Tag: real estate development

• Empire and ego

  This morning I stumbled upon an old New York Times article from August 7, 1983 called: The Empire and Ego of Donald Trump.

  Here’s an excerpt you might find interesting:

  The essence of entrepreneurial capitalism, real estate is a business with a tradition of high-rolling megalomania, of master builders striving to erect monuments to their visions. It is also typically dynastic, with businesses being transmitted from fathers to sons and grandsons, and carried on by siblings. In New York, the names of Tishman, Lefrak, Rudin, Fisher, Zeckendorf come to mind.

  And now there is Trump, a name that has in the last few years become an internationally recognized symbol of New York City as mecca for the world’s super rich.

  “Not many sons have been able to escape their fathers,” said Donald Trump, the president of the Trump Organization, by way of interpreting his accomplishments. Three of them, built since 1976, stand out amidst the crowded midtown landscape: the 68- story Trump Tower, with its six-story Atrium housing some of the world’s most elegant stores; the 1,400- room Grand Hyatt Hotel, and Trump Plaza, a $125 million cooperative apartment. And more is on the way.

  “At 37, no one has done more than I in the last seven years,” Mr. Trump asserted.

  As I read this, 3 things came to mind.

  1) One could argue that, as real estate development institutionalizes, the megalomanic and dynastic nature of the business is being somewhat muted.

  2) I hope we are well beyond the point where a “dynasty” has to be transmitted only through men. We are, right?

  3) Trump sounded the same at 37.

  2016.05.21

• 3 obscure things to think about before buying a condo

  If you’re an architect, developer, or someone else in the business of building buildings, chances are you have an extensive mental list of things that you would think about before buying a piece of real estate. I know I certainly do. These are things you learn over time – sometimes by making mistakes.

  Depending on the type of real estate, this list would vary. So this is not going to be a comprehensive list of things to consider, by any means. But today I thought I would mention 3 things that a lot of people might not think about when buying a new condo, particularly when buying pre-construction off drawings.

  Noisy Adjacencies: 

  What’s around the suite? Elevator shafts, mechanical rooms, and gyms all create noise. There are measures to protect against all of these noises, but that doesn’t stop me from worrying about these sorts of things. For instance, in my experience, some (many?) condo gyms don’t have the right kind of floor to deal with dropping weights. In these cases, something is usually done after turnover to address the noise complaints.

  Exposed Overhangs: 

  Does the suite overhang the floor below or sit on top of a space that is exposed to the elements, such as a loading bay or walkway? If so, you might get a cold zone if it hasn’t been properly insulated or heat traced. Of course, most projecting condo balconies also create a thermal bridge that can create a cold zone around it. But the first example could be worse. If you live in a place that doesn’t have subarctic winters (Toronto) this may be a moot point.

  Transfer Floors: 

  The most efficient way to build a multi-family building is to repeat the same floor plan as you go up the building. This ensures that everything runs in a straight line. The minute you create stepbacks and offsets, you then need to start “transferring.” This means that structure and services will need to be brought from one location of the building to another. This can lead to deeper structural beams and additional bulkheads which could then impact ceiling heights in the suites. This won’t always be the case, but something to think about when you see dramatic changes in the building’s form next to your suite.

  Again, this is not a comprehensive list, but these are some of the small – perhaps anal – details that I would think about if I were buying a condo. Feel free to add other items in the comment section below. They don’t have to be anal-retentive in nature.

  If you’re on the building side, you work to get ahead of these issues by, for example, anticipating where you could need additional height for transfers and sound attenuation (such as around mechanical spaces). But buildings are complicated and sometimes things happen. It’s a long way from initial sketch to finished occupied building.

  2016.05.21

• What it takes to unlock infeasible development land (and some thoughts on parking)

  

  One of the questions that came up after my recent post about land pricing was: what is it going to take to develop underutilized land on the outskirts of city centers?

  So today I thought I would talk about a new development project that was also discussed at the Land & Development conference I recently attended. I think will begin to answer this question.

  The project today is known as the Rockport Weston Community Hub & Rental Building. And it’s going to include a community cultural hub, 26 live/work artist spaces, and 300 rental apartments. 

  It’s located in the Weston neighborhood of Toronto, which is designated as a “Neighborhood Improvement Area.” These are lower-income areas that the city considers to be “at-risk.”

  Given this, rents are naturally lower here than in other parts of the city, which means that it’s basically infeasible to develop here. There has been no large scale development in this community since the 1970s!

  To put some numbers to this, the developer said they were projecting rents somewhere around “two and a quarter.” So let’s assume for a second that the average apartment rents will be $2.25 per square foot. 

  At this rate, it means that a 600 square foot one-bedroom apartment will have a face rent of $1,350 per month. This may seem fairly high, but it almost certainly wouldn’t be enough to get a project like this off the ground under normal market conditions. At least, that’s the case here in Toronto with current cost structures.

  So what had to happen was a fairly complicated public-private partnership, which you can read all about here. But at a high level, there seems to have been 3 main economic factors that allowed this project to move forward:

  1) The developer was able to acquire the land for cents on the dollar. As I said in this post, land is expensive. So this helps a lot.

  2) The developer was able to make use of extra parking in an adjacent building. Assuming that underground parking could cost around $50,000 per stall, this is a huge cost savings.

  3) Lastly, the project is benefiting from the public invest made in the airport rail link that now quickly connects this site to both Pearson International and downtown Toronto.

  The moral of the story is that infeasible sites require some sort of subsidy or top up to make them work. Or, there needs to be an exceptional circumstance. Because if the rents aren’t there, nobody is going to build. It’s as simple as that.

  That said, here’s one idea…

  This discussion reminds me of a post I wrote a while back called, The hypocrisy of parking minimums. Frankly, I don’t understand why a city like Toronto still has parking minimums. If anything, we should have parking maximums.

  Underground parking is a huge cost that has to get carried by purchasers and renters in a new building. For example, let’s assume that 300 apartment suites would require 180 parking stalls (ratio = 0.6). Assuming $50,000 per stall, that’s a $9 million cost.

  So the second takeaway is that it’s probably time we took a good hard look at how we think about and plan for parking in our cities. Especially since the entire mobility space is being quickly disrupted.

  Image: Rockport

  2016.05.12

• It sold for what?

  Today I spent the day at the Land & Development conference here in Toronto. If there was one running theme throughout the day, it was: “Holy shit, I can’t believe that X piece of land sold for $Y million. How will they (the developer) ever make the numbers work?”

  Outside of the real estate development community, there’s often the perception that developers are building everywhere and that there’s lots of land left in cities, like Toronto. When you see all the cranes in the skyline, it naturally seems like we’re building a lot. Things seem easy.

  But the reality is that it’s extremely difficult to find “land” in markets like Toronto and Vancouver. And by “land”, I mean properties that can be feasibly acquired/assembled, entitled, developed, and then brought to market. The way the speakers today spoke about land it’s as if it were a rare precious commodity.

  I say all this, not to complain about how tough things are, but simply to shed light on the process. A developer’s job is to take a piece of property and figure out a way to create additional value. But to do that, they need to find a suitable piece of real estate. “Land” is an input.

  This has implications for consumers, because inputs turn into outputs. And if one of the inputs is becoming scarcer, then it’s pretty safe to assume that the outputs, such as new housing, are also becoming scarcer.

  2016.05.11

• Project Sidewalk

  One of Alphabet’s subsidiaries is a company by the name of Sidewalk Labs. Some of you, I’m sure, have been following it. The goal of the company is to leverage technology in order to solve some of our biggest urban challenges.

  Initially, they were fairly under the radar, but more recently they’ve become a lot more public with their projects and their mission. Here is a snippet from a recent blog post written by their CEO, Daniel L. Doctoroff: 

  “The world is poised for a fourth urban-tech revolution — an age of connectivity capable of reshaping cities as much as the steam engine, electricity, and automobile have in the past. New technologies will help citizens and elected officials tackle those intractable urban challenges that Larry outlined last summer, but making sure this age imposes fewer social costs than those previous shifts is critical.”

  Earlier this week it was also announced that the company is likely to enter the real estate development business and construct a new city precinct in order to pilot some of their ideas and projects. The initiative is called Project Sidewalk. 

  Here is an excerpt from the Wall Street Journal:

  “According to people familiar with Sidewalk’s plans, the division of Alphabet is putting the final touches on a proposal to get into the business of developing giant new districts of housing, offices and retail within existing cities.

  The company would seek cities with large swaths of land they want redeveloped—likely economically struggling municipalities grappling with decay—perhaps through a bidding process, the people said. Sidewalk would partner with one or more of those cities to build up the districts, which are envisioned to hold tens of thousands of residents and employees, and to be heavily integrated with technology.”

  When I read this, I immediately thought of the Port Lands area in Toronto. Not because Toronto is decaying – far from it – but because it’s a massive 880 acre site that is both adjacent to downtown and entirely underutilized. I can’t wait to see this area transformed into a thriving waterfront community.

  In any event, if or when Project Sidewalk gets off the ground, it will be very interesting to see what a Google-backed real estate development company looks like.

  2016.04.29

• What is this a building for ants?

  One of the things you’ll often hear people deride at cocktail parties is the trend toward smaller urban dwellings. They get called “shoeboxes” and “cubby holes in the sky.” So let’s unpack that a bit today and try and better understand the economics behind it all.

  When a new building is being developed, pretty much everything gets normalized to a per square foot (or square meter) number. 

  This is important because saying that building X cost $50 million to build and building Y cost $100 million to build doesn’t tell you much if the buildings are completely different. 

  However, saying that building X cost $500 per square foot to build and building Y cost $475 per square foot to build, tells you that building Y, despite being more expensive in absolute terms, was actually cheaper and/or more efficient.

  The same is true on the revenue side. And typically, developers are looking (struggling) to meet a certain per square foot number in order to make the project financially feasible. 

  For instance, let’s say you’re building a 100,000 sf condo building. Once you subtract the non revenue generating spaces, you might determine that you need 85,000 sf x $600 per square foot in revenue in order to make the project feasible.

  But there’s a back and forth game that needs to be played here. You have to ask yourself: for the product that I’m hoping to build, does $600 psf translate into something that people can actually afford?

  You might think: everyone keeps telling me at cocktail parties that condos in this city are too small. So I’m going to build a bunch of 1,800 sf, 3 bedroom condos. Based on the above, these homes would be priced at around $1.08 million (1,800 sf x $600 psf). Your on-site signage would read: “Condos coming soon. From the low $1 millions.”

  But wait a minute, how many families can afford a condo north of $1 million? Some could, but definitely not the majority. So then you determine through rigorous market analysis that $600,000 would be a better number. That is something that is within reach of more families.

  But then you look at the math and realize that if you build that same 1,800 sf home, your per square foot revenue number now drops to $333 psf ($600,000 / 1,800 sf). 

  Given that you bought the land for $100 psf buildable (market price in the area) and that your construction costs alone are going to be $250 psf, you realize that you’re now underwater ($100 + $250 psf > $333 psf) without even adding in any soft costs (consultant fees, city fees, and so on). If you showed this to your investors on the project, they would throw you out of the room.

  So instead of building that 3 bedroom condo at 1,800 sf, you say to yourself: what if I made it 1,000 sf? You’re confident that your architect could lay out a terrific condo at that size and it now magically gets your per square foot revenue number back up to $600 psf. 

  This solves two problems: it returns the project to positive feasibility and it keeps the total sale price within reach of more people. It promotes greater affordability. So you go ahead and do it. Boom – shrinking urban dwelling.

  All of this is not to say that this is fair or unfair, good or bad. It is simply to say that this is the way it often is.

  2016.04.24

• Building Toronto Tomorrow

  I’m going to be speaking on a panel on May 3rd, here in Toronto, called Building T.O. Tomorrow. The topic is the future of this city.

  It is being put on by the good folks at BuzzBuzzHome and it will be held in the lobby of Allied’s new Queen-Richmond Centre (134 Peter Street). If you haven’t yet been to this building, that alone makes attending worthwhile.

  Here’s the event poster:

  

  If you’d like to attend, make sure you RSVP to aleks@buzzbuzzhome.com.

  On a largely unrelated note, I recently picked up the handlebar bicycle mount for my GoPro and I’m looking for some fellow city geeks who would like to ride around the city and film some – potentially cool – videos.

  I find that being on a bike is one of the best ways to experience a city (at least the cities that are actually bikeable). So I’m hoping some of that magic will translate into video. If that sounds at all interesting, drop me a line.

  2016.04.15

• Thoughts on inclusionary zoning

  Ontario is looking to pass legislation that would allow municipalities in the province to implement something known as inclusionary zoning. If passed and should municipalities decide to use this tool (Toronto almost certainly would), developers would then be required and/or incentivized to include some percentage of affordable housing in their new market rate developments. 

  Politically, inclusionary zoning tends to be popular. It’s believed to be a way for governments to create new affordable housing using relatively small public subsidies. Not surprisingly though, the development industry generally hates IZ. It’s another cost that needs to be added to the development pro forma – though some municipalities rightly offset these additional costs with additional density, breaks on levies, and so on.

  What I always think about when this topic comes up is the broader economic impact of the land use policy. Because I’m suspect that it’s as simple as: mandate affordable housing; get more affordable housing for free. Generally there are always trade-offs.

  So here’s some reading material for you all this morning.

  In a classic paper (1981) by Yale Professor Robert C. Ellickson – called The Irony of Inclusionary Zoning – he argues that these practices can actually increase general house prices:

  

  As a counterargument Owen Pickford over at The Urbanist argues that IZ simply reduces land prices as a result of the new tax. Land, after all, is the residual claimant. Therefore, he believes it’s an effective affordable housing policy. (I’m not so sure I believe that land prices would decrease in practice.)

  There’s also debate about the effectiveness of inclusionary zoning to actually deliver affordable housing at a meaningful scale. City Observatory wrote a post that looked at the total number of units produced (through IZ) across a number of American cities and the results were spotty. It should, however, be noted that not all inclusionary zoning policies are mandatory.

  Finally, the Furman Center for Real Estate & Urban Policy at New York University published a housing policy brief back in 2008 that looked at this exact topic. While they admit that the data is scarce, they come to the conclusion that IZ had no meaningful impact on the prices and production of single-family housing in San Francisco, but that IZ seems to have slightly decreased production and slightly increased pricing in the suburbs of Boston.

  What this last point suggests is that inclusionary zoning policies are not all created equal. So like all difficult questions, the answer to this one is likely: it depends. If anyone can point me to better data on inclusionary zoning, I would love to see it.

  2016.03.17

• NO TOWER on Commercial Drive

  For the past week or so I’ve been seeing the proposed Kettle Boffo Project in Vancouver make the rounds online. Here’s a rendering of the project, which is located at Commercial Drive and Venables Street:

  

  The reason it has been making the rounds is that a community group called NO TOWER (written in all caps) has come out in fierce opposition of the 5 to 12-storey building. They have over 3,500 signatures.

  As an outsider looking in, this is surprising. The scale of the project seems appropriate. The height roughly matches the existing building shown above to the right. It may even be lower. And the project will provide somewhere around 30 social housing units, as well as additional space for the Kettle Friendship Society non-profit, who are currently on the site. (Note: An application to the city hasn’t yet been made.)

  What this has me thinking about is the push and pull between bottom-up and top-down planning. 

  When architect Bjarke Ingels talks about his Dryline project in New York, he likes to refer to it as the love child of Robert Moses (top-down planning) and Jane Jacobs (bottom-up planning). In the case of this project, it’s because it’s a large infrastructure project that they are trying to root into the local neighborhoods. Makes sense.

  But this same thinking could also apply to overall city building. Local communities rightly have their own wants. But at the same time, cities need to be thinking about the overall. The challenge is finding that right balance.

  I would be curious to hear your thoughts on the Kettle Boffo Project in the comment section below – especially if you’re from Vancouver.

  2016.02.28

• The local vs. global city

  Blogger and Senior Fellow at the Manhattan Institute for Policy Research, Aaron M. Renn, recently published an interesting long-form article called, Rethinking America’s Cities’ Success Strategy.

  One of the central themes is the idea that globalization has caused a kind of bifurcation in cities – a disconnect between the local and the global. In an effort to compete with other global cities around the world, we have begun to turn our back on local concerns. At the same time, not every city has the market power of, say, New York or London.

  So what does this mean for cities? Here’s a quote from the article that I think does a good job explaining the mental model:

  

  At the end of the article, Aaron makes a number of recommendations for how to better think about local entrepreneurship and economic growth. The first one is as follows:

  “Local civic priorities should favor building a successful and inclusive local economy, including entrepreneurship, over global concerns and real estate development.”

  Despite this being seemingly contradictory to do what I do for a living, I think it’s important to note that on a fundamental level, architects and developers simply create space. 

  It might be a beautiful space. A space that improves well-being, creates value, and enables certain activities. But at the end of the day, there needs to be demand for that space. And a robust local economy is paramount to that equation. So I agree that we shouldn’t forget about local and expect that “if we build it, they will come.”

  If you have the time, the full article is worth a read. It’s also part of a broader series on entrepreneurship and cities, so there are a bunch of other related articles on the same page.

  2016.02.25