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.

Tag: real estate development

  • The great intensification debate–what’s better for cities?

    Photograph San Francisco Bay Blues by Stefano Termanini on 500px

    San Francisco Bay Blues by Stefano Termanini on 500px

    I recently stumbled upon a great Treehugger article by Lloyd Alter called: The real triumph of the city will be seen in Buffalo (2014). The post is partially a response to economist Ed Glaeser’s popular book, Triumph of the City, which I’ve mentioned and cited many times before here on ATC.

    Lloyd’s thesis is basically that Ed is wrong in arguing that reducing the barriers to building is the most effective way to maintain housing affordability; that cities are really made out of flesh, rather than bricks and mortar; and that urbanists need to move beyond the view that a city’s past should be preserved at all costs.

    Lloyd then goes on to argue that rather than continuing to over-intensify cities like New York, San Francisco, and Toronto, we should be turning our attention to former powerhouses like Buffalo and trying to figure out how to reinvigorate those cities. The bones are already in place.

    Now, I don’t disagree that there’s lots of potential in cities such as a Buffalo and Detroit. I’ve written a lot about Detroit and I’m genuinely rooting for the city. But I don’t think it’s as simple as it sounds to shift our attention, and I don’t agree with all of the critiques of Glaeser’s work.

    As important as built form is, cities like Buffalo and Detroit remind us that architecture and buildings alone aren’t enough to build a city. There are countless masterpieces – such as Michigan Central Station in Detroit – that regrettably sit abandoned. You need people and communities.

    There’s also a snowball effect. 

    As a city becomes more successful, there’s a natural tendency for more people to want to be there. It’s no different than the network effect experienced by a social network. A social network without people has no value. But the more people you add to it, the more valuable it becomes and the more difficult it becomes to replace.

    So it shouldn’t come as any surprise that people will put up with expensive real estate and small apartments just to live in cities like San Francisco. That’s where they want to be. And as long as the demand to live in those cities is increasing, I continue to believe that it makes sense to build more, not less, housing and to make it reasonably easy to do so.

    At the same time, I believe whole heartedly in heritage preservation. As a trained architect, there’s a strong possibility that I would shed an actual tear should a building with heritage value be torn down in my city or in any city in the world. 

    And that’s why when I was on CBC radio last week I said that neighborhood investment needs to be a balance between preservation and progress. The Twittersphere later blasted me for using the term “progress”, but I think you get my position.

    My interpretation of Glaeser’s work has never been that he supports completely erasing a city’s past in order to make way for the future. If that is his position, then I too disagree with it. 

    My interpretation has instead been that he supports removing unreasonable barriers to development so that cities are able to supply – or can at least try to supply – enough housing to meet growing demand. This also doesn’t exclusively mean high-rise intensification. It could mean removing the barriers in front of things like laneway housing. And I continue to believe that this is a good idea.

    I don’t believe that this approach alone will solve all housing problems, but I do think it’s a great place to start.

    Thank you Lloyd for the great post.

  • Thoughts on urban renewal and Geary Avenue

    Photograph dupont survivor by Josemaria de Churtichaga on 500px

    dupont survivor by Josemaria de Churtichaga on 500px

    I was on CBC radio this morning talking about the revitalization of Dovercourt Village and Geary Avenue in Toronto. 

    The funny thing about this topic is that it’s one I actually held off writing about. I’ve been thinking about this street and area for probably about 5 years now. However, I do have to keep some secrets to myself 🙂

    But then I started feeling like the cat was already out of the bag. Everyone in my circle was talking about it. So I wrote a post calling Dovercourt Village the next Ossington. I had no idea it would get the traction that it has gotten, but in hindsight it makes total sense. It makes a great headline: “Toronto’s ugliest street to become the next Ossington.” Boom.

    The tough question that Matt Galloway asked me this morning was: What happens to all the blue collar businesses when/if Geary Avenue and the area really takes off? My response – given that it was only a 5 minute radio piece – was that it comes down to preservation vs. progress. 

    This is a topic that I’ve written about with respect to heritage buildings, but the same concept applies to communities as well. How do you allow neighborhoods to receive new investment while at the same time not erasing its past and the things that made it interesting in the first place?

    It’s not easy, that’s for sure.

    I absolutely believe that there are things that developers can do to respect the neighborhoods in which they build in. But at the same time there are economics at play. In business school, they teach you this:

    It’s the lifecycle of businesses and industries. 

    The key takeaway here is that the rise and decline of businesses is actually quite healthy for markets. History is littered with examples. The word processor replaced the typewriter. The mobile phone replaced the landline. Air travel replaced rail travel. And the list goes on.

    Today, I think we’re at a moment in time where our relationship to cars is changing dramatically. How we get around and how we own and operate them is being called into question. 

    So just because there’s auto shops on Geary Avenue today, doesn’t mean they’ll be there tomorrow regardless of whether the area takes off or not.

  • Banff’s second floor

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    I have good news and bad news.

    The bad news is that I took a gnarly spill yesterday afternoon on the mountains. The nose of my snowboard got stuck in deep snow and I fell forward onto my shoulder and then compressed my back. I tore a shoulder ligament and possibly fractured two ribs. So snowboarding season is over for me this year.

    The good news is that I now have more time to relax and enjoy the town of Banff, and then Revelstoke this weekend.

    Banff is a beautiful town. It’s compact, walkable, and surrounded by snow capped mountains. How could you not love it?

    One of the more subtle things that stands out for me though is the ubiquity of second level retail and restaurants. There’s a lot people in the (North American) real estate industry that will tell you that second floor retail just doesn’t work (you want ground floor). And indeed, it can be hard to pull off. As I’ve said before, getting retail right in general can be difficult.

    But in Banff, many of the bars and restaurants are up top. Here are a few examples (there’s an Earls, Boston Pizza, and a Korean restaurant, respectively):

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    So why does it work here?

    Given the town’s small footprint and location within Banff National Park, the market is supply constrained. That’s why Parks Canada imposes a number of restrictions on residency. They’re trying to ensure that the people who actually work in the community can find housing and it all doesn’t become second homes.

    So my gut tells me that in order to get enough retail/commercial space to serve the area and its tourists, they had no choice but to go up. They simply ran out of ground floor space. Because if the town was able to instead sprawl outward, I suspect that’s exactly what it would have done. And then more ground floor space would have been created.

    To be fair, most of the second floor examples I came across were bars and restaurants, which is arguably easier to pull off than straight retail. But it’s still something. 

    If any of you are familiar with real estate and planning in Banff or just have a better hypothesis, I’d love to hear from you in the comment section below.

  • Firm Profile: ASH NYC

    A friend of mine recently introduced me to a young real estate company out of New York called ASH NYC (the founders are around 30). 

    But in reality, calling them just a real estate company is an oversimplification. They’re actually a vertically integrated firm that brings interior design, real estate development, property management, hospitality, and a few other disciplines all under one roof. The way they talk about it is in terms of “joining historically compatible disciplines” and “creating both aesthetic and economic value” – which is a pretty neat approach.

    I’ve written a few times before about the future of the architecture profession and so I think it’s really interesting to see yet another example of design being completely integrated with real estate. And I’m certain we’re going to see more of these kinds of hybrid and integrated business models across many other industries.

    In my own career, I’ve been (somewhat similarly) fascinated by the intersection of design, real estate, and technology. And I suspect that many of you also feel like you’re operating in some kind of overlap. Is that true?

    Image: ASH NYC

  • An example of low-rise intensification: Union Street EcoHeritage

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    In yesterday’s post about the 3 stages of intensification, I mentioned a project in Vancouver called Union Street EcoHeritage by SHAPE Architecture. I used it as an example for sensitive low-rise intensification.

    Since it’s a very cool project (and most of you probably didn’t click through), I thought I would dedicate today’s post to explaining the project.

    The picture at the top of this post is what it looks like today (the front elevation). If you were to pass by it, I suspect most of you would just think it was a pair of renovated single family homes. But there’s much more to it. What started out as only 2 dwellings, ended up as a site for 7 dwellings.

    Here’s the before shot:

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    The homes were moved and actually raised up in order to accommodate additional density. Here’s a section that better explains what was done (black is existing; green is new):

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    The 2 existing homes were raised up so that an additional dwelling unit could be placed beneath each one. At the same time, additional units were added in the rear, both attached to the existing homes and at the back of the site facing the laneway. And so this project is actually one part laneway house.

    Here’s a photo of what that rear interior space looks like (it’s stunning):

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    Not surprisingly, this project won a bunch of awards and has been widely celebrated as an affordable housing solution. It’s exciting to see Vancouver take the lead on low-rise intensification. It’s one of the reasons that I think it’s only a matter of time before Toronto starts to look towards similar solutions.

    Images: SHAPE Architecture Inc.

  • The pull from services to products

    This morning I woke up to a fascinating post by designer Tobias van Schneider called: The agency is dead. Long live the agency.

    What he’s talking about is the phenomenon of design agencies being gobbled up or “acqui-hired” by product firms such as Facebook and Google. The latest of which is (or was) Toronto-based design agency Teehan+Lax. The partners have closed up shop and are in the process of moving to San Francisco to join Facebook Design.

    But what he’s really talking about is the pull from services to products.

    When you’re a services firm, you do work for outside clients and they pay you for that work. But there are only so many hours in the day, which is why the marginal cost of taking on new clients is relatively high – to scale up you generally need lots more people.

    On the other hand, when you’re a software company creating products, the marginal cost of serving additional customers is almost nothing. Sure, there are some variable costs, but the impact to your cost structure is not nearly as significant as when you’re a services firm. That’s how a company like Instagram can be bought for $1 billion with 30 million users and only 13 employees.

    So products are a bit of a holy grail in some circles. You can achieve greater scale. You can focus on fewer projects as opposed to jumping around from client to client. And you can make a lot of money.

    But it’s often easier said than done. Back in 2012, Teehan+Lax wrote a great post where they talked about the allure of products and the challenges they faced in trying to build their own:

    37Signals* was the worst thing to happen to services businesses trying to make products. They fucked it up for all of us, because they made it. For those of us old enough to remember, 37Signals was a services company like Teehan+Lax. They had clients and did work for hire. Of course, 37signals isn’t a services company anymore. They make amazing digital products and their success is enviable. (*37Signals became Basecamp)

    So why is it so hard to transition from services to products?

    Clayton Christensen, the father of disruptive innovation, says, “you can’t start a disruptive business from inside an incumbent one.” The incumbent business will always take the resources from the disruptive one. He argues that if you want to create a disruptive business you need to isolate it from the incumbent business. The disruptive business needs its own values, processes and resources to be successful.

    Regardless of whether you’re trying to build something disruptive or not, amazing products are hard to build. They take focus.

    But what’s also interesting about services and products is that there’s a parallel in the world of architecture and real estate development. As an architect, you’re basically a service provider. You have clients and they pay you for the work that you do. However, as a real estate developer, you offer a product: physical space. The cost structures are not nearly as beneficial as with software, but it’s a product nonetheless.

    And similarly, we’re already starting to see some developers bring architecture in-house. Will we see more of this in the future? Will there be a similar pull from services, to products?

    Image: Flickr

  • Is Toronto’s urban growth boundary really making the city less affordable?

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    This morning the Globe and Mail published an article by Toronto’s chief planner, Jennifer Keesmaat, called Greenbelts make cities more livable, affordable and transit-friendly.

    The headline immediately caught my attention because conventional economic wisdom would suggest that supply constraints – whether natural or artificially created – generally have a negative effect on housing affordability.

    To be clear though, I support Ontario’s greenbelt. I think an urban growth boundary is the right thing to have if we want to build sustainable, walkable, and transit-oriented communities. But I’m also not blind to some of the potential (negative) externalities.

    However, Keesmaat’s article got me wondering just how prevalent those externalities might be and to what extent our greenbelt is actually impacting housing affordability in Toronto. In her article she cites a recent report by the Pembina Institute that very clearly argues the following:

    “There is no shortage of land throughout the GTA [Greater Toronto Area] to build single-family homes for decades to come, but this land is predominantly located far from the City of Toronto and other established centres of employment in the GTA.”

    More specifically, the report found that of all the land available for development in the region (within our growth boundary), 81% of it is projected to still be unused by 2031. This got me thinking: it’s not that there isn’t land still available in the region; it’s that there isn’t land in the areas where demand is the greatest.

    Put differently, young families aren’t clamoring for single family homes in High Park and Leslieville because the greenbelt has restricted their ability to find new housing. They’re doing so because they want to live in neighborhoods like High Park and Leslieville.

    If you dive into the data, the report shows that in 2004 the average price of a detached home in Toronto was about $117,000 more than the rest of the Greater Toronto Area. As of 2013, that spread had grown to about $200,000. And indeed the data shows that it’s the core of the city where home prices seem to be appreciating the fastest.

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    So when it comes to housing affordability and supply, the greenbelt may actually be a red herring. Releasing it would not increase the supply of housing in areas where demand is already high, which is probably why this same report also found that – with or without an urban growth boundary – most Canadian cities are seeing similar increases in home prices.

    So what should we be doing?

    I think we should do two things: (1) focus on accommodating more growth in the areas that people already want to live in, and (2) figure out ways to transform the less desirable areas into more desirable ones. This second one will be the hardest, because it’s likely going to mean changing car dependent areas into transit-oriented ones, which is no easy task.

    The good news though is that we are already doing these things. There’s more that I would like to see happen, but we’re headed in the right direction.

    If your city has a greenbelt or you have experience with greenfield development in the Toronto region, I’d love to hear your thoughts in the comments. This is an area of development that I’ve never really been involved with.

    Image: Flickr

  • The unmet demand for real estate education in Canada

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    I continue to be amazed by the unmet demand for real estate (development) education here in Canada.

    Following yesterday’s post on the real estate development process, I received a few emails from readers asking about the best university programs (MBA, MRED, etc.) and the best approaches for becoming a developer.

    I also had a good conversation on Twitter, which covered off some details that I had left out from my post (for simplicity) and which resulted in me suggesting that a real estate development school needs to be started here in Toronto:

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    Now, part of the reason things are the way that they are, I think, is because the real estate industry has been historically dominated by private rich families. People didn’t go to school to learn how to be developers. They learned by doing and that was then passed down to the next generation. All it took was chutzpah.

    But as the real estate industry continues to institutionalize and become run by pension funds and large publicly traded companies, I think the point of entry will also become increasingly institutionalized. And that’s where dedicated real estate programs will continue to come in. 

    I’ve spoken to a few people at the Rotman School – where I did my MBA – and there doesn’t seem to be a huge interest in a dedicated program such as a Master of Real Estate Development (they already offer real estate courses). It’s more of a “longer term” strategy. 

    But I think that’s a mistake.

    I’m confident there’s strong demand from the student side, so hopefully a wealthy donor will step forward to help make this happen. The University of Toronto has both a great business school and a great architecture school. That feels like a great recipe for a first-in-kind joint degree offering.

    Image: Urban Learning (via Flickr)

  • More on the real estate development process

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    A few weeks ago I received the following comment from a reader:

    Really enjoyed reading this post about being a real estate developer. I was just wondering if you could do a write up on the various jobs and functions in a typical real estate development company so that people like me, who intend to work for a developer can roughly know what kind of skills are required or demanded in order to work there.

    It’s a great question and so I will try and answer it today. The first thing I should say though is that real estate developers are typically very lean on people. I’ve worked for big publicly traded real estate companies and small boutique ones, and the development teams are always fairly small.

    It’s that way because development projects can be messy and intermittent. The industry itself is also prone to regular market cycles and so the strategy is generally to remain fairly lean and outsource a lot of the work. You ramp up consultants and suppliers on a per project basis – as you need them.

    With that said, let’s talk about the typical development process and some of the key skill sets required. A simplified process might look like this:

    1. Buy development site (Acquisitions)
    2. Design a project (Consultant Coordination)
    3. Make sure project is feasible (Finance)
    4. Obtain approvals for said project (Planning & Approvals)
    5. Sell/lease space (Sales, Leasing & Marketing)
    6. Build project (Construction)
    7. Make money (The goal)

    Depending on the size of the firm, one person may be responsible for managing many if not all of these steps, or they may be split up into different departments. So you could end up with a department list like this:

    1. Acquisitions
    2. Development/Project Management
    3. Finance
    4. Sales, Leasing & Marketing
    5. Construction

    From my experience as a developer, you’re going to be involved in all aspects. And that’s part of what makes development so exciting. But let’s talk about some of the key areas:

    Planning & Approvals

    After tying up a winning development site, securing your approvals (commonly referred to as “entitlements” in the US) is usually the first major step. The reason this step exists is because oftentimes what you want or hope to build isn’t what you’re actually allowed to build as-of-right.

    So you have to go through a process to make that happen. It can take years depending on where you might be doing business, but there’s typically a significant amount of value creation at this stage. Some developers only focus on this stage and don’t actually build.

    City planning is a good background for this function. You need to understand the local planning policies and frameworks.

    Consultant Coordination

    As I mentioned before, development teams are often small. And that’s because all developers rely on outside consultants to make a project happen (architects, engineers, and so on). So a big part of being a strong developer is just being a strong project manager. The expression often thrown around the industry is that development is like herding cats.

    Having some sort of a technical background helps for this function. You end up dealing with a lot of technical details (which I find super interesting), and so it helps to have a bit of a background or an interest. If you’re not inclined in this way, you might find this area boring.

    Financial Modeling

    Building project pro formas and managing budgets is obviously a key component of the development process. From the moment you first look at a site up until project completion, you’ll be building financial models and constantly refining them as you get more information. The first version might be on the back of a napkin and the last version might be a complex Excel spreadsheet.

    Banking and finance is obviously a good background for this function. But you also need to understand the real estate business. Models are only as good as the information you feed it, so your assumptions have to be sound. 

    Sales, Leasing & Marketing

    I cannot over emphasize the importance of this function. If you are not selling units or leasing space, then you do not have a project. So no matter how amazing you might be at all the other functions (even fundraising from investors), if your firm is not bringing in money from your customers (purchasers or tenants), then you are dead.

    When I was at Penn, a lot of the real estate professors used to tell us that leasing is the best way to get started in the industry. And I don’t disagree with that – even though I didn’t start there. This is often handled by a separate department and/or outside team, but you’ll need to be intimately involved.

    Construction

    If you’re at this stage, that’s usually a good sign. It usually means you’ve managed to sell a bunch of units and/or lease a bunch of space. Some developers (with enough scale) will have a construction team in-house, but many others will just outsource it to a 3rd party. Regardless of the setup, it once again helps to have a technical background.

    If I missed anything or you want to add more detail, please let me know in the comment section below. I’m always happy to receive questions and post ideas, so feel free to tweet or email me. Tweets will almost always get a faster response.

    Image: Flickr

  • My identity crisis

    If you’re a regular reader of Architect This City, there are many things that you might know about me

    You might know that I was initially trained as an architect, but that I immediately transitioned into real estate development after grad school (where I studied both architecture and real estate).

    After becoming a real estate developer, you might know that I completed an MBA with a focus on innovation and entrepreneurship (which happened by default as a result of the electives I ended up being interested in).

    And finally, you might know, given the content of this blog and my startup history, that I have a significant interest in technology. More specifically though, you might know that my interest is in figuring out how technology will continue to infiltrate and impact “non-tech” industries such as real estate.

    But what you might not know is how I even ended up in architecture and real estate in the first place. Unlike a lot of people who seem to have grown up wanting to be an architect – perhaps because they had a relative who was one – I didn’t decide to study architecture until a bit later on.

    Growing up my primary interests were: art and computers.

    During high school, my art teachers used to tell my parents that I was going to be an artist. And my computer teachers used to tell my parents that I was going to be a computer geek – or maybe they said computer scientist.

    Maybe it had to do with timing and the emergence of the commercial internet in the 1990s, but computers sort of won out during that point in my life. I spent a lot of time building them from scratch, playing with software, and asking my mom not to pick up the phone because I was literally dialed-in to the internet.

    So when it came time to enrol in university, I fairly effortlessly decided on computer science. It just seemed to make sense. But after about a year I realized that it wasn’t for me. I didn’t love programming like my classmates did and the thought of doing it for a living scared me.

    At the same time, I felt like I needed to feed the artist in me. I wanted something both artistic and technical. So I decided to drop out of computer science and give architecture a try. It just seemed like the perfect marriage of my interests.

    I immediately fell in love with architecture. And I spent the next 7 years studying it across 2 degrees.

    But during that time, two things hit me. First, I came to the realization that real estate developers are the ones who really have the most say in terms of how our cities are built. And second, that technology was having a massive impact on business and life.

    This told me that design alone wasn’t going to be enough. I also needed to engross myself in real estate, finance, business, and technology. So that’s what I set out to do. And I really enjoyed it. On the technology side, it felt like I was coming full circle in a way.

    But today, I feel a bit like a 3 legged stool. There’s the design leg. The real estate/business leg. And the technology leg. And oftentimes I feel like life would be a lot simpler if I could just balance on one of those legs – instead of trying to stand on all three. But that’s simply not me.

    These are my passions and I need all of them to stand-up.