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: toronto

  • Latest artist collaboration: Juanita Lee-Garcia x Slate Asset Management x Junction House

    Today I’m excited to announce the latest artist collaboration at Junction House. (For a background on the others, click here.) Bogota-born, Toronto-based Juanita Lee-Garcia has created a series of hand-cut collage panels for the construction hoarding at Junction House (the background color is the project’s signature electric blue color).

    In this installation, Lee-Garcia uses repetition and image repurposing to investigate the limits and the potential of decor in consumer culture. Her work uses simple gestures such as slicing, inserting, folding, and layering to build these new and abstract forms. They are intended to feel both fresh and unfamiliar, as well as comforting — perhaps because of some of their cultural associations.

    We love these sorts of collaborations because we want every single one of our development projects to be more than just a new building. We want it to be a catalyst for positive city building change. So the next time you’re in the Junction, I would encourage you to stop by 2720 Dundas Street West and take in Juanita’s work. Limited edition prints of the panels are also available on her website.

  • Everything has a cost

    A new report was just published by Urbanation and the Federation of Rental-Housing Providers of Ontario (FRPO) arguing that the Greater Toronto Area is undersupplying rental housing to the tune of about 20,000 units per year. This number considers both purpose-built rental housing and condominiums that are purchased by investors and later rented out. (Shane Dingman also covered the report in this recent Globe and Mail article.)

    These findings probably won’t come as a surprise to a lot of you. It is pretty common for most big/growing cities to operate with a perpetual housing supply deficit. With all of the barriers to development, it’s often impossible to keep pace with demand. This naturally creates upward pressure on pricing. But the other factor that cannot be ignored is development costs. How much does it cost to actually deliver new supply?

    Here’s an excerpt from the report that speaks to this consideration:

    While the results of the infill development potential exercise are encouraging, the economics
    of intensifying these sites may be too difficult for owners to ultimately move them forward in many cases even with a zero land cost, as achievable rents outside of Central Toronto are
    often not high enough to offset development and operating costs.

    It’s also something that we’ve talked about many times before on the blog. Even with free land, there are going to be countless sites and neighborhoods where it does not make economic sense to build anything new: development costs > potential revenues. And so to build, somebody is going to have to pay. Either the costs need to be subsidized or the revenues needs to be topped up somehow. Otherwise, supply = 0.

    If you’re facing a deficit of 20,000 units per year, this seems like something you may want to consider. How might we increase supply? And how might we increase the supply of affordable housing? Many, including some of the folks interviewed in Shane’s Globe and Mail article, believe that inclusionary zoning is one such solution. Force new developments to deliver a certain percentage of affordable units (kind of like forcing restaurants to offer up 5-10% of their tables at a loss).

    But again, I think it’s important to remember that whenever costs exceed revenues, somebody is going to have to pay for that shortfall, otherwise supply = 0. Something has to give, whether that be reduced costs, greater density, or higher rents on the remaining market rate units. I think part of the allure of inclusionary zoning is that it creates the allusion of a free lunch. But here’s the thing: everything has a cost.

  • Some of the cost drivers that impact new developments

    Why do some buildings cost more to build than others? And how is it that some cities, as a whole, seem to build more cost effectively than others? Without getting into the specifics of how different markets work, I thought it would be valuable to outline some of the cost drivers that impact new developments. But keep in mind that this is by no means an exhaustive list. So, please feel free to add whatever I’ve missed to the comment section below.

    • Below-grade parking is hugely expensive. It’s almost always a loss leader. You lose money building it. That’s why parking ratios matter a great deal. If you’re building in the suburbs at 1 to 1 parking vs. 0.2 in the core, you’re simply building more of something that doesn’t make money. There’s also the question of whether you need to build a watertight below-grade, or if you can discharge any groundwater into the municipal infrastructure. Big cost difference.
    • Union vs. non-union construction labor.
    • Building stepbacks add cost and create additional complexity. To build more cost effectively, you really want repetition. But terraces are awesome. I get it.
    • Impact fees, development levies, and other government fees can vary widely across cities. As I’ve mentioned many times before on the blog, these line items can add up to 20-24% of the price of a new condominium here Toronto.
    • Time is expensive. One of the bigger line items in a development pro forma is financing interest charges. The longer things take, the more expensive the housing needs to be.
    • Markets are unique. Quebec, for example, has relatively low electricity rates. For this reason, it’s pretty common for homes in Quebec to use electric heating, which is usually pretty cost effective to install. According to this 2019 study, 68% of Ontario households rely on natural gas heating. In Quebec, the number is only 5%.
    • Depending on what you’re building next to, you may face additional costs. For example, if you’re building right up against a rail line, you may need to construct a “crash wall” in order to safeguard against possible derailments and you’ll probably need to up the STC rating on your windows because of the higher noise levels. These costs will not be insignificant.
    • In theory, land costs are supposed to be the residual claimant in a development pro forma. What that means is that you should back into your land value after calculating your projected revenue and considering all of your other development costs. If your revenue is lower, so too should be your land cost. Land cost as a percentage of total costs will, naturally, vary across different markets.

    Photo by EJ Yao on Unsplash

  • Weekly link roundup — laneway housing to SPACs

    Here’s a weekly round up of links and articles that you may find interesting. The topics cover the sorts of things that we usually talk about on this blog.

    • The latest Mackay Laneway House update is now live on the Globizen Journal. The ground floor steel is complete, with framing currently underway. The post has some background on the challenges faced in order to get to this stage.
    • Brick comparison. Here’s a recent tweet of mine. I’m curious if any of you can tell the difference between these two brick finishes and if you have a clear preference. One of them is stamped concrete and the other is real brick (precast concrete with brick slips).
    • Pools as art. Apparently this is a trend right now, but it’s not necessarily a new one. Pablo Picasso accidentally created one when he “signed” the bottom of one in Spain back in the early 1960s. A pool would be fun right now. [FT paywall]
    • Alley house in King’s Cross by architect David Adjaye is currently on the market for £6.5 million. Lots of black. I love the mint green room with the exposed concrete ceiling. Oh, and there’s a pool.
    • Nightclubs are, not surprisingly, really struggling. Most have been closed since March. Unlike restaurants, you can’t really hack together a solution with outdoor dining, heat lamps and takeout. They’re predicated on people being proximate to each other. [Sorry, another FT paywall]
    • SPACs are so hot right now, particularly in the world of Chamath Palihapitiya and Social Capital. A good follow-up to this week’s earlier post about $IPOB’s merger with real estate startup Opendoor.
    • Monocle has just published a new book about “gentle living.” It’s a guide to “slowing down, enjoying more and being happy.” I’m trying to do more of this, or at least be more mindful about it. It doesn’t always/usually work. Perhaps I need this book.
    • “Decade of the home.” Opinion piece about the current desire for suburban over urban locations. If you’re a regular reader of this blog, you’ll know that I am steadfast in my belief that urban life is going to prove to be incredibly resilient on the other side of this.
    • McKinsey report about the impact that lockdown is having on digital adoption, e-commerce penetration, and the overall customer experience. You’ll need to enter some information in order to download the PDF, but it’s free.

    Photo: Lost House by Adjaye Associates via The Modern House

  • Housing supply in Tokyo

    It has been well documented that Tokyo tends to build a lot of housing. And the argument goes that this has helped to maintain a certain level of housing affordability. The city is constantly building and rebuilding. It also has different views about housing. Now, we could, of course, debate how much of its relative affordability is a direct result of supply but, regardless, there seems to be a lot of it. In 2014, the city of Tokyo saw 142,417 housing starts, according to this recent FT article. This is compared to ~5,000 units across the Bay Area (2015 data), 83,657 units for the state of California, and 137,010 units for all of England.

    If you’re wondering how Toronto is doing, here are the latest numbers:

  • A child of catastrophe

    It used to be the case that cities had a habit of catching fire and burning down. Toronto had the Great Fires of 1849 and 1904. Chicago had the Great Fire of 1871. And the same can be said about many other cities. In fact, you probably weren’t considered a real city until you had some sort of “Great Fire.” But as Derek Thompson points out in this recent Atlantic article about urban comebacks, disasters have a way of forcing positive change:

    The 21st-century city is the child of catastrophe. The comforts and infrastructure we take for granted were born of age-old afflictions: fire, flood, pestilence. Our tall buildings, our subways, our subterranean conduits, our systems for bringing water in and taking it away, our building codes and public-health regulations—all were forged in the aftermath of urban disasters by civic leaders and citizen visionaries.

    As Charles Dickens famously described, British cities in the early years of the Industrial Revolution were grim and pestilential. London, Birmingham, Manchester, Leeds—they didn’t suffer from individual epidemics so much as from overlapping, never-ending waves of disease: influenza, typhoid, typhus, tuberculosis.

    It’s somewhat unfortunate, but oftentimes we need something to break before any action is taken. There’s a bias toward the status quo. Otherwise, it becomes a question of, “what did we do last time? Well that worked just fine. Let’s do it again.” But hopefully all of this makes you at least a little optimistic about the future. Because history has taught us that when faced with adversity, we don’t typically turn our back on our cities. Rather we turn around and make them better.

    Photo by Tomek Baginski on Unsplash

  • The grandeur of Montreal

    I was in Montreal for the long weekend and I decided to take the time off from writing. I don’t do that very often, but it was the right thing to do this past weekend.

    Montreal is one of my favorite cities. I spent quite a bit of time there when I was in my early 20s and I almost ended up at McGill for my undergraduate degree. So I have a soft spot for the place.

    One of my friends once described Montreal to me (and contrasted it against Toronto) by saying that it has grandeur. And I think that is exactly the right word.

    There are so many moments throughout the city where you just feel its impressiveness. It’s almost as if, from the very beginning, the city knew what it was destined to become.

    In contrast to this, urban planner Joe Berridge has, in the past, referred to Toronto as an accidental metropolis. And I think that is a similarly accurate way of describing our city.

    Sometimes in Toronto (or perhaps oftentimes, depending on who you ask), you have to scratch a little beneath the surface to find what makes Toronto a truly great city.

    It’s as if the city didn’t know what it was destined to become, and built accordingly. Things just happened — accidentally.

    Grandeur isn’t usually something that is discussed today in city planning circles. We instead talk about things like angular planes, context and, of course, building height.

    But maybe it’s time we rethink our list of requirements. Maybe it’s time we ask ourselves: “Are we creating a city with grandeur?”

    Image: Drone photo from the top of Mount Royal

  • The Canadian Dream

    This has become a frequently reported topic, but here’s a recent article from Wired talking about tech workers living out the American Dream — in Canada. The story is pretty simple. Immigrants are smart and work hard. Canada has a system in place that privileges newcomers who are young and smart. And this has become a boon for our largest city and for the country. Here are two excerpts from the article:

    But there’s a new global winner: Canada, and particularly Toronto. Since 2013, the tech scene there has grown faster than in any other North American city. In 2017, Toronto added more tech jobs than Seattle, the San Francisco Bay Area, and Washington, DC, combined; in 2018 (the most recent year for which numbers are available), the city was second only to the Bay Area in new tech jobs. Toronto is so crammed with immigrants that nearly 50 percent of all residents were born outside the country.

    Canada’s immigration policy is hardly warm and fuzzy. On the contrary, it’s icily calculating. The government loves educated, elite newcomers, because they help propel the economy, says immigration lawyer Peter Rekai, but it wants them young, so they won’t drain the public health care system. Their parents are much less welcome.

    In the first quarter of this year, international migration accounted for 82.3% of Canada’s population growth. And at the beginning of this year, Ottawa was planning for up to 370,000 new permanent residents. It is highly unlikely that we hit that number given our current health crisis, but I have no doubts in my mind that we will hit it in the very near term. And when we do, it will be a good thing for Toronto.

  • How local is local, really?

    Real estate, as they say, is a local business. Every market has its local nuances. For example, once of the first things that Studio Gang asked us when we started working together was, “does Toronto do PT?” What they were referring to was post-tensioned concrete and our answer was, “not really.” There are certainly examples of localized applications within buildings (such as for a specific transfer slab) and there are examples of buildings that have used it throughout (see Pier 27 Tower below — it’s how they managed to get such deep balconies). But for the most part, it’s not widely used and it’s certainly not as common as it is in markets such as New York. This subtle difference has an impact on how you design, which is why Studio Gang asked it from the outset.

    Despite some of these local differences, there is a criticism out there that we have descended upon a kind of bland global design sensibility. No matter where you’re building, every building now looks the same, which, at the end of the day, was kind of the point of the International Style of architecture. One design approach applied universally. This recent article by Edwin Heathcote takes things even further by saying that our interiors have also been sterilized to look more or less the same as a result of “digital aesthetic seepage.” The article is called, “The curse of the Airbnb aesthetic.”

    One the one hand, there is something inevitable about this outcome. We — including our supply chains — have become more interconnected than ever. And because of the high cost of labor, the way we build today is centered around as much factory automation as possible. Minimize what needs to be done on site. And given that I would expect more, rather than less, automation going forward, one has to assume that this trend is destined to continue. At the same time, local places matter and one of the reasons why so many of us love to travel is that we want to see places that are different than our own. I for one don’t want that to change.

  • The urbanization of families

    Toronto has more people living in apartments than not. Looking at 2016 census data, the City of Toronto has about 1,112,930 occupied private dwellings and the breakdown between apartments (both lower and higher than 5 storeys) and grade-related housing is roughly 60/40. If you look at what’s been built more recently, the split is closer to 80/20. From 1996 to 2014, about 78% of all housing completions in the city were condominiums/apartments.

    So what is obvious to me is that the City of Toronto is becoming more dense, rather than less dense, and that family housing is destined to become more urban. As of 2011, there were 10,145 more families with children living in apartments/condominiums in the city compared to 15 years earlier. By comparison, the number of families with children living in low-rise housing remained more or less flat over this same time period.

    Of course, what this data doesn’t speak to is the number of people and families that may have opted to leave the City of Toronto for the suburbs — driving until they qualify for the kind of housing product that they would like to consume. The number of children living in higher density housing might be increasing within the city, but we probably shouldn’t ignore the pull toward the suburbs that still exists during family formation.

    Cities around the world are working to make their urban environments more suitable to families and young children. Here in Toronto we have something known as the Growing Up Guidelines. But the focus seems to be largely on design considerations — think playrooms and stroller-friendly foyers. That’s crucial, but it’s not everything. There are also very real economic realities to consider.

    The average price of remaining condo inventory in the Greater Toronto Area last quarter was nearly $1,100 psf. That puts a family-sized 1,000 sf suite at $1.1 million — and a lot more if you’re in a central neighborhood. The average would be closer to $1.5 million downtown. Obviously not all families can afford this. So there’s an affordability challenge. It’s one thing for the critics to say that developers should be building larger suites, but the market needs to be there.

    Another consideration is that of financing. Most developers rely on construction financing in order to build their projects. And in order to build a new condominium, there is typically a requirement to pre-sell a certain number of suites (revenue is the actual governor). This is generally a lot easier to do with smaller suites and with investor suites because these buyers tend to be more comfortable waiting out construction.

    Families, on the other hand, usually have a more immediate time horizon. It’s harder to forecast when the need will arise and it may not be financially viable to do that pre-emptively. And so I would argue that in addition to having an affordability challenge, we also have a financing structure in place that biases the type of homes that get built. There are, of course, advantages to this model. Pre-sales are a way for lenders to mitigate risk. It helps to ensure that the market doesn’t get ahead of itself. But there are side effects.

    Despite all this, we are seeing more families with children in higher density housing. Anecdotally, I see it happening in elevators with the number of strollers. This trend is destined to continue, but the winds are not entirely at the back of this shift.