would then benefit from collective intelligence.

  Using the example of infidelity, if one person is caught having an affair, then that person is more than likely worse off. But if over 33 million people are caught having an affair and it reinforces the statistic that between 30-60% of married people in the United States will have an affair at one point in their lives, then maybe it forces us as a society to rethink what marriage means today. And maybe that makes us all better off.

  This is a pretty far out there argument, though the city building example is probably more palatable than the Ashley Madison one. Regardless, I would love to hear your thoughts in the comment section below. 

  Are we heading towards a post privacy world?

  2015.09.03

• The importance of having your own beliefs

  On Monday I watched the movie Moneyball for the first time. I really enjoy movies, but I unfortunately don’t watch a lot of them, which is why I am only now watching Moneyball. It was released in 2011.

  The movie is based on a 2003 book of the same name that many people believe changed the game of baseball. It emphasizes rigorous statistical analysis (known as sabermetrics) over gut feeling, instinct, and traditional metrics when it comes to assembling winning baseball teams.

  I don’t know a lot about sabermetrics, but I am now excited to read the book. Still, the dichotomy between the New York Yankees and the Oakland Athletics is incredibly interesting to me. And it reminded me of a post I wrote a few months ago ago called: When everyone thinks you’re wrong.

  In the movie, Billy Beane, the GM of the Athletics, realizes that he cannot compete with the Yankees dollar for dollar. The Athletics are a small market team and the Yankees, with their large payroll, will always be able to pay more for players. So he decides that he will need to think about the problem differently to win.

  What’s interesting about this is that it’s exactly the framework I talk about in my post when it comes to buying (real estate) development sites:

  “…you can really only win development sites in one of two ways. Either you’re willing to spend the most money or you see something and have a vision that nobody else sees.”

  Of course, lots of baseball teams today are now employing sabermetrics. But at the time, everyone thought Billy Beane was nuts. It’s hard to try something new and be different. Many of us just want to do what is least likely to fail.

  But there’s so much value in having conviction and being right about something that everyone else thinks is wrong. You won’t always get it right. And that’s okay. But when you do get it right, it’ll be magic.

  2015.09.02

• Japan’s disposable housing

  

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  As further evidence that real estate is a local business, let’s take a look at the housing market in Japan today. It’s a very unique market.

  According to this Freakonomics podcast, 50% of all single family houses in Japan are demolished by the time they reach 38 years old. That’s their half-life. By contrast, in the US, this number is 100 years.

  The reason for this is rapid depreciation. Real property typically consists of two things: land and the building. Land doesn’t depreciate. But the structure sitting on the land does.

  In Japan, the building or structure is thought to be fully depreciated (and therefore worth nothing) after about 30 years for a single-family home and after about 40 years for an apartment/condominium.

  The result is that there’s virtually no resale housing market. When somebody buys a house, it is usually torn down and completely rebuilt. It’s a uniquely Japanese phenomenon.

  So why does this happen?

  The Freakonomics podcast presents a couple of hypothesis. Some believe that it’s caused by a Japanese fixation with newness. New is seen as pure and clean. 

  Others believe that it has to do with a building code that is constantly changing due to the high frequency of earthquakes in Japan. 20% of the world’s earthquakes with a magnitude of 6.0 or greater happen in Japan. And so there appears to be a belief that newer homes – with the latest seismic technologies – are the safest.

  Whatever the case may be, the fact that there’s virtually no resale housing market in Japan, not surprisingly, produces some interesting outcomes. For one, maintenance and DIY home projects are uncommon. Why invest in your home when it’s not viewed as an asset, but as a disposable good?

  At the same time, people worry very little about marketability when they are building new. And this is a big reason why Japan is so famous for its radically designed homes. When you’re building only for yourself, you just do what you want.

  But most importantly, some (such as Richard Koo, who is interviewed in the podcast) believe that this approach to housing is a huge “obstacle to affluence.” Without a functioning resale market, the Japanese don’t get the opportunity to build wealth/equity in the same way that other countries do.

  Do you buy that?

  2015.08.24

• Interview with Brad Keast of Osmington

  

  Given yesterday’s post about Times Square in New York, the timing is perfect to talk about the revitalization of Union Station here in Toronto, its new public spaces, and the programming that’s now happening in and around the station.

  Perhaps the most noticeable is something called Front Street Foods @ Union Summer, which is an outdoor food market set up along Front Street. It’s on this summer from July 6th to September 27th, 2015. 

  However, Front Street Foods is only one part – the food part – of a larger events and programming strategy known as Union Summer. I recently had a quick chat with Brad Keast of Osmington, who is involved in a lot of what’s happening right now at Union Station.

  I found it interesting to learn about how organic the process was. And I thought you all might find it interesting as well.

  ————————————–

  Tell us a little bit about you and your company’s involvement with Union Station. 

  I’ve been with Osmington for over 4 years now and Union Station is a major focus of my waking life. 

  The company won a public RFP with the City of Toronto in 2009 to be the City’s retail partner in the redevelopment. What this means is that while the City owns the building and is doing base building construction, we are overseeing all the retail, advertising, and special events and programming. We are finding all the tenants, doing a bit of overshell work and then turning it over for fit-up.  

  We think the real special part of the project comes in through the special events and programming. We really want to make the station a destination in itself and you’re starting to see that with some of the programming we’ve done this year, be it a contemporary art event like Villa Toronto or something more community-focused like Union Summer – the current animation of the area in front of the station.

  How did the idea for Union Summer come about? 

  This really was a collaborative internal effort. We started by thinking ‘hey, let’s put a bunch of tables and chairs on the new plaza in front of the station and see what happens.’ Then we added in the idea of food. We knew it had to be accessible but didn’t want traditional food trucks, rather something less mobile but still not permanent. 

  That’s when we reached out to Toronto Market Company and they started rounding up the vendors. Then we layered on entertainment – daily music be it live or DJs, as well as a movie night with the Toronto International Film Festival (TIFF). We even have some kids programming on the weekends. Then we worked with the Farmers’ Market being displaced from Nathan Phillips Square due to Pan Am this year to have them here on Wednesdays.

  What was involved in making Union Summer a reality? What was the biggest surprise and/or hurdle that needed to be overcome? 

  There was a tremendous amount of coordination needed. First we weren’t sure when the construction was even going to be finished, all that was certain was it would be before Pan Am started. 

  Then the infrastructure required for the event itself was an exercise in creativity – power, water, and grey water disposal in particular. There was a lot of meetings with City officials for things like building permits, fire code, council approval to apply for a liquor permit, and health and food safety measures. Operationally things like loading in, coordinating with the installation of the Pan Am banners between the columns, interim furniture when our original order didn’t make it onto a ship in Antwerp, and then the first week was so busy that some vendors started losing staff because they were burnt out. 

  Like all things with this project we have to be mindful that this is an operating train station. In fact it’s the busiest building in the country with over 250,000 people per day passing through so we can’t impede those operations. We’ve done our best and have learned some lessons along the way and the reception has been overwhelming. 

  One of the best things about having that many entrepreneurs in close proximity is that some vendors have been pairing up to try experiments. Frozen custard-stuffed churro?

  Toronto is getting much better at designing and programming its public spaces. Given your experience with Union Summer, is there something the city could and should be doing to encourage more of these kinds of urban activations?

  Well, first of all, our contacts at the City, in particular Denise Gendron and Scott Barrett in Real Estate Services have been incredibly supportive of our efforts and we couldn’t have done it without them. If I could make one recommendation it would be to build in the supportive infrastructure for services. Of course that’s only beneficial if there is someone to take charge of the space and program it appropriately. It’s not a part time job.

  What’s next for Union Station?

  Right now the focus is on getting the first retailers open on GO’s new York Concourse. On the programming side we will host art for Nuit Blanche (October 3rd, 2015). That promises to be exciting. And then opening November 30th, 2015 is the Holiday Market. It was a huge success last year so we’re bringing it back for 3 weeks this time.

  2015.08.23

• America really is building very few condominiums

  On my way back from Philadelphia
  this past weekend I wrote a post called, The
  Philadelphia (real estate) story. It was about how opposite the market is
  in Philly compared to Toronto.

  After writing that post and
  because of a discussion in the comment section, I started thinking about condo
  vs. rental apartment development across the US. Because unlike cities such as
  Toronto and Vancouver, it struck me that – outside of maybe New York and Miami
  – most U.S. cities are really not building a lot of for sale condos. And if
  you’re from Toronto or Vancouver, I bet that feels odd to you.

  But what exactly is that number?

  As of the first quarter of 2015, condos as a percentage of all new
  multifamily (apartment) construction in the US was only 5.5%. That’s a tiny number and is down from
  over 50% before the Great Recession, which means most
  cities in the US really are building mostly rental. Last year the US built 264,000
  multifamily units across 11,000 buildings.

  

  So why is that happening?

  There appears to be a number of
  factors, according to a
  recent article in the Wall Street Journal.

  There’s a supply side
  constraint:

  Another obstacle cited by developers: construction loans. Matt
  Allen, chief
  operating officer of the Related Group, a developer based in Miami, said he can
  get a construction loan for roughly 75% of the cost of building an apartment
  complex. But lenders will cover only 50%, on average, of a condo complex’s cost
  because of the greater risk, he said.

  There’s a demand side
  constraint:

  As a result, the Federal Housing Administration, which
  backs mortgages made to low-wealth buyers, tightened its lending standards in a
  series of moves from 2008 to 2012. Under the new rules, in order for the FHA to
  insure mortgages in a given condo complex, at least half of the units must be
  owner-occupied and no more than half can be FHA-insured, among other
  requirements. For condo projects under development, at least 30% of units must
  be under contract for sale before the FHA will start backing mortgages there.
  Mortgage giants Fannie Mae and Freddie Mac tightened
  their standards as well.

  And there are macroeconomic
  factors:

  On the entry-level end, tepid job growth early in the
  recovery and the younger generation’s affinity for flexibility have fueled
  demand for rentals. Apartment rents are up nearly 16% since 2010, according to Reis Inc.

  Notwithstanding
  the above, could this be a post-recession policy pendulum that has swung
  too far in one direction?

  2015.08.20

• BIG coming to Toronto’s King West

  

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  Earlier this week a press release went out announcing that Allied Properties REIT (TSX:AP.UN) had established a joint venture with Westbank to redevelop 489 – 539 King Street West here in Toronto.

  “What is so exciting here is that Allied has over time assembled 620 feet of frontage on what is fast becoming one of the most interesting streets in Toronto,” said Ian Gillespie of Westbank. “With this scale, we have a unique opportunity for world-class city building.”

  Westbank is relatively new to the Toronto market. Their first project was the Shangri-La Toronto in 2012. But since then they’ve entered the city in a big way with high profile projects like the redevelopment of Honest Ed’s at Bloor and Bathurst.

  But what excites me the most about this King Street project is that they’ve selected Bjarke Ingels Group as the design architect. I’ve written about BIG a few times before and I’m a huge fan of their/his work. So I’m pumped to see what gets proposed here. It will not be typical.

  There are a few heritage buildings on the site. And it looks like some (but not all?) will be preserved. 

  Based on this post and discussion on UrbanToronto.ca, it’s not clear whether 489 King Street West will be preserved and incorporated into the new build (as was the case with a previous design). I sure hope it is though.

  2015.08.08