Tag: real estate

• An even longer view on home prices — this time in Amsterdam

  In the comments of my recent post about Manhattan real estate prices during the Great Depression, a regular reader of this blog shared this terrific blog post (and corresponding research paper by Piet Eichholtz) about house prices along the Herengracht canal in Amsterdam from 1628 to 1973. Later it was updated to include up to 2008. It’s a long run house price index.

  Probably the first thing you’ll notice is that the index is highly volatile. Amsterdam enters its Golden Age, creates the world’s first stock exchange, and becomes the wealthiest city in the western world – house prices go way up. The tulip mania bubble pops – house prices go way down. It’s not until after World War II that prices sort of start to stabilize and increase, maybe, more consistently.

  In nominal dollars, the house price index increases 10x over the study period. But in real dollars most of that disappears. The biennial increase (that’s how the study was done) over the same period of time is just 0.5%. That translates into a doubling of house prices, which may seem quite good, except that remember it’s over a 380 year time period.

  

  The Herengracht canal is a particularly good study because it was and has remained (or so I’m told) a desirable part of Amsterdam. This is an attempt to control for the variable that maybe some of the volatility could be explained by the area simply falling out of favor. (As a quick sidebar, the Herengracht was one of the first canals laid and dug out around the original city center of medieval Amsterdam during its Golden Age.)

  Generally, this finding is in line with one that economist Robert J. Shiller famously published a number of years ago where he argued that, when you correct for inflation, home prices actually look remarkably stable over long-run forecasts. In one study, he looked at 100 years of US home prices ending in 1990. Real home prices increased about 0.2% a year. What an outstanding hedge against inflation.

  2017.11.28

• Manhattan real estate prices during the Great Depression

  

  I was searching around trying to find data on long-term real estate prices and I came across a paper by Tom Nicholas and Anna Scherbina called, Real Estate Prices During the Roaring Twenties and the Great Depression.

  Here are some stats about Manhattan real estate (from the paper) that you all might find interesting:

  – In 1930, Manhattan housed 1.5% of the US population, but had approximately 4% of all US real estate wealth.

  – To construct their price indices the authors randomly collected 30 real estate transactions per month in Manhattan between 1920 and 1939. The mean price per square foot in 1929 was $6.91 (year of Black Tuesday). And the mean price per square foot in 1939 – 10 years later – was $2.29.

  – Buildings containing a store at grade tended to sell at higher prices. The authors speculate that this could be because a zoning change in 1916 made it difficult to open stores in “residential” areas.

  – Buildings with three, four and five storeys tended to sell at a discount. Six storeys or higher and the buildings generally had an elevator, which resulted in higher pricing.

  – Manhattan real estate prices reached their highest level in Q3-1929 before falling 67% by 1932. Prices remained more or less flat during the Great Depression.

  – If you bought a “typical property” in 1920, it would have retained only 56% of its value (in nominal dollars) by 1939. In fact, it took until 1960 for assessed property values in Manhattan to exceed their pre-Depression pricing.

  – An investment in the stock market index during this same time period, 1920-1939, would have outperformed real estate by a factor of 5.2x.

  Much of this probably seems hard to believe given the market today. Imagine waiting 40 years for the value of your property to come back.

  Photo by jesse orrico on Unsplash

  2017.11.26

• The Toronto and Vancouver housing markets

  CIBC World Markets recently published this report by Benjamin Tal talking about the Toronto and Vancouver housing markets. Here is an excerpt:

  “But when the fog
  clears it will become evident that the
  long-term trajectory of the market will
  show even tighter conditions. The supply
  issues facing centres such as Toronto and
  Vancouver will worsen and demand is
  routinely understated. Short of a significant
  change in housing policies and preferences,
  there is nothing in the pipeline to alleviate
  the pressure.”

  It’s a good read. Worth your time.

  One stat that stood out and directly relates to some of the topics that we frequently talk about on this blog is the shift in Toronto from low-rise to high-rise housing.

  In the report there’s a chart showing the “change in [housing unit] completions” in 2016 as compared to 2000. The switch from low-rise to high-rise is almost 1:1 in Toronto. In other words, we substituted high-rise housing for low-rise housing. 

  I think this speaks volumes about the fundamentals underpinning the Toronto condo/apartment market. We are continuing to build up because it is the future of housing in this city.

  2017.11.15

• Constructing the tallest building in San Francisco

  Alexis C. Madrigal recently published a piece about the Salesforce Tower in San Francisco called: The Tower at the Heart of the Tech Boom. At 61 floors and 1,070 feet, it is now the tallest building in San Francisco and the second tallest building west of the Mississippi River after the Wilshire Grand Center in Los Angeles.

  Hines and Boston Properties are the developers of the building. Pelli Clarke Pelli is the architect. And Salesforce is the anchor tenant. In April 2014, it was announced that they had leased 714,000 sf on floors 1, 3-30, and 61. (Get that top floor.) So almost half of the building.

  Perhaps not surprisingly, Madrigal calls the Salesforce Tower the “the most visible monument to the industry [tech] in the region and the country.” It is a demonstration of the power and reach of Silicon Valley. San Francisco has a new symbol. The TransAmerica Pyramid now feels inadequate.

  Though interesting, this is actually not what I want to talk about today. I’d like to talk about what it took to build such a tall building in a seismically active city like San Francisco. Unfortunately, this feels timely given that the sinking Millennium Tower is getting so much attention right now.

  The structural engineer for the Salesforce tower is Seattle-based Magnusson Klemencic Associates (MKA). They are a world-renowned structural and civil engineering firm that have been around since the 1920s. Other projects they are currently working on include the third tallest building in Chicago.

  The tower’s seismic force-resisting system is made up of reinforced concrete shear walls that surround the central elevator and exit stair core. These walls are 24 to 48 inches thick. Here is a plan taken from a STRUCTURE Magazine post written by Ron Klemencic of MKA:

  

  The tower’s foundations have been well documented, or at least frequently mentioned, because of how deep they had to go down. The site has poor soil conditions (fill, sand, San Francisco “old bay clay”, and weak bedrock), and so given the weight of the tower the only option was to go down to bedrock – approximately 250 feet below grade.

  The foundation system they ended up going with uses something called Load-Bearing Elements (LBEs). The typical LBE measures 5′ x 10.5′. The entire foundation system uses 42 LBEs and a mat foundation that varies in thickness from 14′ around the core to 5′ around the perimeter. (See image below.) The LBEs were brought down to rock. And in some cases, they went down more than 310 feet below grade.

  

  As a condition of buying the site, the Transbay Joint Powers Authority required proof that any future tall building would not negatively impact the surrounding structures – including the adjacent Transbay Transit Center – and that it would perform under a Maximum Considered Earthquake (MCE) event.

  So while the tower itself may be a symbol for the new world, its structural system also achieves many firsts in terms of how to build a supertall in a seismically active region.

  Please keep in mind that I am not a structural engineer. I just pretend to be an architect sometimes. If you’re interested in more of the details, check out the post by Ron Klemencic. All of the above information was taken from there.

  2017.11.11

• Planning dinner, smart cities, and privacy

  

  This evening I attended the 27th Annual Toronto Planning Dinner. It’s an annual dinner for people in planning and development, put on by the University of Waterloo Planning Alumni of Toronto. Thank you Wood Bull LLP for the invite.

  The keynote speaker was Dr. Anthony Townsend. He is the author of SMART CITIES: Big Data, Civic Hackers, and the Quest for a New Utopia. I haven’t read it (yet), but his talk offered a preview of it and I think it would be of interest to all of you.

  It deals with many of the topics that we discuss on this blog, one of which is the interrelationship between our physical environment and the networks and software layers that we are now building on top of it.

  These layers have the potential to augment and enhance our cities (maybe make them smarter), but they also have the potential to do us harm. One important issue that Townsend brought up is that of privacy.

  Cities used to enable anonymity. 

  When essayist and art critic Charles Baudelaire wrote about “modernity” in 19th century industrializing Paris, it referred to an ephemeral and fleeting kind of urban environment. Pass someone on the street and you may never see them again. That must have felt sad at the time.

  Today we live in a fish bowl. 

  Networks connect us, check us in, ping us when we are nearby people we know, and help us find people to meet and date. And we already have devices, like Alexa, that spy on us in our homes so that companies can serve us targeted ads. (This is deplorable by the way.)

  Will the city of the future endeavour to do the same as we equip it with more “smarts”?

  I guess that’s why Townsend believes that privacy will define a big part of 21st century urbanism. There’s no doubt that it will be very important.

  2017.11.10

• Toward more family condos

  The Ryerson City Building Institute and Urbanation recently published a terrific report called: Bedrooms in the Sky. Is Toronto Building the Right Condo Supply? 

  Here is a quick synopsis: The 35-44 year old age bracket in this city will see significant growth over the next decade; single family homes are really expensive; and we’re not building enough family-friendly condo units.

  When Urbanation looked at the data for all condo units currently under construction they found that the unit mixes still skewed toward 1-bedroom units, but that the number of 3-bedroom units is starting to trend upward. That feels right.

  The report also talks about the affordability gap between condos and houses. The average condo in the Greater Toronto Area costs about $511,000, while the average detached house costs $1,134,000.

  However, this isn’t exactly an accurate comparison because the average condo is smaller in size than the average house. I think a better metric is to look at price per square foot.

  Also, houses give you the flexibility of a secondary suite. Right now that usually means a basement apartment, but pretty soon it’ll likely include a laneway suite. That creates an additional income stream and helps with overall affordability.

  In any event, up until maybe recently, houses generally looked cheaper on a per square foot basis. And my view – which I have written about extensively on this blog – was that as soon as houses become “more expensive”, we’ll see an uptick in larger family-oriented condos.

  A few weeks ago I went to an open house in a desirable area of Toronto. It was for a 1,300 sf semi-detached house with good bones, but in need of a full gut. Basement was low, only suitable for humans around 5′ tall. It sold for $1 million.

  Let’s say that house needs $300,000 to bring it up to the level of a new condo. If that doesn’t include some sort of extension, now you’re in for $1.3 million or about $1,000 per square foot. You can still find a condo for less than that.

  Which is one of the reasons why I think we’re now starting to see an uptick in larger/family units. (We are trying to do it at Junction House.) 

  But like all things in real estate, these things move slowly. The condos under construction today were designed years ago. Changes take time to work themselves through the system.

  2017.11.08

• Junction House Community Meeting

  

  Okay, last Toronto-centric post for the week. We are back to regular scheduled programming tomorrow.

  Later this month, Councillor Gord Perks will be hosting a community meeting for Junction House (see conceptual rendering above).

  You can find all of the details, here, on the Globizen blog. But pop it into your calendars: Tuesday, November 21, 2017 from 7 to 9pm.

  Even if you can’t attend, definitely weigh in on the rooftop public art component over in the comments on the Globizen blog.

  I hope to see you all there. It’s always nice when happy people come out.

  2017.11.04

• 738,000 single-family homes were built last year in the US

  The New York Times recently published “a portrait of new single-family homes” in the US in 2016. Here’s that portrait:

  

  For those of those living in dense urban centers, this portrait is perhaps a reminder that in many other places a large single-family home can be had for about the price of a studio apartment.

  Nothing in the above portrait likely surprised you, but it’s interesting to note that over half of all new single family homes delivered last year were in “The South.” Only 7% were built in the dense northeast.

  The New York Times also recently looked at “international rents per square foot” using data from RentCafe. Here they are:

  

  New York City sits at the top with an average rent of $4.98 psf. This is across all boroughs. I am surprised by how low some of these international rents are. But averages rarely tell you the whole story.

  In any event, I do think that these two graphics start to speak to the economic spikiness that we are seeing across the US. 

  2017.10.29

• Toronto’s first Airbnb-friendly condo building

  This week it was announced that the very first condo building in Toronto (and in Canada) has just signed on to Airbnb’s Friendly Buildings Program. The agreement will take effect on November 1, 2017.

  As the name suggests, the program is about bringing greater legitimacy and structure to short-term Airbnb rentals. Here are two key measures from this particular agreement:

  – Building security will now have full transparency with respect to who is hosting and who their guests are at any given time

  – Airbnb will share 5% of the building’s revenue with the condominium corporation (hosts will also need to pay $50/month to cover any additional maintenance costs)

  What’s compelling about the above is that there’s now a bit of a financial incentive for buildings/boards to support Airbnb rentals. 

  At the same time, if something happens, it’ll now be a lot easier to figure out who was responsible and then chargeback any relevant costs. Right now it’s all happening under the radar.

  My view on Airbnb is the same as the one I took (publicly on this blog) on Uber: It’s not going away. Many people clearly want it. An entire building just accepted it. So let’s figure out how to make it work better.

  One regulation that Toronto is currently exploring and that I think will materialize in some form is a limit on short-term rentals when the unit is not your principal residence.

  This is the difference between Airbnb’ing your place when you leave on vacation (or when you have an extra room) and buying a condo strictly as a short-term rental investment.

  It’s interesting to see the evolution of companies like Uber and Airbnb. Both would never have been successful if they started out by first asking for permission. 

  But now they are mature enough that they are being forced to play nice.

  2017.10.28

• How to make money with low-risk licensing deals

  

  This morning the Toronto Star published a detailed autopsy of the failed Trump International Hotel and Tower Toronto. It outlines the players, the investors, and what supposedly went wrong. Of course, the headline is all about how Trump managed to make money from the deal – through his well-publicized licensing business – even though the project went bankrupt.

  At the beginning of this year, the Washington Post reported that Trump’s name had been licensed and linked to over 50 properties and that these contracts have earned him at least USD$59 million in revenue. Outside of the US and Canada, the Trump Organization has (or had) deals in Brazil, Turkey, Azerbaijan, India, Indonesia, the UAE, and so on.

  There would have been more money to be made in the actual development of these properties, but the beauty of these licensing deals – for Trump – is that they are “low-effort, low-risk, high-reward.” In fact, this past summer it was reported that the breakup fee at Trump Toronto – the fee to exit all contracts with the Trump Organization – was at least $6 million (guessing that’s in USD).

  This story is not unique to Toronto. And so I have got to believe that there’s major brand dilution happening here. Does the Trump name really bring credibility to projects in some markets? How sustainable is this licensing business? 

  The only other thing that I would add to the Toronto Star article is that the hybrid condo-hotel model has proven to be difficult in this city. It’s perfectly fine to have residential condos and a hotel in one tower. There are lots of successful examples of those. But when the condo units can be put into a hotel pool (and there’s an IRR expectation on the part of individual owners), many seem to have been disappointed.

  Part of the challenge with this model here in Toronto is that the condo-hotel units typically end up with a commercial property tax rate, which, in this city, is much higher than the residential rate. This can suppress values.

  Photo by NeONBRAND on Unsplash

  2017.10.21