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.
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:
@donnelly_b I’m game. The Donnelly-Hassan Institute for the Dark Arts.
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.
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:
Buy development site (Acquisitions)
Design a project (Consultant Coordination)
Make sure project is feasible (Finance)
Obtain approvals for said project (Planning & Approvals)
Sell/lease space (Sales, Leasing & Marketing)
Build project (Construction)
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:
Acquisitions
Development/Project Management
Finance
Sales, Leasing & Marketing
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.
It was built to correct what had become a major slum on the east side of downtown Toronto. And like many cities around the world, this type of built form was viewed as the solution. Urban slums were crowded and dirty. Density was bad. The solution was to spread people out and surround them with green space.
But that didn’t work out so well. Regent Park failed. So today we are once again starting again. Phase by phase, the old is being demolished and the new is being built. However, unlike the last time, I think this time it’ll be for the better.
But there’s something very ironic about this story.
Before Regent Park became Regent Park, it was called something else: Cabbagetown. That neighborhood of course still exists in Toronto – it’s adjacent to Regent Park – but it’s now a bit smaller having given up a portion of its land to the first iteration of Regent Park.
Today, what remains of Cabbagetown has become an affluent and desirable inner city neighborhood with, allegedly, the largest stock of Victorian housing in North America. But of course it wasn’t always that way. At the time that Regent Park was being conceived, Cabbagetown was a slum. And that’s why we built Regent Park version 1.0. It was the solution for this entire section of the city.
The photo at the top of this post is the southeast corner of Gerrard Street East and Parliament Street. The building at the corner is the Hotel Gerrard. The photo is from 1919, which means it’s a photo of Regent Park when it was still called Cabbagetown. It’s part of what we demolished to make way for the new.
In 2013, that same corner looked like this:
What’s ironic about all of this, is that the area we spared from grandiose urban renewal plans actually became the richest part. And where we intervened is where things got screwed up. So much so that we’re now starting entirely from scratch, again. All of this just makes wonder whether Cabbagetown, in its entirety, would have ultimately taken care of itself had we just left it alone.
But what’s in the past is in the past.
So to end on a positive note, I’d like to share a short video that somebody recently shared with me called Spectrum of Hope. It was co-directed by 7 young artists from the neighborhood who are calling it “a piece for Regent Park, by Regent Park.”
I think it’s a great example of the positive momentum developing in this neighborhood. I hope you’ll give it a watch and then share it around. Click here if you can’t see the video above.
Here’s a snippet that summarizes the things he believes we should be doing:
Municipalities across Ontario also have significant tools at their disposal to make a difference. To date, these tools have not been co-ordinated to achieve maximum bang for the buck. Property taxes can and should be waived not only for affordable rental homes but for affordable ownership homes as well. Additionally, cities can and should waive all development levies and other municipal fees for affordable rental and ownership housing.
Combined, these two measures provide municipalities with powerful leverage to implement inclusionary zoning — the most important tool in the affordable housing tool box. Inclusionary zoning on a city-wide basis creates a level playing field, an opportunity for a constructive partnership between municipalities and private sector developers to create both affordable ownership and rental homes within every new building approved for construction.
For those of you who might be unfamiliar with inclusionary zoning, it’s essentially a zoning requirement to build a certain number of affordable units in any new construction project. It originated – as far as I know – in the US, but has been fairly controversial since the outset.
So today I thought we could have a discussion on the merits of inclusionary zoning. Do you think it’s a good or bad thing for cities? Is it really the most effective way to deliver affordable housing at scale? Leave your thoughts in the comment section below 🙂
I don’t have a strong view on inclusionary zoning, but I do believe that affordable housing and a mix of incomes is critical to cities and neighborhoods.
I do, however, wonder if it’s one of those things that seems to make a lot of sense, but actually has a bunch of negative externalities associated with it. Maybe the answer is to just prototype the idea and then iterate on it.
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.
Venture capitalist Chris Dixon recently published an interesting post called, Two eras of the internet: pull and push. In it, he describes two patterns that have emerged within the internet over the past decade and a half.
Pull (2000s):
Pull is when you are seeking information, usually an answer to a question. You want to know the closing time of a restaurant, the description of a hotel where you are thinking about staying, the details of an historical event you heard about, etc. You go to your computer and pull the information. The killer app for pulling information was Google.
Push (2010s):
Push is when you are using the internet in a more passive way and content comes to you. The killer app for push is social networks, the most popular being Facebook. Information is pushed from user to user via likes, shares, tweets, etc. People tend to push things they find funny, interesting, moving, outrageous, etc.
Now let’s think about this for a second, because it’s a pretty significant change.
Google’s mission is to organize the world’s information. And they have certainly made it easier for us to get the information we want. Instead of physically searching for something, you just type in a few keywords and it pops up. But, it still involves us deciding we want something and then pulling the information.
What’s fascinating to me about push is the idea that content and information comes to you. And it’s one of the reasons that I’ve always found Foursquare more interesting than Yelp – even though Yelp is far more popular as a tool to help you find somewhere to eat, drink and so on.
When I walk into a restaurant or bar now, oftentimes I’ll see a Foursquare notification popup on my phone showing me a tip that somebody has left: “Try the meatballs – they’re to die for”. I didn’t search for that. I didn’t ask for a recommendation. But Foursquare knew where I was and presented me with that information.
Now, there are obviously potential downsides to constant interruption, but let’s focus here on the opportunities. How could these same principles to be applied to other industries such as, say, real estate?
I think there’s a pull and push parallel.
Today MLS operates in a way like a search engine for homes. You decide you might be interested in buying a home and so you go online and start pulling listings.
Of course, the vast majority of people also work with a real estate agent. And in a way they’re kind of like your push. They get to know you, they figure out what you’re looking for, and then they push relevant listings and information to you.
And maybe that’s why nobody has killed off real estate agents – despite the numerous attempts. Everybody has been focusing on new pull platforms (listing platforms) as opposed to a new push platform.
Who knows.
But I think it would be naive to think that these emerging push platforms won’t reach far beyond social media.
I’ve made a few changes around here. If you’re reading this post on the actual site (as opposed to via Tumblr, your email subscription, or some other feed) and you’re a regular reader, you might notice that I’ve completely redesigned the look and feel of Architect This City. If you can’t see it and want to take a look, click here.
It’s something that I’ve been meaning to do for awhile now. And it’s because I haven’t been happy with how this blog showed up on mobile devices. It wasn’t responsive. That made ATC less enjoyable to read on your phone and it made it a bit of a pain to leave comments. And since almost 35% of readers are on mobile (and that number is only going to go up), it was time to make a change.
This site now looks more or less the same whether you’re viewing it on your desktop or on your phone. I also made sure to make the font nice and big so it’s an easy read on mobile. I think it’s a big improvement. But I’d love to also get your feedback on the redesign. I hope you like it as well and I hope it leads to more frequent discussions in the comment section 🙂
Yesterday Opendoor.com finally launched their product in Phoenix. If you’re a regular reader of Architect This City, you might remember that back in July of this year I wrote about how they had just raised $10M of funding to make selling your home as easy as a few clicks.
Well, since then, I’ve been following them like a hawk. I had all the founders on Twitter notification (so I got notified every time they tweeted) and I was eagerly anticipating their launch.
Now that they’ve launched, we have a much better idea of how their business model is going to work. I say “better idea” only because there’s still portions of it that are a question mark for me.
In any event, Opendoor basically provides instant liquidity to homeowners. You go on, tell them about your home, and they then make you an offer to buy, which looks like this and lasts for 3 days. The offer they make you is calculated using comparable sales and adjustments based on your home’s unique characteristics.
Upon accepting their offer, they then schedule a home inspection (at their cost) to confirm your home’s condition. Once this is done, you just select your move out date and Opendoor handles the rest. The fee for all this is 5.5%, which the company claims is less than the 6% that realtors typically charge (this would be high for Toronto).
After buying your home, Opendoor plans to turn around and resell it.
What this reminds me of is a “bought deal.” In the world of investment banking, a bought deal is when the bank itself agrees to buy the entire offering of a particular security, as opposed to going out to the market and trying to raise the money. The advantage to the company (offering the securities) is that there’s no financing risk. They know they’re going to get their money. But it usually means the company gets a lower price.
So what I wonder, is if this is what’s going to happen here. Since Opendoor is effectively taking on the selling risk, does that mean their offers will be lower? Or are all their costs built into that 5.5% and that’s truly their core business model? I’m sure some of this will surface in the coming weeks.
I do, however, think they are smart to be focusing on the supply-side of the marketplace and offering virtually perfect liquidity to homeowners. Real estate is a unique asset in that it’s difficult to bring supply to the market. And so if control the supply-side, I think you have a pretty good shot at controlling the market as a whole.
I was rushing to get to a real estate forum dinner last night and so instead of walking — which is normally what I would have done — I decided to grab an UberX. As some of you might be aware, I like UberX. It’s convenient to use. And the fares are cheaper than regular taxis. So why wouldn’t I use it?
But last night I got an extra treat. A guy named Mike picked me up in his Tesla Model S:
According to Mike there are two of these “Easter eggs“ in the UberX Toronto fleet, which I was also told is now up to hundreds of cars. So it’s not everyday that you’ll get picked up in a Tesla.
If you’ve never been in a Tesla, the first thing you’ll likely notice is the absolutely epic screen that sits in the dash. Most people’s laptops don’t have a screen this big. It’s gorgeous.
But there are a bunch of small details that also standout. For example, the door handles sit flush with the door until they’re needed. Here’s a video of how they work:
But the real question that is probably on your mind is: Why is some guy with a Tesla driving around Toronto offering rides via UberX? That was certainly one of the first questions I asked him after I got in the car.
And the answer is that he does it for fun.
He actually owns a medical clinic in Markham, but comes downtown on the evenings and weekends to drive around and meet new people. In fact, he called it the “best networking tool on the planet.” Because as soon as he picks people up in his Tesla, they immediately take him seriously and want to have a conversation. That has translated into business relationships and even invites to parties. As in, he drives a group to a party and they ask him to come in — which he said he often does.
If he really took it seriously and did it full-time, he figures he could make around $40,000 – 50,000 a year driving for UberX. And I believe that’s close to what a regular taxi driver would make. But again, that’s not why he’s doing it. Isn’t it interesting how things change?
A lot of that has to do with how design and technology seem to permeate the culture. But it also has to do with how dichotomous the culture feels to me. On the one hand they’re at the forefront of design and technology, and on the other hand they are very much steeped in tradition. It has always felt like a unique and special place to me.
So today on ATC I thought I would share a piece of Japanese architecture that I found on Dezeen. It’s a 47.55 square meter (512 square foot) apartment in Tokyo that was recently renovated by Yuichi Yoshida & Associates.
Here are three views of the main living area:
Here’s the view from the main entrance:
Here’s the walk-in-closet/storage area (notice how the exposed concrete walls have been dabbed with plaster):
And here’s the floor plan (I’m guessing sub entrance means secondary entrance):
The first thing that struck me was the lack of a traditional bedroom. It’s basically a nook with a bed and sliding doors. But that was obviously done to give more space to the remainder of the apartment and the main living area, which they label as the “reception area.” The idea was that this space could be used for both living and working, and so they wanted a large open space.
The other thing that stood out for me was the amount of storage and shelving throughout the apartment. There’s a bookshelf as you walk in. There are drawers under the bed. There’s a walk-in-closet with floor to ceiling shelving. And if you look closely at the upper track for the sliding bedroom doors, you’ll see a small ledge that was purposefully created for storage and display.
It all seems very Japanese to me.
It’s a small space and yet there’s no absolutely zero clutter. I love how organized everything seems. For many of you, this space may be a bit too sparse (even with that hammock!). But there’s something really nice about the simplicity of it all. It’s peaceful.
