Tag: risk tolerence

• Some tweets about construction costs

  Today was the 2019 Land & Development Conference here in Toronto. I was on a panel in the morning about Proptech. I then sat in on a discussion about construction costs. But after that I had to get back to the office to prepare for a couple of meetings.

  Here are my tweet takeaways (from the back of the room) during the construction cost session. You may need to click through to see the full thread.

  https://twitter.com/donnelly_b/status/1133758132767907840

  The construction cost escalations that we have seen over the last 2-3 years have had a significant impact on new construction in this region. Niall Finnegan’s view is that we are 85% of the way through this “storm.”

  From his experience, it takes 18 months or so for hard costs to respond to changes in demand. And so the storm we are currently in is a result of elevated condo sales from 2017-2018.

  The general consensus from the panel was that costs should start to moderate sometime soon, though maybe not this year. Nobody really knows when that will happen. But if/when hard costs do adjust, it typically happens quickly.

  One comment that didn’t make it into my tweets, but that I found interesting, was about how uncertainty and volatility in the market — like what we are seeing today with construction costs — could actually stifle innovation.

  Because it creates additional project risks, it limits people’s appetite for other kinds of risks — like trying new things. I can see that.

  2019.05.29

• Risk-oblivious, risk-aware and risk-adverse

  

  Yesterday when I was researching for this post on Lean Urbanism, I came across a really interesting way of describing and classifying the groups typically involved in the emergence of a new neighborhood.

  It came from New Urbanist Andres Duany, who explained the process, here, using 3 groups of people: those that are risk-oblivious; those that are risk-aware; and those that are risk-adverse. 

  Risk-oblivious are people like the artist, who go into a crappy neighborhood and magically make it hip. They’re the ones that give the neighborhood its character. They’re the first catalyst.

  Risk-aware are people like real estate developers. They know risks exist, but they believe they can manage it, as well as profit from taking it on. They take the neighborhood to the next level.

  And finally, risk-adverse are the boring people who only come to a neighborhood once it’s absolutely clear that it’s a safe investment. Duany typecasts this group as the “dentist from New Jersey.” There’s much less value creation at this stage.

  Most of you have probably heard of this cycle of urban renewal, but I thought it was really interesting to frame it in terms of risk tolerance.

  2014.03.06