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

  • Every building is a prototype

    Witold Rybczynski’s recent blog post about architecture’s “curious business model” gets at one of the core challenges of new construction: “Every project is, in effect, a custom job; there are no real economies of scale.” There are also no reoccurring cash flows for the architect, Witold explains, unlike a writer who might earn ongoing royalties or a business owner whose wealth will grow as the business grows.

    There are two items to discuss here: (1) The “curious business model” used in the practice of architecture and (2) the inefficiencies of construction.

    The first one is not unique to architecture. You could say the same thing about the planning and real estate lawyers who also work on new buildings. But I take Witold’s point in that even a painter’s work could appreciate in value after it’s done, whereas there’s typically no mechanism for any of this to accrue (to the architect) in the world of architecture.

    When I was young, I was told that there are two ways to make money. You can either trade your time for money or you can own assets that make you money. An example of the latter might be a farm where the tenant farmer pays you rent every month. You’re not trading your time by actually doing the farming, you just own the asset.

    This may seem obvious, but it’s fundamental. And it’s one of the reasons why, when I was in architecture school, I admired the practices of people like Jonathan Segal out of San Diego. Jonathan is one of the pioneers of the “architect as developer” approach. He simply became his own client and started building his own projects.

    Moving on to topic number two.

    Everyone in the business of building new buildings is looking for repeatable methodologies. Many have thought: How do we make the construction of buildings more like the assembly of cars? How do we create a standardized kit of parts? And that has lead to longstanding efforts around prefabrication. Today, as you know, we are also looking at how 3D printing might make this easier/cheaper.

    In some ways, that is happening. There are examples of prefabrication and panelization, and there are developers who are using this approach. (See H+ME Technology.) But for the most part, we still build on site and it’s still a messy process with lots of waste and inefficiencies. If there was a cheaper and more effective way to do it, the industry would certainly move in that direction. Eventually that will happen.

    In the meantime, we will continue building our prototypes.

    Photo by Ivan Bandura on Unsplash

  • Number of condo units built in New York City between 2009 and 2019

    A decade of ultra luxury condos. The New York Times published this story over the weekend talking about how the luxury condo boom of the 2010s transformed New York City, and in particular Brooklyn.

    Below are two tables from the article: (1) The number of units built between 2009 and 2019 across the five boroughs and the city’s top neighborhoods, and (2) the neighborhoods with the highest median sale price increase.

    The overarching theme is that New York built too many “super-high-end condos” geared toward global capital flows. According to one developer interviewed for the article (Gary Barnett of Extell Development), it was unprecedented.

    Apparently, the problem segment remains the $5 million to $10 million market. There’s simply too much inventory, and that has developers both delaying launches and going with much smaller (and hence more affordable) unit mixes.

    One stat that stood out for me was the new condo premium over resales. In 2011, the average sale price of a new condo in the city was about $1.15 million, which represented about a 9% premium over resale pricing.

    While it is typical to see a premium over resales (the same is true in Toronto), the average price of a new condo in 2019 rose to $3.77 million, representing a 118% premium over resales.

    For the rest of the article, click here.

  • Two-up, two-down

    Feargus O’Sullivan is doing a series in CityLab right now on the “home designs” that define four European cities: London, Berlin, Amsterdam, and Paris. The first one is on London’s classic “two-up, two-down” design, which refers to a two storey home with a living room and kitchen on the ground floor and two bedrooms on the second. It’s a simple design, but one that has supposedly endured.

    O’Sullivan argues that for many, or perhaps most in Britain, this is what a “home” feels like. It’s grade-related and there are two floors. Indeed, only 14% of British people live in an apartment, compared to 57% in Germany (a majority). This percentage is much higher in London, with about 43% of people living in an apartment. But about 25% of the population still lives in some sort of attached house.

    Home equals house. And for us North Americans, this is of course relatable. But the Germany example is a reminder that this is not necessarily universal. Attitudes toward housing are cultural. And cultures can and do change. I am seeing that happen right now in Toronto. Some of us are becoming less like the British and more like the Germans.

  • Missing middle on Toronto’s collector roads

    This recent Spacing article by Geoff Turnbull and Laurence Holland makes a compelling case for “missing middle” type development along Toronto’s collector roads. The idea being that we are already focusing on (and have policies for) infill along our Avenues and within our single family neighborhoods, but we have yet to pay attention to the scale of street that sits somewhere in between the two. Streets such as Hallam that were once commercial spines, but lost their economic purpose for a variety of reasons.

    Here’s a map, from the article, of Toronto’s collector roads:

    There are almost 800 kilometers of collector roads in the city. As the name starts to imply, these streets are designed to collect vehicles and funnel them toward arterial roads and “Avenues.” But this scale difference changes things and creates a kind of in-between condition. They’re less desirable from a residential standpoint (because they’re not as quiet and secluded), but they’re also not designed to become strong retail/commercial streets (despite the odd retail remnant). In fact, retail is probably prohibited on most. Which is why I like the idea of thinking of these streets differently.

    Of course, we have work to do in order to make this scale of development economically feasible, and the authors do acknowledge that. But the more we continue to talk about the future of our low-rise neighborhoods, the more that intensification starts to feel inevitable.

  • The most expensive city in the world in which to build

    Using data from Turner & Townsend, Curbed recently reported that the most expensive city in the world in which to build is now San Francisco. On average, it costs USD 417 per square foot. San Francisco is followed by New York ($368 psf), London, Zurich, and Hong Kong. New York took the top spot last year, but San Francisco shot up this year because of, you know, tech.

    This number was calculated using a blend of six different types of construction, everything from apartment high-rise and prestige office to general hospital and warehouse distribution centers.

    Now, I’m not exactly sure what this number includes. But I’m assuming it is only direct construction costs and doesn’t include (contractor) general conditions, land, or any soft costs, which are all significant. Once you add in these other cost inputs, I am sure that you can start to see how things — including the cost of new housing — can quickly escalate.

  • How coffee grew São Paulo

    For all of us who are involved in the building of cities, it is important to remember that cities emerge and thrive as a result of economic purpose. Take, for example, Sao Paulo. Once one of the poorest of Portuguese colonies, it is today the largest city in the southern hemisphere and one of the largest and most diverse urban agglomerations in the world.

    How did all of this happen? It was probably because of coffee.

    Brazil is the largest producer of coffee in the world. And it has owned this title for some 150 years. The best areas to grow coffee (as a result of climate, I’m told) are in the southeast part of the country, in and around Sao Paulo and Rio de Janeiro. The inland state of Minas Gerais is the biggest producer.

    But here’s the thing. Rio de Janeiro is along the coast and Sao Paulo is not, though as of 1869 it had been connected to the port of Santos by rail. This geographical feature made Sao Paulo a logical place for rail to converge as it made its way from the coffee plantations in the interior of the country to the coast, and then out to the rest of the world.

    Coffee was the economic purpose. And it was facilitated by Brazil’s longstanding use of slave labor.

    In 1888 that changed. Slavery was abolished, giving Brazil the dubious distinction of being the last country in the Western world to do so. The problem is that the coffee industry relied heavily on this labor. So to fill this void and keep the coffee industry happy, a deliberate effort was made to increase immigration.

    From 1870 to 2010, about 2.3 million immigrants settled in the state of Sao Paulo, many from Italy and Japan. Today, about half of the city is thought to have at least some Italian ancestry. And it is generally believed that it was this significant influx of immigrants that helped the city to industrialize in the way that it did.

    Big and diverse. And coffee probably had a lot to do with it.

    Photo by ViniLowRaw on Unsplash

  • Current state of Toronto’s new condo market

    Ben Myers of Bullpen Research & Consulting was recently interviewed by Newinhomes.com about the state of Toronto’s new housing market. Ben is always interesting. And these are the sorts of things that I read in my spare time. So here’s an excerpt:

    The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn’t be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.

    This data was taken from BuzzBuzzHome and — by “popular new condo floor plans” — I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it’s a good indication of buyer demand.

    Here’s another quote that stuck out:

    Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices – this cost-push inflation is passed on to consumers.

    That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it’s pretty much a floor.

  • Grinding it out over the long-term

    Fred Wilson’s latest blog post about “grinding” tells the story of how Twitter solved the infamous “fail whale” problem that plagued its platform in the early days. I remember that whale, as I’m sure many of you do as well. It was a problem and, according to Fred, it was a real threat to the business. The solution wasn’t all that sexy; though sexy solutions were attempted. The team just rebuilt everything, piece by piece. And eventually the fail whale problem went away.

    The lessons here go well beyond just this Twitter example (or at least, it triggers something for me). Here’s how Fred ends his post:

    If given a choice between a flashy operator or a grinder, I will take a grinder every time. It is a much higher percentage bet. It requires faith and patience and the results are sometimes hard to see. But if you look at the results from grinding it out over a long enough time frame, you can see the power of that approach.

    This kind of long-term patient thinking can be difficult, especially in an increasingly instantaneous world. We are all drawn to magic solutions, hot stock tips, and new condos that are destined to double in value over the next year. I suppose that’s partially why so many people enjoy playing the lottery, even though the odds of winning big can be as low as 1 in a million.

    Being a grinder is largely a higher percentage bet because you’re taking a longer, more disciplined, view. Warren Buffet has, admittedly, no idea how stocks will behave over the next week or year, just as I have no idea how condo prices in Toronto will behave over the next week or year. Instead, Warren chooses to bet on “The American Tailwind” and I choose to bet on the role of Toronto as a global city.

    Warren first invested in an American business in 1942. He was 11. Over the next 77 years, the S&P 500 would go on to return an average of 11.8% annually. Had he invested in a no-fee index fund and reinvested all dividends, his gain would have been 5,288 for 1. In other words, a $1 million investment would have grown to $5.3 billion on a pre-tax basis. (See: The compound effect.)

    77 years is, of course, a long time. But I am sure you get the point: faith. patience, and tenacity — even when, sometimes, the results can be hard to see. Real estate development is very much that kind of business.

  • Uncreative and greedy

    There’s a narrative out there that all developers are uncreative and greedy, and if only they would start being more creative and generous, we could solve the housing affordability problem that is plaguing many (if not all) global cities. In other words, the solution to increasing the supply of low and middle incoming housing is simply a psychological reframing on the part of developers.

    The problem with this mental model is that it ignores reality. Development happens on the margin. The market is competitive. It’s difficult to find developable sites. And it’s a challenge to make projects work. More often than not, you have to say no as a developer. No I can’t buy this land. No I can’t build housing here. And no the market will not support new office space here. Sorry, but no. (See cost-plus pricing.)

    Development needs to give back. On the blog we usually call this city building. And that’s because it implies a greater sense of civic responsibility. Developers aren’t just building one-off buildings, they’re building a city. I believe wholeheartedly in this. But the belief that projects can be saddled with an endless array of government fees and civic contributions is a problematic one. There are limits — because markets have limits.

    If only city building were that easy.