Tag: development

• A question of infrastructure

  One of the main reasons why I hear people oppose certain development projects is because of a lack of infrastructure. Whether it’s roads, transit or something else, the concern is that what we have is inadequate to service what we’re about to build.

  Now, I understand that we can’t completely overburden the city, but I still have fundamental concerns with this line of thought. 

  The population of the Greater Toronto Area is expected to grow by 2.5 million people over the next 20 some years, to almost 9 million people by 2036. What this means is that growth is happening and it doesn’t really care whether or not we have the “right” infrastructure in place. It’s coming and we need to figure out how best to house these people while at the same time building the most livable and prosperous city on the planet.

  And I’m not sure most people appreciate that if we don’t build up (intensification) it means we’re going to be building out (sprawl). Again, the growth isn’t going to stop. And this represents an even greater strain on our region’s infrastructure (both built and natural) because it puts people into less intense land use and into cars.

  So what I’m going to suggest is that instead of asking if our current infrastructure will handle the future, we ask why the future hasn’t been built into our current infrastructure? It’s a question of being proactive, rather than reactive.

  We should be demanding better infrastructure instead of holding back progress because of our inability to properly city build. We should be demanding the best as opposed to knocking everything else down to the lowest common denominator.

  A perfect example of this is transit.

  I strongly believe that transit is one of, if not the, biggest issue facing our region today. Decades of disinvestment are really showing my friends. And if we don’t get our act together, the impact on our quality of life, our environment, and our economic productivity is only going to worsen.

  We need to be asking the right questions: Is the development the problem or is the real problem our infrastructure deficit?

  2013.12.18

• Q&A on Toronto’s condo rental market

  Earlier this week I connected with a Ryerson student doing a piece on Toronto’s condo rental market. She emailed me and asked if I would mind answering a few questions. Here are my responses.

  Generally speaking, why is Toronto continuing to see such a rapid increase in the number of condos in development? 

  A lot of what we’re seeing is policy driven. It stems from the Places to Grow Act and the continued push towards intensification. It actually mirrors a similar boom we saw in the 70s. In both cases, it was policy driven and the market responded.

  The other factor is a growing consumer preference for more walkable and urban neighborhoods. People are sick of long commutes and so we’re seeing a return to city centers and downtowns. This is happening across all demographic segments, though Millennials and Baby Boomers seem like particularly strong ones.

  Is that boom, and the consequent rush by developers to create new units for rapid sale, affecting the quality of design and accessibility in new condo developments in Toronto?

  When you have a hot market, you’re going to get lots of people rushing in and trying to make money. Whether it’s real estate, tech or some other industry, it’s to be expected. And I’m sure it impacted some projects negatively. But that market is gone in Toronto.

  And regardless of the pace of development, there will always be varying degrees of quality across builders. The unfortunate thing for consumers is that it’s not always easy to tell which is which.

  One of the things we’re trying to do (at TAS) is integrate consumer education more into our sales and marketing programs. Mechanical equipment, as one example, isn’t the most exciting thing to to talk about, but we want consumers to know what they’re buying into.

  Prices are rising (you could buy a house outside the city for the price of some of Toronto’s tiny bachelor units, if I’m not mistaken…) – So what is making condo ownership so desirable in spite of the high cost relative to space? 

  Again, it’s being driven a lot by lifestyle. People want walkable communities, they want to be close to amenities and they want to drive less. And they’re willing to give up space for that. 

  When considering and comparing the cost of a home, I think it’s important to consider some of the indirect costs, such as transportation costs, travel times, quality life and so on.

  Sure a home in the suburbs may be a lot cheaper, but what’s my total, all-in, cost? If you need to own 2 cars and you spend 2 hours commuting everyday, there’s a real cost to that. If you place a big value on your time (as I do), the cost equation isn’t so skewed all of a sudden.

  Are more people choosing to live in rental condos instead of buying, because of the inaccessible cost? If so – why are we still seeing so many new ‘rental condo units’ being built, rather than purpose-built apartment units?

  Condos are being built because, in most cases, it’s the highest-and-best use for the land. It’s the most profitable. And investors have been more than willing to step up and fill the rental needs of the market. But with the condo market now coming down from record levels, I wouldn’t be surprised if we start seeing more purpose-built apartments.

  Would you say that the majority of condo rentals on the market are owned by foreign investors who depend on building management to liaise with renters? If so, why are they choosing to buy units in Toronto?

  I have no idea. It’s even hard to tell how many units are just investor owned, let alone local versus foreign. Because there are tax implications if you don’t owner occupy a unit, buyers have an incentive not to disclose. Overall, I find it problematic that the marketplace is so opaque. I wish there was a way to bring perfect information.

  With respect to why they choose to buy in Toronto, there are a bunch of reasons. Real estate has been a phenomenal investment in Toronto over the past decade and that’s attracted a lot of investor attention. There are also segments that just want capital preservation in a safe and stable country. Even without great returns, that’s a valuable proposition for some foreigners. And of course, Toronto is a great city. Talent wants to live here and that’s important.

  Generally speaking, is there a certain LOCAL demographic (ie, boomers, post-boomers) that are investing in condos for the purposes of renting them out? What makes that investment so desirable?

  Again, there isn’t great data on this. 

  What I will add to the investor topic is that, despite the fact that investors often get a lot of flack, they do serve two important needs in the marketplace for both developers and consumers. The first one we’ve already talked about. Investors provide rental housing in Toronto at a time when few, new, purpose-built rental apartments are being constructed.

  The second one is that investors help to get projects under construction and built. I’ve heard one developer refer to them as providing a kind of short-term financing. Because consumers don’t always want to commit to a unit that might be built 4-5 years out, developers rely on investors to buy pre-sale units so that the project can get underway. Once construction is complete, these units then often get sold to end users who are now ready to commit and move in.

  2013.12.05

• Thoughts on the OMB

  Last night I watched CBC’s the Condo Game documentary. This is what it’s about:

  “The Condo Game examines the forces at play behind the fastest moving condo market in North America – Toronto – and discovers that the glittering glass hides a sea of troubles.”

  If you haven’t seen it, you can watch it here at CBC’s Doc Zone. It’s about 45 minutes long.

  Generally, I found the piece to be overly sensationalized. (If you watched it and it left you worried about condos, contact me. I’d love to hear from you.) However, that’s not to say that the documentary doesn’t raise some important points. One that I absolutely think is worth discussing is the Ontario Municipal Board (OMB).

  Many developers like “the board” because it provides recourse. If the city fails to take action on a development application within 180 days, developers have the right to appeal to the board.

  While I do think it’s critical to have some sort of mechanism to unlock a gridlocked planning process, I also think that it’s fundamentally problematic to give the province ultimate decision making power over municipal planning decisions.

  Real estate development is very much a local business and these decisions should be happening at the local level. However, with the OMB looming overhead, it has left municipalities disempowered. “We’ll deal with it at the board” always remains an option. 

  But what if there wasn’t a board? What if municipalities and developers had to figure out a solution between the two of them? We’d certainly end up with less wasted money (on expensive lawyers), but I think we’d also end up with better design and planning outcomes.

  To do this though, the city needs to get their act together with respect to zoning. Almost nothing is zoned for what developers end up building. But I think this largely has to do with the fact that the city knows any dissenting decision will just get appealed. Again, they’re disempowered.

  So I think it’s time we empowered cities. This may seem scary to some developers at first, but there’s a lot to be gained.

  2013.11.29

• Pier 27 and transparency in the real estate industry

  One of my favorite development projects going up in Toronto right now is the Pier 27 complex at the base of Yonge Street.

  What I love about it is that it’s trying something different. The two sky bridges that sit atop the two phases—currently under construction—are going to create a remarkable new focal point along the waterfront. It’s not just another condo.

  And as I watch the buildings go up, I’ve also been impressed by the materials used on the project. In particular the curtain wall (glazing) system used on the eastern most buildings. It’s a clear glass installation with white accent pieces. It’s beautiful. Here are a few photos.

  But as much as I love this project, it’s been slow moving. This project, like many others in the city, has been subject to a number of delays. They went to market in 2006-2007 and occupancy isn’t expected until next year—a good 7 years later.

  But more than the issue of time, my real concern is the lack of transparency. Why was it delayed? Were sales slow? Were there dewatering issues being on reclaimed land along the waterfront? Was the soil contaminated? As a consumer, it’s frustrating being in the dark.

  I do, however, acknowledge that this is a larger issue facing the real estate industry. We’re certainly not known for radical transparency. We’re a closed and insular industry. But over time I do believe that will change. It’s inevitable. And the best thing you can do today—as an organization or as an individual—is to embrace it.
  

  Full disclosure: I have a vested interest in this project and I’m currently having a fight with the developer over a small amendment I would like to make to the agreement of purchase and sale. They have been unwilling to cooperate.

  2013.11.27

• Prospect Theory

  I just read an interesting chapter from Tim Smith’s book, “Pricing Strategy: Setting Price Levels, Managing Price Discounts and Establishing Price Structures.” It’s Chapter 5: Psychological Influences on Price Sensitivity.

  The chapter covers a number of pricing phenomenons, such as why prices ending in .99 tend to convey a discount and why whole prices ending in 0 tend to speak more to quality. It’s for this reason that art work is typically priced using simple round numbers.

  But one of most interesting theories from the chapter is that of Prospect Theory. Not only because of its impact on pricing strategies, but because, I think, it also applies to the real estate development business.

  Prospect Theory essentially describes the way people make decisions in the face of uncertainty. The two big takeaways for me are (1) that potential losses carry more weight than potential gains and (2) that both losses and gains experience diminishing returns.

  What this effectively means is that people, when faced with risk, tend to focus more on the negatives, and the potential losses, than on the positives. This means that the gains just can’t match the losses, they have to be significantly greater if you’re going to inspire action (a purchasing decision, a change in behaviour, or whatever).

  The second point basically means that these gains and losses become muted after a certain point. If you hit someone with enough of either, eventually they reach a point where they become desensitized in a way. Each additional amount of gain or loss produces less and less impact.

  Besides the obvious point of making sure that your product or service results in lots of gain for your customer, there are a couple of other things you can do to respond to this theory.

  The first is to “bundle losses” and “unbundle gains”. In other words, hit people with all the losses at once and then spread out the gains. What this does is maximize the psychological perception of gains and minimize the perception of losses because, remember, after a while people start to discount the losses.

  The other thing you can do is transfer losses, which is often just the cost itself, from direct to indirect. Big box stores, as an example, are great at this. They offer low prices (a direct cost) in exchange for greater indirect costs: higher transportation costs to the user, greater environmental impact, and so on. Studies show that people feel direct costs much more than indirect costs.

  There are a bunch of things you can do based on this theory, but again, one of the most fascinating things for me was how it also applies to the real estate industry. There’s a well known acronym in the industry called NIMBY. It stands for Not In My Back Yard, and it’s used pejoratively to refer to people who oppose development in their community.

  However, if you look at NIMBY’ism through the lens of Prospect Theory, you realize that it’s almost an innate human reaction. Development and construction is disruptive and the end result is change in somebody’s community. And I suspect that most residents view it as a risky and uncertain situation. Therefore, it’s no wonder that they’re first reaction is opposition. They’re weighing the potential losses more than the potential gains.

  So maybe we developers just need to apply a little Prospect Theory. We need to get better at producing and communicating gains.

  2013.10.29

• Mirvish + Gehry

  I was reading Novae Res Urbis this morning and they had a piece on the 3 tower Mirvish + Gehry proposal in Toronto’s Entertainment District. It was talking about David Mirvish’s “sales pitch” to the Empire Club of Canada this week, an attempt to help overcome the criticism around the design, height and overall density of the project. The article ended by saying that the developer will be appealing to the OMB this January.

  I know that I’m probably biased in this matter, but I fail to understand the concern around height and density – particularly since the site is 2 blocks from a subway station. Why are we – citizens and policy makers – so obsessed with building height? Good architecture and urban design involves a lot more than the number of floors. Can we not have more sophisticated conversations about built form rather than fixating ourselves on building height?

  Secondly, whenever a building gets proposed in Toronto that attempts to, literally, step outside of the box it gets pegged as controversial. Take, for example, the Royal Ontario Museum by Daniel Libeskind. When people used to ask me what I thought of the crystal addition, I used to say that I was a fan simply because it was pissing off so many people. Love it or hate it, it’s architecture. The same can’t be said for a lot of the other stuff going up in this city. Why doesn’t mediocrity invoke the same response? It should.

  So my issue is that we seem to be far more comfortable accepting banality than we are with accepting bold new changes like the Mirvish + Gehry proposal. And frankly, if we could actually pull off three 80+ storey towers, it would be down right impressive in this market. How many cities in the world have a real estate market robust enough to support this scale of development?

  But this is not a post of unconditional support. I do have concerns.

  I’m concerned that 4 heritage designated properties will need to be destroyed in order for this project to move forward. This makes me wonder: What’s the point of a designation if the building can still be demolished? I’m actually surprised that this topic hasn’t been getting its fair share of attention. Again, we’ve been more interested in talking about building height.

  Further west along King Street, I have similar concerns with a development proposal that would demolish “restaurant row.” This a spectacularly successful – albeit touristy – restaurant strip and I would hate to see it go. It’s difficult to create this kind of fine grain retail experience from scratch. 

  Now don’t get me wrong, I believe in development. I am a developer, after all. But I don’t believe we should be so quick to erase our history.

  2013.10.05

• Globe and Mail moving to the east side of downtown

  This past Wednesday the Globe & Mail newspaper announced that they signed a 15-year lease to be the lead tenant in a new office tower now under construction at 351 King Street East (just west of Parliament Street). This means that the newspaper will be leaving its current digs on the west side of downtown at Front & Spadina.

  

  I have to admit that I was pretty excited when I read the news. The design looks incredibly promising and, as some of you might know, I’m bullish on the east side of downtown.

  One of my favourite areas of the city is the Distillery District. But today it still feels very much like an island. And it’s because the city hasn’t really caught up to it. It’s a destination.

  However, between the West Don Lands and major office projects such as this one (it’s 500,000 sf), I think the east side of downtown is about to hit its stride.

  It’s continuing to “fill in” and this will make more and more people realize how central it actually is to the core – especially in comparison to west side neighbourhoods like Liberty Village.

  Amongst my excitement, I did however stop to think about the fact that a newspaper company was taking top spot in a new office tower. Will newspapers even be around for another 15 years?

  2013.09.21

• I’d raise kids in an apartment

  One of the North American truisms that I often like to challenge is the belief that kids should be raised in a house.

  I’m interested in this topic, not because I’m planning for a kid, but because Toronto has gone through such a dramatic transformation over the past 15+ years to become a city where more and more people are living in multi-family dwellings (condos, apartments, and so on).

  However, there’s still the belief amongst many circles that condo living is merely a stepping stone on the way to a house. Since Millenials have effectively added a new life phase between University and marriage, condos have become the home of choice for many twenty and thirty somethings. But how long will they stick around? I see a lot of people in my network getting married and subsequently moving from a condo to a house.

  Why is this?

  Is it because of schools? Is it a cultural belief that families require a house and a backyard? As someone who grew up in the suburbs, I can tell you that I never played in the backyard. I played on the street with other kids. I used a shared public space rather than a private one.

  On a practical level, I think the condo-to-house tradition has a lot to do with the fact that condos are just more expensive on a per square foot basis than wood-framed houses. For the same price that you might pay for a small 2 bedroom condo in Toronto, you could still conceivably buy a 3 bedroom house in some inner city neighbourhood.

  But the supply of single family homes in the city is limited. We’re not adding anymore. So as the price of these homes continues to increase – at what is now a faster rate than high rise housing – we may eventually reach a point where there’s no longer a cost savings associated with low-rise housing. In fact, they’d just be a luxury for the well-heeled.

  In this scenario, I think we’d naturally see an increase in larger condo units – something the city has been trying to artificially encourage. And out of necessity, we’d see more and more families in condos. However, it’ll take a change in mindset. Are you ready for it? I’d like to think that I am.

  2013.08.31

• Follow the red brick road to Toronto’s waterfont | Dirt

  Follow the red brick road to Toronto’s waterfont | Dirt

  2013.04.04
• 

  Performance Court at 150 Elgin rising against the Ottawa skyline.

  2012.12.04