Tag: real estate

• When everyone thinks you’re wrong

  

  https://500px.com/embed.js

  I was recently talking to my good friend Jeremiah Shamess about the current state of development land sales in Toronto (he does this for a living) and he said something to me that I found really interesting.

  He said that because the market is so competitive, you can really only win development sites in one of two ways. Either you’re willing to spend the most money or you see something and have a vision that nobody else sees.

  And it was this second piece that really stood out to me because it reminds me of one of my favorite investing frameworks.

  Warren Buffet is famous for saying that you should be fearful when others are greedy and you should be greedy when others are fearful. And what I’m about to talk about is really that same core philosophy.

  Here’s how venture capitalist Fred Wilson put it (reiterating something that Bill Gurley said):

  I saw Bill Gurley say that you can only make money by being right about something that most people think is wrong. His logic was that you can’t make money by being wrong. And you can’t make money by being right about something everyone else knows. So you have to be right about something that most people think is wrong. I really like that framework.

  But this doesn’t just apply to technology companies or stocks. It applies to city building, most industries, and probably most things in life if you think about it.

  If all you’re doing are things that everyone else is doing, then how can you expect to outperform? You’re going to revert to the mean.

  Take, for example, billionaire Dan Gilbert and Detroit. Not everyone believes that Detroit will come back. In fact, I suspect there are probably more people who think it won’t come back, than people who think it will. Otherwise, it would already be back.

  But Gilbert is unquestionably long on Detroit (via Forbes):

  As you’ve likely heard, over the past four years Gilbert has become one of Detroit’s single-largest commercial landowners, renovating the city with the energy and impact of a modern-day Robert Moses, albeit bankrolled with his own money. He’s purchased and updated more than 60 properties downtown, at a total cost of $1.3 billion. He moved his own employees into many of them–12,000 in all, including 6,500 new hires–and cajoled other companies such as Chrysler, Microsoft and Twitter to follow.

  If/when Gilbert proves to be right about Detroit, then he will have been right about something that most people thought was wrong. And because of that, he will no doubt make a lot of money.

  2015.07.23

• Project Profile: Cabin at 45 Dovercourt

  

  Last month,
  Curated Properties submitted a
  rezoning and site plan application for a 6-storey, 25-unit building at 45
  Dovercourt Road in Toronto. The project is known to the market as Cabin and you
  can register for it now.

  The project
  immediately caught my attention (because of its design, because of its
  branding, and because I like the work of Curated), so I decided to dig in
  further and get a copy of their architectural drawings. Development
  applications and their supporting documents are all public. Anyone can request
  a copy. But the city isn’t great at making this known.

  Since I’m excited
  to see more of these small scale urban infill projects in the city, today I
  thought I would highlight some of its key features and some of the things that
  are being proposed in order to make a project like this work.

  The Homes

  First of
  all, 100% of the suites are 2-storey. 76% of the suites are also 2 bedroom or
  larger.

  The result
  is that the project is essentially a series of townhomes stacked on top of each
  other. I suspect that this will appeal to more end-users as opposed to
  investors. Hopefully, it will also attract more families to the area.

  Here’s the
  third floor plan:

  

  You
  probably can’t see it, but all of the suites are marked as “Level 1”, obviously
  indicating that there’s more than one level.

  Also worth
  mentioning is the notch or cut out on the north side of the building. This is
  what makes the 2 suites in the middle of the floor plate possible. In order for
  them to have windows, they need to be setback from the (north) property line.
  It also means those suites get terraces.

  The Parking

  Turning to
  the ground floor plan, it’s interesting to see that they are proposing 8 triple
  car stackers that will be accessible off the rear laneway (right side on the plan below). That equates to 24 parking spaces in the building (8 bays x 3
  cars per stacker).

  

  On small
  urban sites like this one, it can be very difficult to accommodate parking. So
  it’s inevitable that we will see more parking stackers in the city and a continual
  reduction in parking minimums.

  The Construction

  Finally, I
  have been told that this project is expected to be framed in wood, as opposed
  to reinforced concrete, which is more typical of condominiums in Toronto.

  As of the
  beginning of this year (2015), the
  Ontario Building Code was modified to allow wood-frame buildings up to 6
  storeys. Before this change, the highest you could go was 4 storeys.

  This change
  was done with the intent of reducing construction costs so that it becomes more
  feasible to develop smaller infill sites such as this one. So expect to see
  more of this.

  I know that
  a lot of people would like to remain in the city even when they start having
  children. But it’s becoming increasingly difficult to find affordable low-rise
  homes. And not everyone wants to live in a high-rise tower. 

  That’s why I think
  we will see more, not less, low-rise and mid-rise infill projects like Cabin.
  If you’re interested in this topic, also check out a post I wrote called 3
  stages of intensification.

  The rendering at the top of this post is from Curated Properties and the
  drawings are by RAW Design.

  2015.07.20

• The evolving gig economy

  This morning venture capitalist Fred Wilson wrote a post on his blog talking about the gig economy and Hillary Clinton’s economic speech last night. 

  Here’s a snippet from Clinton’s talk:

  Meanwhile, many Americans are making extra money renting out a small room, designing websites, selling products they design themselves at home, or even driving their own car. This on-demand, or so-called gig economy is creating exciting economies and unleashing innovation.

  But it is also raising hard questions about work-place protections and what a good job will look like in the future.

  So, all of these trends are real and none, none is going away. But they do not determine our destiny. The choices we make as a nation matter. And the choices we make in the years ahead will set the stage for what American life in the middle class and our economy will be like in this century.

  The headlines this morning are making it seem like Hillary Clinton is taking direct aim at companies like Uber. But the transcript suggests that she’s being far more balanced than that: these new companies are creating exciting opportunities, and they are not going away, but there are still things to figure out.

  That’s basically how I feel.

  Take, for example, Airbnb. I think Airbnb is a great idea and company. A lot of my friends use it both as consumers and as suppliers of space.

  But for many (most?) condos in Toronto, owners are strictly prohibited from renting out their units on leases that are less than six months. It’s a direct ban on short-term leasing and it’s written into the Condo Corporation’s Declaration.

  And there’s good reason for that. Who wants to buy a condo only to find out that next door is being operated as a nightly hotel? Most people would even prefer that their neighbor is an owner rather than a renter.

  That doesn’t mean I believe Airbnb should not exist. I think we’ll likely end up getting more transparent about how buildings (and portion of buildings) are operating, as opposed to it being a shadow economy. And that could help.

  If you have any ideas for how companies like Airbnb might be better integrated into urban life, I would love to hear from you in the comment section below.

  2015.07.14

• The tragedy of the commons

  

  the traffic jam by Phoebe Eve on 500px

  https://500px.com/embed.js

  In 1968, Garrett Hardin wrote an article where he coined the term: the tragedy of the commons. Hardin was an American ecologist who was obsessed and concerned with the prospect of human overpopulation.

  In his article, the term tragedy of the commons was used to describe a situation where individuals – all acting independently and in their own self-interest – actually end up behaving in a way that is detrimental to the larger group and that negatively impacts some sort of common resource.

  Just in case, here’s another definition via Investopedia:

  An economic problem in which every individual tries to reap the greatest benefit from a given resource. As the demand for the resource overwhelms the supply, every individual who consumes an additional unit directly harms others who can no longer enjoy the benefits. Generally, the resource of interest is easily available to all individuals.

  So what would be an example of a tragedy of the commons?

  You may not have thought of it in these terms, but I bet you that everybody reading this blog has experienced one.

  I will give you two examples.

  1. The first is that of electricity consumption. 

  In most condominiums, there are two types of ways that electricity gets billed and paid. Either the whole building gets one bill (master metering) or each individual resident gets a bill (submetering). 

  In the case of master mastering, each resident’s consumption isn’t tracked and so nobody knows who is consuming what. But in the case of submetering, each individual resident only pays for the electricity that they use.

  Not surprisingly, the data shows that submetering can cut electricity consumption by 10 to 30%. That’s because it creates a 1:1 relationship between usage and cost. There’s now a strong incentive to conserve.

  With master metering, there isn’t a 1:1 relationship between usage and cost. The additional burden/cost of consumption actually gets shared by everyone else in the building. And since each individual is looking to maximize their own benefit, they lose the incentive to conserve. As a whole, this makes the entire group worse off.

  2. The second example is that of congestion on public, un-tolled roads.

  In most cities, public roads are a resource that is “easily available to all individuals” (to use Investopedia’s terminology). They are basically free. The marginal cost of driving another kilometer to work on a road is basically nothing (other than a bit of gas and some time).

  What this does is create a situation where individuals – in their pursuit of maximum individual benefit – start to overload the road. Everybody just wants to get where they need to go and there’s no incentive to conserve the resource (i.e. the road). Once again, the result is that the entire group becomes worse off.

  That’s why building more road rarely/never works. You’re simply increasing a resource that is easily available to all individuals. What we should instead be doing is looking at submetering our roads (i.e. pricing our roads). It’s been proven time and time again to reduce road congestion basically overnight.

  I had never heard of the term tragedy of the commons before today, but I like it a lot. So the next time you’re stuck somewhere in traffic, you can now scream to yourself: What a tragedy of the commons!

  2015.07.14

• Building on optimism

  To be a real estate developer, or at least to be a good real estate developer, I think you need to have a certain kind of personality. Specifically, I think you need to be an optimist.

  Because if you’re going to take big risks and deal with lots of uncertainty – which is how most development projects work – then you have to believe that you’re going to be able to figure it all out and make it happen.

  That is not to say that you’re not worried about risk and you’re not thinking critically about what you’re doing. Managing risk is a hugely important part of the business.

  Rather it’s accepting that unexpected things will come up, whether it’s a small construction hiccup or a huge black swan event. And knowing that if and when that happens, you’re going to do whatever it takes to get through it.

  As an example, I remember a developer telling me a story about one of his projects in South Florida. This was back when I was in grad school so some of the details are a bit fuzzy.

  But basically he had excavated a site for an underground parking garage and they had just finished pouring the foundations and first underground level. (Because of its high water table, underground parking garages are rare and expensive to build in South Florida.)

  It’s then 2 ’clock in the morning and he gets a call from his engineer telling him that a hurricane is coming through. And that once it comes through the water is going to lift up his foundation from below and basically destroy it.

  They immediately start brainstorming solutions and the engineer ultimately decides that if they fill up the hole with water before the hurricane comes through that it will weigh down the built structure and keep it intact.

  So in the middle of the night, before a storm was about to hit, they’re all on-site pumping water into a big hole.

  The storm eventually came and went and the engineer was right: the water-filled hole kept everything in place. So instead of spending what could have been millions, the developer probably spent tens of thousands on a water bill. That’s a much easier pill to swallow.

  This, of course, wasn’t in the development pro forma or in the construction schedule. But it happened, as stuff invariably does. And for future projects, I’m sure it’ll be something he thinks about it. 

  But it’s all part of the game. And to be good at the game, I believe you need to be an optimist.

  2015.07.08

• Project Profile: 363 Yonge Street, Toronto

  

  One of the most interesting projects being proposed in Toronto right now is 363 Yonge Street, which is located downtown at the southeast corner of Yonge Street and Gerrard Street. See above hero rendering.

  The project is a two tower mixed-use development with the following stats (as per their rezoning application dated April 24, 2015):

  • 73 storey tower to the north (inclusive of podium)
  • 62 storey to the south (inclusive of podium)
  • 9 storey podium containing office and retail 
  • 887,752 square feet of residential
  • 101,062 square feet of retail
  • 186,977 square feet of office
  • Site area is 42,248 square feet (proposed density on the site works out to be about 27x)
  • 1,106 residential units – 107 bachelor (9.7%), 648 one-bedroom (58.6%), 241 two-bedroom (21.8%), and 110 three-bedroom (9.9%)
  • 289 parking spaces – 221 spaces for residents, 23 spaces for visitors, 23 spaces for retail, and 22 for office
  • 9,790 square feet of outdoor amenity space and 23,809 square feet of indoor amenity space for the residences (the “skybridge” that connects the two towers at the 51st and 52nd floors is amenity space)
  • 9,809 square feet of outdoor amenity space for the commercial spaces

  The site also contains 2 listed heritage buildings. The Gerrard Building and The Richard S. Williams Block. The project proposes to incorporate 3 of their facades (not the entire buildings) into the base of the new development.

  Here are a few images of what that might look like at street level (going from north to south along Yonge Street):

  

  I am also delighted to see that they are planning on adding retail to the rear laneway (O’Keefe Lane) that runs behind the site, east of Yonge Street. If you’re a regular reader of this blog you’ll know that I think Toronto’s laneways are a huge missed opportunity. So it’s great to see developers in this city starting to recognize that.

  Here’s a photo of what O’Keefe Lane looks like today (courtesy of Google street view):

  

  Since I’ve only done one other “project profile” on this blog, I’d love to get your feedback in the comments on whether or not you find these useful.

  For those of us in the industry, it’s always valuable to look at other projects and dissect the square footages, unit mix, density, parking ratios, and so on. But I recognize that this is a particular lens.

  I’m also trying not to be so Toronto-centric, so it would be great to hear how this project compares to what you’re seeing in your city.

  All project images: Quadrangle Architects

  2015.07.03

• SQFT launches as America’s first DIY real estate portal

  

  I am currently in Hunstville, Ontario (Muskoka region) and I have about 15 minutes before I need to head out for dinner. So this is not going to be a long post.

  I did, however, want to share with you a new real estate app that I learned about today called SQFT. (Thanks Evgeny.) They were just featured in TechCrunch and their mission is to make it easier and cheaper for people to buy and sell homes using just their smartphone. They’re calling themselves the first DIY real estate portal in America.

  As a homeowner, you create the listing yourself and then it gets syndicated out to hundreds of other websites (including the big players like MLS, Zillow, and Trulia).

  You’re still technically working with “independently operated licensed real estate agents”, but the app itself handles setting up the showings and even the offer negotiations. Their hope is that they can reduce real estate commissions to < 2%.

  This is a space that I’ve been following closely for a number of years now and seems to be really heating up. Opendoor.com is another online real estate platform that I’ve written about a few times. And in my view, they are the furthest out front.

  My realtor friends don’t like it when I say this, but I think we’re going to see a lot of changes in this space in the near future.

  2015.06.22

• Why I write something every single day, even if it’s garbage

  I was out for brunch last weekend with a few close friends from high school. It’s a “monthly reunion” that happens nowhere close to every month. But the hope is certainly there.

  During brunch the topic of my blog came up. And one of my friends asked me how I got started and how the hell I keep up with one blog post every single day. (I get that second question all the time.)

  I’ve written about this before, but I think it’s worth revisiting.

  Earlier this week venture capitalist Fred Wilson wrote a post on his blog called The Blank Screen. And I really liked how he described the experience of writing a daily blog post:

  Sometimes this process produces great insights for me and possibly others. Sometimes it produces garbage. But I’ve come to realize that the daily post, and its quality or lack thereof, is not really the thing. It is the ritual, the practice, the frequency, the habit, and the discipline that matters most to me. And, I would suspect, the same is true of the readers and commenters who frequent this blog.

  Fred’s blog was a major source of inspiration for me. I saw him doing it. I saw the value he was getting out of it. And I wanted to do it too. So I did, almost 2 years ago. 

  But he also inspired me in another way.

  Venture capital and real estate development share many similarities in my mind, even down to the way that deals are often structured with preferred returns and promotes.

  But the interesting thing about venture capital is that it went from a largely closed and “ivory tower” kind of industry to now one where almost every venture capitalist blogs, tweets, and strives for greater transparency (when possible).

  I thought this was a fascinating shift and it made me think that the exact same thing was bound to happen in real estate development. So I am trying to make that happen. Hopefully this blog is helping.

  2015.06.20

• The world’s top 10 cities for prime property

  This morning I read through a real estate report called Luxury Defined. It’s a look at the global luxury real estate market across “the world’s top 10 cities for prime property” and about 70 regional and resort destinations.

  It’s interesting to look at the trends and see how high-net-worth individuals (HNWIs) are choosing to allocate their funds in residential real estate. Here are some of the charts and diagrams that caught my eye as I was going through it (you may need to zoom your browser in):

  

  If you’d like to download the full report, click here. It’s free, but you’ll need to enter your name and email address.

  2015.06.08

• The missing middle will come, eventually

  Yesterday Lloyd Alter of Treehugger wrote a great rebuttal to my post about homes for families. His argument was that I missed a whole world of building typologies between single family homes and apartments. (Something that architect and urban planner Daniel Parolek calls “The Missing Middle”.)

  Now he’s absolutely right. I didn’t mention it – other than provide an option in the survey for townhomes. And he’s right that it’s a tremendous opportunity for cities looking to increase housing supply and improve affordability.

  But the reason I didn’t mention it in my survey is because, here in Toronto, we’re not very good at that middle scale.

  I previously wrote a post talking about Toronto’s 3 stages of intensification. It went from high-rise to mid-rise, and then to low-rise intensification. And my argument was that we’re still in and figuring out the mid-rise scale. (There are challenges at this scale, but that deserves a separate post.)

  Eventually though, I think we will get to low-rise intensification. And that will cover off many of the building typologies that Lloyd is talking about: duplexes, triplexes, fourplexes, and, my personal favorite, laneway houses.

  This, of course, isn’t the case in every city. Many cities, such as Montreal, have a strong history of neighborhood-scaled apartments. Lloyd points that out in his article. But that’s not the case here in Toronto.

  In fact, Toronto’s Official Plan explicitly designates these low-rise “Neighborhoods” as areas that are stable and should not see much intensification. And it was a great selling point for the Places to Grow Act: intensification here, but not there.

  But I think this will change. Not because I’m a real estate developer and I think it should change, but because our current arrangement is causing a dramatic erosion of affordability at the low-rise/ground-related housing scale.

  If it were up to me, and it most certainly is not, I would start with laneway housing. It’s a great way to intensify low-rise neighbourhoods without altering the character of the streets.

  If you live in a single family neighborhood, I would especially love to hear your thoughts in the comment section below. It will be interesting to see how this all plays out. 

  2015.06.03