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: new york city

  • And that’s a wrap

    My time in the mountains has come to an end. I’m on a flight back to Toronto and about to start watching old Bond movies (as one should). If you don’t ski or snowboard or do any other winter sports, it’s maybe hard to relate to this, but the mountains are a truly special place. I’m always sad to leave them. In my opinion, there’s no better place to disconnect and recalibrate.

    And even though I’ve been mostly disconnected, it has been hard not to miss the hype around the new Apple Vision Pro, which was released into the wild this week. I haven’t tried one yet, but every review that I have read or watched seems to come to the same general conclusion: “Wow, this thing is incredible. It feels like a glimpse into the future of computing.”

    If you’re looking for a comprehensive technical overview of the device, you should check out Marques Brownlee’s video, here. But if you’re just looking to get a sense of what it might be like to, you know, wander around New York City wearing one, you should definitely check out Casey Neistat’s video, here.

    Now I think there’s no question that there’s a dystopian element to all of this. When Casey is standing around and watching a butterfly eat his donut, he looks pretty strange from the outside. Only he is seeing the butterfly. But then again, we all look pretty weird standing around staring down at our phones all the time. Maybe this will help us become less disconnected. I don’t know.

    Either way, it’s hard not to imagine this changing — a lot. I mean, here’s just one small example. Already Zillow has an app for Vision Pro that allows you to tour homes for sale. Assuming it’s as good as everyone says it is, I can’t imagine anyone going to physically tour a home ever again, unless they’re really serious and/or ready to put in an offer.

    Of course, there’s also no shortage of people saying that this device is simply too expensive. But I think that misses the point. This is version one. At this point, Apple just needs to be directionally right about what they are calling “spatial computing.” (They don’t want you to call it VR.) Because if they are right, the price will come down and then we’ll all be watching old Bond movies on these devices.

  • Airbnb still has a lot of accommodations

    There are a lot of headwinds facing Airbnb. Cities around the world seem to be systematically making it more difficult to be a host. New York City, as many of you know, recently made it so that you need to be physically present while the dwelling is being rented. That is pretty limiting. Similar things are happening in non-urban markets too. North of Toronto in Muskoka, there’s a draft by-law that will, among other things, limit short-term rentals to 50% of the total number of days within certain time periods. That eliminates the possibility of doing this as a business. So in many ways, it’s easy to be pessimistic about the future of Airbnb.

    But at the same time, if you step back and look at the bigger picture, there are over 7 million active listings on Airbnb. This effectively makes it the largest hospitality brand in the world. There are more accommodations on Airbnb than with Marriott, Hilton, Intercontinental, Wyndham, and Hyatt combined. (The below chart is from Scott Galloway.) It’s also important to point out that while Airbnb doesn’t own any of its own supply, the same is true of most hotel brands. They are, brands. The difference is that Airbnb created a more scalable platform and a more decentralized approach to aggregating supply.

    The numbers also don’t suggest that things are slowing down for Airbnb. (Here’s their Q3 2023 shareholder letter.) Active listings on the platform grew 19% YoY in Q3 2023 (or by almost 1 million listings). Revenue is up. Free cash flow is up. And in Q3 of last year, the company repurchased $500 million of stock, bringing their one year total to somewhere around $3 billion. So despite all of the efforts to curb short-term rentals within our cities, the company, at least for now, seems to be holding up just fine. And if they can successfully diversify beyond their core business, there could even be reason to be bullish on the world’s largest hospitality brand.

    Full disclosure: I am long $ABNB.

  • Rent-controlled apartment

    It is estimated that about 1% of the total housing stock in New York City is rent controlled (2019 figure), which is something different than rent stabilized.

    Generally the way the former works is that you have to have been living continuously in the home since July 1, 1971, and the building itself needs to have been constructed before 1947. If this is the case, then in theory, you should have seen relatively minor rent increases over the years.

    This was the case for the late real estate agent, Alice Mason, who died at the beginning of this year at the age of 100:

    She never left the rent-stabilized [controlled?] apartment where she held her storied dinners, in a century-old building on East 72nd Street. (In Manhattan real estate parlance, it was a classic eight, a gracious prewar layout that included three bedrooms and two maid’s rooms.) In 2011, the developer Harry Macklowe bought the building for a reported $70 million and began to turn the units into condos, buying out the tenants to do so. But Ms. Mason refused to give up her apartment. When she moved there in 1962, the rent was $400 a month. At her death, it was $2,476. The apartment below her, in the same line, was recently on the market for just under $10 million.

    Green, Penelope. “Alice Mason, Real Estate Fixer and Hostess to the Elite, Dies at 100.” The New York Times, 13 Jan. 2024, www.nytimes.com/2024/01/11/style/alice-mason-dead.html.

    For better or for worse, this is an obviously awesome deal, and reason enough to never move and have family members move in with you before you die so that you can try and pass down this asset for generations to come.

  • More retailers are buying real estate in New York

    Last week we spoke about how many businesses don’t want to own their own real estate, but that some do. We then spoke about Prada’s recent acquisition of 720 and 724 Fifth Avenue for $835 million. However, they’re not the only ones. According to New York’s The Real Deal (thank you John Bell for the article), last year saw the following transactions:

    • Swiss fashion house Akris bought a property from SL Green for $40.6 million
    • Japanese coffee retailer Geshary bought a property on Fifth Avenue from the Riese Organization for $38 million
    • And Dyson bought a building in Soho for $60 million

    Now, some, or a lot of this, is strategic. New York is New York, and global brands need to be there. Another part of this is that there was less competition last year. Fewer real estate companies wanted to buy retail and office buildings, and so end users seem to have stepped in at what they presumably saw as favourable prices.

    But it’s also not totally foreign for retailers to want to own their own real estate. Perhaps the most famous example is McDonald’s, which owns its own real estate and then leases it out to franchisees. Though as I alluded to last week, it’s important to know what business you’re ultimately in. And McDonald’s knows it’s in the real estate business.

  • Prada just bought a lot of real estate in New York

    We have spoken before about how hotel brands don’t typically own their real estate. But the same is also true of many other businesses. And one common reason for this is that it ties up a lot capital that could be otherwise deployed in the core business. If, for example, you’re in the business of producing exclusive handbags, it usually makes sense to spend your excess cash on making better handbags. And if you find that you’re actually making more money on real estate, then it could be a sign that you’re in the wrong business.

    There are, however, instances where owning your own real estate may make the most sense. Maybe you have an irreplaceable location that you want to secure for the long term. And so there’s real strategic value. Or maybe you keep having annoying legal fights with your landlord and you just want to get back to focusing on luxury handbags. There are other motivating factors to consider here, but these two seem to be behind Prada’s recent acquisition of 724 Fifth Avenue in New York.

    Prada has had a flagship 5-storey retail store at this location since 1997 (and most recently was paying US$22 million in rent). In December, they announced that they had acquired the entire 12-storey building for US$425 million. (That works out to be about $5,395 psf on the gross building area!) And then shortly after, they announced that they had acquired next door — a hard corner — for another US$410 million (total US$835 million).

    All of this makes the deal one of the largest in New York last year. But was it a good deal? I would need some more information to answer from a quantitative real estate perspective. But if I’m Prada, I know that I need to be on Fifth Avenue for the foreseeable future. And now I get access to a hard corner and I no longer have to deal with my landlord. These are clearly strategic things. Last year was also a pretty good time to be buying retail/office buildings with all cash, which is what Prada did.

  • This is how many more people Toronto could house if it increased its population density

    As a follow-up to yesterday’s post about infill housing and overall urban densities, let’s look at some basic math.

    The City of Toronto has an estimated population of 3,025,647 (as of June 2023) and a land area of 630 square meters. That means that its average population density is about 4,803 people per km2. Obviously this number will be higher in some locations, and lower in others. But overall, this is the average.

    Now let’s consider how many people we could actually fit within the existing boundaries of the city (city proper not the metro area) if we were to simply match the average population densities of some other global cities around the world.

    Again, what this chart is saying is that if we took the same physical area (Toronto’s 630 square meters) and just increased the population density to that of, say, Paris, we would then have a total population of over 13 million people and we’d be housing an additional 10,011,573 humans on the same footprint.

    I am not suggesting that this is exactly what should be done. (Though, you all know how much I love Paris.) What I’m suggesting is that calling a place “full” isn’t exactly accurate. How would you even measure that? What someone is really saying is that they are content with the status quo in terms of built form and density.

    Note: The above population densities were all taken from Wikipedia, except for Toronto’s figures, which were taken from here.

  • New York City has a lot of construction scaffolding

    More specifically, it has this many:

    This, according to a NYC government website, equals 8,660 active shed permits covering 1,959,444 linear feet. And on average, these construction sheds are erected for 493 days. If you’ve been to New York recently, this will all sound right to you.

    I thought I had read somewhere that this has to do with a property tax benefit. Something about if you keep your hoarding up after construction completion, you can avoid immediate reassessment.

    But according to some sources, the proliferation of sheds is mostly driven by the city’s Facade Inspection & Safety Program, which requires that all buildings taller than 6 floors have their facades closely inspected every 5 five years.

    So presumably, keeping these up for an extended period of time is the less costly and less risky option.

  • More food trucks, please

    There’s no real secret to having a vibrant food truck and street vendor ecosystem. You basically just need to allow it, and then get out of the way and let entrepreneurs do what they do best.

    When I went to grad school in Philly, I used to eat from food trucks all the time. I could get a breakfast sandwich and coffee in the morning. I could get a burrito for lunch. And I could get a vegetarian lasagna for dinner. There was no shortage of options.

    This same kind of ecosystem does not exist in Toronto, but it’s only because we’ve decided we don’t want it to.

    Images: New York City

  • What makes cities grow faster?

    In may ways, this recent article by Brian Potter about how fast cities can grow, feels intuitive: Small cities tend to grow faster than big cities (on a percentage basis) and, as cities get bigger, their growth rates tend to decline. It is, however, still interesting to see the data behind this intuition:

    A city of less than 100,000 might be able to have growth rates of 10-20% or more, and cities of up to 3-400,000 can potentially have growth rates in the neighborhood of 10-15%. Potential growth rates tend to fall as cities grow larger, and cities above 1 million people almost all grow at less than 10% per year, and usually less than 5% per year. The US, the Middle East, Southeast Asia, Africa, and South America all seem to have followed this basic pattern, assuming the data is reliable.

    It is also a good reminder just how much of an outlier China is:

    Unsurprisingly, since 1950, Chinese cities have mostly exhibited higher growth rates than US cities. Only around 12% of US data points are above a 5% growth rate, whereas for China this is close to 50%. China also has 2.5x the fraction of cities growing above 10% per year, and 3.3x the fraction of cities growing above 15% per year.

    And some cities are outliers even within China. The most notable here is Shenzhen, which saw enormous growth after it became China’s first special economic zone in 1980. At a population of around 200,000, Shenzhen was growing at 35% annually, and it was still growing at over 20% annually when its population crossed 2 million.

    Just imagine these numbers compounded. Even small variances can result in significantly different outcomes over time:

    New York’s growth rate, however, declined less than Los Angeles or Chicago as the city grew larger. At around 3.5 million people, New York was still growing at over 3% per year, compared to less than 1% for LA and Chicago. This may not sound like much, but it’s the difference between doubling in size every 23 years vs. every 70 years.

    Now here’s what I’m wondering after reading the article: Should we be thinking of city size as the single most important factor in determining urban growth? Because my mind immediately went to population densities, zoning controls, and other factors that might constrain or encourage growth.

    But the data seems to suggest that, for many cities, this doesn’t seem to matter over the long run. It is as simple as saying, “this city has X number of people and so it’s more than likely growing at somewhere around Y% per year.”

    That said, what’s up with China? What is it that allows a city of 2 million people to still grow at over 20%? Is it the sheer influx of people migrating from rural to urban areas? Or is it that you need a one-party authoritarian state to really clear the way for growth?

    As cities get bigger there does appear to be a natural tendency toward slower growth. Part of this is the low base effect. But the declines are not always consistent and there are meaningful outliers. I am now curious to know what, for the most part, causes these differences.

  • Don’t screw it up, New York

    New York City is set to become the first in the US to implement a congestion charge (a form of road pricing). I first wrote about this back in 2018, and then again in 2019, but now it is looking more and more like it may actually happen sometime next year.

    I think all urbanists agree that this is an important step in the right direction. But some are now worried that New York isn’t going about it in the right way. Here is an excerpt from a recent Vice article by Aaron Gordon:

    With all these plans, you could be excused for thinking New York is doing congestion pricing—a potentially transformative policy that would be a first in the nation—right by not only charging drivers to access some of the densest, most valuable land in the world, but also giving them alternatives. Unfortunately, New York isn’t doing that, and in fact looks set to completely screw up congestion pricing so badly it may discredit the policy in a way that makes it harder for other cities to adopt it. Rather than approaching it as a lynchpin to a wide-ranging effort to reshape Manhattan’s relationship to the private car, congestion pricing has become solely about money—specifically, paying off enough of the credit-card bill New York has run up with a variety of ill-conceived and poorly-executed projects that it can get more credit cards.

    You can rightly say that this is decades in the making. Mayor Bloomberg first proposed the idea back in 2007, and I’m sure there were others before him with a similar idea.

    So Gordon raises a valid point: It’s important that NYC gets this right. Otherwise, it’s going to be that much more difficult for other North American cities to even think about implementing road pricing.

    For the full Vice article, click here.