Tag: toronto

• Industrial vs. internet scale

  I was watching this talk with Albert Wenger of Union Square Ventures last night. He was recently in Toronto for a Wattpad board meeting (USV is an investor).

  It’s an interesting discussion that touches on education, healthcare, Canada’s tech ecosystem, as well as a bunch of other things. But one point that Albert made that I particularly like is the comparison between industrial and internet scale.

  In both cases, it’s all about growth and scale. The bigger a firm can get, the better.

  But with industrial production, scale is all about driving down the marginal cost. This is also known as economies of scale. As firms increase in size, efficiencies are found that allow the unit of production to drop in price. This, in turn, creates defensibility, because smaller firms simply can’t compete in the market.

  With internet platforms the situation is different. Sure, there are still economies due to scale, but their competitive advantage is often derived from the fact that, on the margin, every new user increases the value for every other user on the network. This is called a network effect.

  A perfect example of this is Facebook. People use Facebook because all of their friends are there. And as more and more friends join, it becomes increasingly more valuable. Without friends, a social network has little value. This make starting one fairly difficult. However once started, network effects are incredibly difficult to dismantle. This is their defensibility.

  Another network effect example that Albert mentions is search (i.e. Google). This one isn’t so obvious. It may not seem like there are network effects with search, but there are. As a search user, you enter a query and then select from a list of results. In doing so you’re actually helping the search engine figure out what the best and most relevant results are for the keyword(s) you just entered. Again, in the end, everybody benefits.

  I found this interesting because, in the case of internet platforms, scale is directly related to value proposition. The bigger something gets, the more useful it becomes. Now, you could maybe argue that the same is true for industrial production, but it’s a bit more tenuous. The direct link is cost.

  2013.11.12

• Province of Toronto

  Earlier this week I talked about the huge importance of cities and how our governance structures are entirely ill-suited to the realities of our new urban focused economy. It was in relation to a talk that Richard Florida gave at the Rotman School.

  Well this morning, I stumbled upon an old blog post by Alan Broadbent, who is the author of a book called Urban Nation. In it, he echoes a similar belief: Our governance structures, particularly as they relate to cities, are completely outdated. Toronto would be better off as its own, separate province.

  Here’s an excerpt from his blog post:

  “In my book Urban Nation (2008), I wrote that Canada’s cities were the orphans of Confederation, creatures of the provinces locked in constitutional arrangements that are almost a century and a half out of date. Our large urban regions are now the economic, social, and cultural engines of the country. They compete with other large urban regions around the world to create prosperity and well-being.

  In Canada, these regions create the wealth that gets shared with the rest of the country through our redistribution and transfer arrangements. It is in our cities that the capital pools are assembled to take the oil, gas, and minerals out of the ground, where the factories and laboratories are built, and where much of our modern industries of information and design are based.

  But our cities are not in control of their own destiny. Like Blanche Dubois in A Streetcar Named Desire, they are very much reliant on the kindness of strangers. They have few residual powers and limited revenue tools, being overly reliant on property taxes and barred from levying income or sales taxes, the big revenue generators. They are closely controlled by provincial governments and generally ignored by Ottawa. Their role in Confederation is to send money and keep quiet.”

  This is a big deal and a big problem. We’re stymying the full economic, social and cultural potential of our cities. We’re underutilizing our greatest assets. It’s time for a new, urban focused, governance structure.

  2013.11.09

• Urban bifurcation

  In light of Bill de Blasio being elected yesterday as the new mayor of New York City, I thought I would post this interesting graphic I found on Atlantic Cities:

  

  What it shows is a clear split.

  If you live in Manhattan or nearby areas in Brooklyn, Queens and the Bronx, you most likely saw your property values rise from 2008 to 2012. However, if you live on the outskirts of the city, you may have seen your property values fall as much as 20% (the darkest red areas).

  This shift back to city centers has been well documented and labeled, by some, as The Great Inversion. But in many ways it’s a symptom of a greater phenomenon at work: rising income inequality.

  It’s happening in New York. It’s happening in Toronto. And in many other global cities. New York VC Fred Wilson believes that the solution lies in the three Es: education, empowerment and entrepreneurship. That sounds like a great start to me.

  2013.11.06

• Richard Florida on why creativity is the new economy

  Richard Florida recently gave a talk at the Rotman School as part of Toronto’s “Big City, Big Ideas” lecture series. It was called: Why Creativity Is the New Economy. You can watch it here via Rotman. It’s about an hour long.

  If you’re familiar with the work of Richard Florida, you’ll find much of what he talks about familiar. But there is one point that I think is absolutely worth reiterating again, and again: The new economic unit of our time is the city. It used to be nations but, in today’s world, cities trump nations, provinces and states in terms economic importance.

  Florida has long stressed this point in his work and I think he’s absolutely right. The problem, however, is that our governance structures are ill-suited to deal with this shift. There are too many layers of government and our cities do not have nearly enough autonomy. 

  Toronto is also facing a profound leadership deficit at the municipal level, to say the least (See Rob Ford). This cannot continue. Strong municipal leaders are critical to our sustained global economic competitiveness. It’s every global city for themselves and I, for one, want to win.

  To give you an example of the dramatic rise of cities, take a look at this recent TechCrunch article on billion dollar startups. If you take a look at learning number 9, you’ll see an incredible interesting fact: San Francisco—not “the Valley”—is now home to the most billion dollar startups. Startups are eschewing the suburbs for the city.

  I’ve written a lot on this trend, but I still don’t think that our governments have truly woken up to the fact that, in the new economy, our cities are our most important asset.

  2013.11.06

• I just pledged my support to dramatically improve transit in the Toronto region

  I care a lot about transit.

  I fundamentally believe that it needs to be the backbone of any well functioning and thriving metropolis. As the global economy continues to become an increasingly more urban one, we are seeing the rise of cities at a scale the world has never seen before.

  Tokyo is over 37 million people. Jakarta is almost 27 million. Seoul is almost 23 million. And the list goes on. With cities of this size, do we really think it’s reasonable for everybody to be driving around in cars? It ain’t going to work.

  Here’s an image from the Guardian, with the title, “Imagine if Paris had as many new cars as Mumbai”:

  

  Now, by global standards, Toronto is a relatively small city, at just over 6 million people in the region.

  But that doesn’t mean we don’t have challenges. In my view, the single biggest threat facing Toronto’s long term economic competitiveness is our severe infrastructure deficit. It’s impacting productivity levels, social cohesion, the environment, our global brand and many other things.

  Because of this belief, I’ve become interested in the work of CivicAction. It’s a group of non-partisan civic leaders who care about the future of our city. They have 3 areas of focus:

  1. Accelerating regional transportation
  2. Enhancing the region’s economic performance
  3. Fostering inclusion and resilience

  They’ve just launched a pledge that allows Torontonians to make their voice heard to elected officials. I just pledged to support new ways to raise funds for a better transportation network, and I would encourage you to do the same if you care about the future of our city. I know I certainly do.

  At the time of writing this post, 2,821 members of the general public and 126 elected officials had pledged.

  2013.11.02

• Why I like Porter and the island airport

  I’m going to New York City tonight. I’ll be flying Porter from the island airport. And I’ll probably walk there.

  I’m a big fan of Porter and, while I’ve noticed some minor slippage over the last few years, it’s still one of the best flying experiences in the city.

  But the island airport has always been a contentious subject. Stopping a bridge to the island was a fundamental part of our last mayor’s original election campaign.

  Today the contentiousness is around expanding the airport so that it flies further using “jets.” Primarily people appear concerned about noise and that the runway will need to be expanded out and into Lake Ontario to a certain extent.

  As someone who lives along the waterfront, I really don’t share the same concerns.

  For one, the “whisper jets” are supposed to produce the same amount of noise as the current fleet, which don’t bother me in the least. I hear yappy dogs barking more than I hear planes.

  Secondly, I think the island airport is fantastic from an economic development standpoint. If we were in Europe, Toronto would have high speed rail connections to New York City, Montreal, and other cities.

  But it’s not Europe and we don’t have those rail lines. What we do have though is short haul flights from the island which, similarly, allow people to leave the city from downtown.

  This may not seem like a big deal, but an extra hour can mean the difference been making and missing a morning meeting or whether your trip needs to be overnight or not.

  If you’re against the expansion, I’d love to hear your thoughts in the comment section below. Debate is important.

  2013.11.01

• We need a new mayor

  I can’t believe that Ford is still our mayor. In fact, I still can’t believe we elected him in the first place.

  In case you missed it, Toronto’s Police Chief announced today that they are in possession of a video depicting Rob Ford smoking crack cocaine. Outside of Canada, it was reported in the Huffington Post, the Guardian, as well as many other places.

  It’s an embarrassment for Toronto. It’s an embarrassment for Canada. 

  But even after all of this, Ford came forward today and said that he will not resign:

  “I have no reason to resign. I’m going to go back and return my phone calls. I’m going to be out doing what the people elected me to do and that’s save taxpayers’ money and run a great government that we’ve been running.”

  Toronto is a global city. And yet we have this profound leadership deficit. Today our successes are in spite of our governance. I know that there is a lot talent in this city so, please, somebody step forward.

  We need a new mayor.

  2013.11.01

• Paul Reichmann, dead at 83

  This past Friday, Paul Reichmann passed away in Toronto. He was 83. For those in the real estate business, Paul was a legend. He was the developer behind landmark office projects such as First Canadian Place in Toronto, World Financial Center in New York and Canary Wharf in London.

  He was the man behind Olympia & York, which by the late 80s was one of the largest real estate development firms in the world, making the Reichmann family the 7th richest family in the world. Their net worth reached $12.8 billion at its peak. In 1990 they owned 8% of New York’s commercial office space. This was more than twice as much as the Rockefellers.

  But what makes the Reichmann story so fascinating is the beginning and end of it.

  Paul was born in Vienna, but his family fled the Nazis and came to Toronto like many others at the time. He and his brothers setup a tiling company called Olympia Tile and its this business that eventually led them into real estate. 

  Paul became known for taking on huge risks. He believed firmly in the principles of risk and reward.

  I remember when I was at Penn hearing stories about Olympia & York from the Dean at the time, Gary Hack (a Canadian). He used to tell us about the phenomenal amounts of leverage that O&Y used to take on in order to scale.

  But ultimately it was this leverage that brought them down. In 1992, Olympia & York went bankrupt and the family was left with a net worth of less than $100 million. Still a great sum of money, but nowhere near the $12.8 billion they once had. The New York Times called it “one of the most astonishing financial collapses in history.”

  But in many ways, this is not an uncommon developer story. Real estate development is risky. And Paul did eventually rebuild. Not to where he was before, but he did come back. He became Chairman of Canary Wharf in London and went on to develop the tallest tower in Latin America.

  Last week Toronto lost one of its most prolific real estate minds. Paul was also largely part of an era that no longer exists. The real estate business in the 80s wasn’t as institutionalized as it is today. It was filled with larger than life individuals, such as Paul, taking on huge personal risks. It must have been an exciting time to be in real estate.

  Thanks for everything you’ve done for Toronto, Paul.

  2013.10.27

• Who is worried about Canada’s housing market?

  Atlantic Cities just posted an article on the world’s 5 largest housing bubbles. In descending order of real growth, they are:

  1. Israel
  2. Norway
  3. Switzerland
  4. Canada
  5. Germany

  Not surprisingly, Canada is on the list. There is, of course, lots of talk both locally and abroad about the stability and sustainability of our housing market. Here’s what the article had to say about Canada:

  “With real home price appreciation near 20 percent, Canada’s home price growth has been raising eyebrows. Bank of Canada governor Stephen Poloz doesn’t see a bubble, but others aren’t so sure. Climbing alongside housing prices have been levels of household debt, which surmounted 165 percent of income in the second quarter of 2013. (That’s not too far from where they were in the U.S. before it suffered its housing crisis.) And the Bank of Canada itself has even warned about risks posed by frothy condo sectors in big cities like Toronto. A few hedge funds, such as San Francisco-based Hyphen Partners, have even made high-profile bets on a Canadian housing bust. They haven’t paid off, yet.”

  And here’s the full list of countries:

  

  Overall, it’s not surprising to see that Canadian home prices have risen so dramatically since Q1-2009. As the US sank into deep recession (2008-2009), Canadian credit became cheap in order to stave off a recession of our own. This fuelled the housing market, which is an asset class that’s inextricably linked to financing costs.

  The same thing happened in Ireland, which today sits at the bottom of the above list. It has seen real prices drop roughly 40% since Q1-2009. By adopting the euro currency, Ireland no longer had control over its own monetary policy (this is one of the downfalls of a centralized currency). So when the economies of the larger continental countries stuttered, interest rates were dropped. For the strong Irish economy, it ended up creating a housing bubble.

  I worked in Ireland in the summer of 2007 and I remember people telling me about this. Already at this point there was concern that the market had become overheated. There are obvious parallels to what has happened in Canada, even though we don’t share a common currency. The Canadian and US economies are inextricably linked.

  So will the same thing that happened to Ireland happen here in Canada? Nobody knows for sure, but I think we can take comfort in the actions taken by the feds to tighten up lending. They’re acutely aware of what easy credit has done to the housing market and they’re trying to temper it. And it’s certainly had an impact.

  Early this week when I was on the panel about investing in condominiums, I asked a lot of the realtors about what they were seeing in the residential marketplace. A great number of them told me that their clients were struggling to obtain financing. A lot of deals were falling through because of it.

  If you’re worried about our housing market, this should be taken as great news. Choke off credit and you choke off real estate.

  2013.10.26

• What the St. Lawrence Market neighbourhood looked like the 70s

  This week was the first public meeting for the revitalization of Berczy Park in the St. Lawrence Market neighbourhood of Toronto. I wasn’t able to attend the meeting but, as a resident of the area, I am interested in the project and will be following.

  In browsing through the project’s site, I came across an incredibly depressing photo of the St. Lawrence area from the 1970s. Here it is:

  

  The empty greenish plot of land in the foreground is where Berczy Park sits today. The building at its point is the Flatiron Building, which is easily one of the most photographed buildings in the city.

  What’s obviously remarkable about this image is just the sheer number of surface parking lots. There is no neighbourhood, really.

  But even more depressing is the fact that all of this was seemingly deliberate. We tore down buildings to make way for all those parking areas. And that’s always upsetting. Here’s a photo of the same area in the 1920s (the Flatiron Building is at the bottom right):

  

  It just goes to show how planning ideologies change.

  But to our credit, look how far we’ve come since the 1970s. Today, the St. Lawrence Market neighbourhood is one of the most vibrant downtown neighbourhoods. It’s become a model for mixed-income urban renewal – both here and abroad – and it continues to see strong investment.

  So while we screwed it up before, we are making amends.

  2013.10.25