Brandon Donnelly

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.

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Tag: real estate

  • Panel: Investing in Condominiums

    I sat on a panel tonight for a discussion on investing in condominiums. It was organized by the Six Degrees Real Estate Mixer group.

    My overall position was that we’re now returning to a more balanced market. The days of massive appreciation and overnight riches are gone. But that doesn’t mean we’re going to see anywhere near the correction that the US housing market saw in 2008.

    What I do think it means is that everyone – from developers to small investors – needs to remain focused on fundamentals. Buy quality assets in great locations and make sure the rental income is there. Cash is king. That’s fundamentally what the real estate business is about.

    Overall, the data shows that developers are pulling back with respect to releasing new product to the market and that price appreciation has slowed, almost trading sideways. All of this is good for the market if you’re worried about a catastrophic crash.

    I think the experience in the US has made us all paranoid about our own housing market. But it could end up saving us from repeating their mistakes.

  • Yale economist Robert Shiller awarded Nobel Prize in Economics

    Yale economist Robert Shiller – who is famous for his work on speculative bubbles and housing markets – was just awarded a Nobel Prize in Economics.

    By way of his Case-Shiller Home Price Indices, he has argued that from 1890 to 2012 home price appreciation in the US (in real terms) has been basically zero. It has been flat:

    image

    As a result, he’s been very critical of the notion that homes should even be thought of as an investment. In this interview, he says the following:

    “So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back. Not with the same force. So people might just decide, “Yeah, I’ll diversify my portfolio. I’ll live in a rental.” That is a very sensible thing for many people to do.”

    He also gives the example of Japan, which saw a massive run up in real estate prices and homeownership rates in the late 80s, only to then see them fall and stagnate for the next 20 years.

    In the US, homeownership rates have gone from about 69% at the peak (2006) to roughly 65% as of 2013. The long term average is probably somewhere in between these two numbers.

    But homeownership is a fundamental and heavily subsidized part of the American dream. Could America ever be a nation of renters?

  • Tech is now the second largest job sector in New York City

    According to a recent report called Building a Digital City, which I found via Fred Wilson’s blog, tech is now the second largest job sector in New York City behind financial services (which includes real estate). There are an estimated 262,000 tech workers in the city earning wages in excess of $30 billion.

    This is a really interesting stat that speaks to the diversity of New York’s economy and the ability for it to continually reinvent itself. But what I found particularly interesting, was the following comment by Fred Wilson:

    “And the reason tech is growing so fast in NYC is that it is embedding itself in all of these other industries. It’s not entirely clear to me whether Gilt is a tech company or a fashion/retail company, it is not clear to me whether ZocDoc is a tech company or a health care company, it is not clear to me whether Codecademy is a tech company or an education company.”

    This is very much the way I think about so called tech companies today. I recently had a Rotman colleague say to me that he felt the startup world was becoming saturated. Everyone is now seemingly working on some new app.

    But I like to think of it slightly differently. As Fred’s comment above suggests, a lot of startups today aren’t purely tech companies. They’re just out to solve a problem and it just so happens that technology and the internet are creating all sorts of opportunities for new solutions.

    I also read a blog called Platform Connected and the author put it like this:

    “In the future, every company will be a tech company. We already see this change around us as companies move to restructure their business models in a way that uses data to create value. We are moving from linear to networked business models, from dumb pipes to intelligent platforms. All businesses will need to move to this new model at some point, or risk being disrupted by platforms that do.”

    So there you have it. Software really is eating the world.

  • Data centers and the arctic circle

    I don’t think a lot of people consider the spatial implications of the online world. By this, I’m specifically referring to the massive data centers required to power the internet.

    Earlier this year Facebook opened its first European data center in Sweden, less than 70 miles from the arctic circle. It’s 900,000 square feet. That’s about equivalent to a 102 storey condo tower.

    Behind the virtual worlds we live in – Facebook, Twitter, Tumblr and others – lies nondescript buildings with repeating rows of machines inside them. They’re the complete antithesis of the vibrant lives we pretend to have on the consumer web, but they’re making it all possible. It feels just like the Matrix.

    And there are some interesting shifts taking place in the data center space. Facebook – through its Open Compute Project – now designs its own centers and makes the work available to others, for free. It’s an “open hardware” play that could threaten incumbents in the space such as Dell and Cisco.

    Facebook’s goal is “to build one of the most efficient computing infrastructures at the lowest possible cost.” Their Swedish outpost represents their first self-designed center. And it’s proven to be a highly efficient one.

    While the average data center might use 3 watts to produce 1 watt of computing tower, Facebook’s Swedish center was able to get that ratio down to 1.04 : 1, largely because the colder climate allowed for a dramatic reduction in cooling loads. It makes a ton of a sense.

    I’ve actually thought about this before. Why aren’t more data centers – which have massive cooling requirements – built in colder climates? I just so happen to know of a country with lots of prime arctic circle real estate.

  • DUKE

    As many of you know, I recently made the move to a new real estate development firm here in the city called TAS. Well, actually, it was a return for me. I interned here one summer while I was in grad school at Penn. I was always a big fan of the company’s philosophy around city building and so it felt then, as it does now, as a really good fit for me.

    As a returning member of the TAS team, I’m excited to announce the launch of our latest condo project called DUKE. It’s located in the Junction (near Dundas & Keele), which is arguably one of the hottest up-and-coming neighbourhoods in Toronto. And, it’s a stone’s throw away from Playa Cabana Cantina, which just so happens to be my favourite Mexican place in the city (although sometimes I think it could be Grand Electric).

    In all seriousness though, and with as much bias aside as possible, I think it’s a fantastic project. I obviously wasn’t around for its formative years, but I’m thrilled to be a part of it now. If you’ve read any of my blog posts over at Dirt (thedirt.co), you’ll know that I’m a huge supporter of more midrise development in Toronto. It’s a European scale of buildings that I think we’re largely missing in our fantastic city.

    So if you’re in the Junction area, I would encourage you to pop into our sales office and say hello to the team. We’re located at 2800 Dundas Street West. The tile as you walk in is awesome (I can say this because I didn’t choose it) and I think you’ll find that the design of the place is very much of the Junction. Much of the materials, fixtures and labour that went into the sales office were sourced locally from the hood.

    If you do go check it out, let me know what you think by commenting below, tweeting me, or tweeting @tasdesignbuild.

  • I don’t get Las Vegas real estate

    If you had to pick an epicentre for the housing bust of 2008, I’d say that Las Vegas would be a pretty safe bet.

    Las Vegas home prices doubled between 2002 and 2006 (the peak), and then fell 62% through to 2012! According to RealtyTrac, Las Vegas saw the highest rate of foreclosure (in 2009) compared to any other major city in the US. 1 out of every 13 properties was in foreclosure. That’s pretty incredible.

    Now, hindsight is always 20/20, but from the beginning I had a hard time understanding Las Vegas from a real estate standpoint. You have a city that’s running out of water and who’s major economic drivers are tourism, gambling and conventions. Not only are these industries highly cyclical, but they don’t create a lot of high paying local jobs.

    So for home prices to double in the span of 4 years, it must mean that there’s a lot of investor activity in the market. But how much is a lot? As one example, the 678 unit Meridian Private Residences, which was a condo conversion done by American Invsco, apparently only sold 14 units to end users. The remaining 98% of the units were bought by investors.

    Those are pretty scary numbers – both for investors and end users. And while times today are certainly nowhere near as frothy, I still don’t get Las Vegas real estate.

  • You can go wrong with real estate

    One of the things I often hear people say to me is that “you can never go wrong with real estate.” And indeed, if you’re talking about Toronto real estate over the past decade, then yes, it was fairly difficult to go wrong.

    But that’s not a universal truth – either here or elsewhere. Real estate is very much an imperfect market and it has always been prone to protracted market cycles.

    Furthermore, if you’re in the wrong city or part of town, there could be absolutely no market for your property. Take this example from Business Week:

    Helene Pearson’s belief in homeownership was shattered in Roseland, the mostly black Chicago neighborhood where President Obama got his start as a community organizer. Pearson, who bought her two-bedroom, red-brick bungalow on South Calumet Avenue for $160,000 in 2006 with a high-interest loan, put it on the market a year ago for $55,000—and didn’t attract a single offer. Her bank has agreed to take it back in exchange for canceling her remaining mortgage debt. “I was so excited to buy my first house right down the street from my mother, but they got me good,” says Pearson, a 35-year-old guidance counselor and mother of two girls. “This scarred me so badly that I never want to buy again.”

    Here you have a case where the value of the property (whatever it may be – clearly it’s not even $55,000) is below the replacement cost. That is, the value is well below what it would cost to actually go out and build a similar property. When you have a scenario like this, it intuitively translates into very little new investment.

    And this is the case in many places, which is why when I hear somebody say “that you can never go wrong with real estate”, I secretly cringe inside.

  • Real Estate: The Most Imperfect Asset — HBS Working Knowledge

    Real estate is the largest asset class in the world—and also the most imperfect, says Harvard Business School professor Arthur Segel . He discusses trends toward institutionalization, environmentalism, and globalization.

    Real Estate: The Most Imperfect Asset — HBS Working Knowledge

  • Zillow Prices Follow-On Offering At $82 Per Share To Raise $205M | TechCrunch

    TechCrunch is a leading technology media property, dedicated to obsessively profiling startups, reviewing new Internet products, and breaking tech news.

    Zillow Prices Follow-On Offering At $82 Per Share To Raise $205M | TechCrunch

  • What’s a “market?”

    According to Fred Wilson, a pure market requires:

    • Massive liquidity
    • True price transparency
    • Open exchanges where anyone can trade

    When you have these in place, people feel comfortable trading, a lot.

    By this definition, real estate isn’t a true market.