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.
One of the debates that is happening in cities all around the world right now is about whether or not it makes sense to redistribute public space in order to help with current social distancing measures. We are all being told to stay at home as much as possible, but as we venture out for food and/or sanity walks, many have started noticing that a lot of our sidewalks are in fact too small if you’re trying to stay 2m away from other humans. So with vehicular traffic way down, the question becomes: Should we start borrowing some of that space for pedestrians?
Here in Toronto the official position is no. Closing down streets and lanes to car traffic is usually referred to as creating an “open street.” And the intent of these open streets is typically to bring people together for public life, which, of course, is the exact opposite of what we’re trying to do right now. What this implies, however, is that there’s a belief that additional space for pedestrians would induce demand, similar to what is believed to happen when you add additional lanes on a highway.
Lewis Mumford probably had it best when he allegedly said, “Adding highway lanes to deal with traffic congestion is like loosening your belt to cure obesity.” So on the one hand, if you believe that more lanes doesn’t solve traffic congestion, you might also be inclined to believe that more and bigger sidewalks isn’t going to dampen the anxiety we currently feel when other humans get anywhere near us. The additional space would simply get filled with more bodies.
But maybe you could argue that this is a little bit of a different situation. We’re in a global pandemic for God’s sake and most of us have the better sense to stay home unless it’s absolutely necessary. Perhaps in this case, demand would not increase and the greater supply would simply better serve the demand that is already there. Perhaps. I don’t have a strong stance on this, but I’m fairly certain that technology could help with this decision.
Most of us are using the internet and our phones a lot more these days. According to Cloudflare — who recently published these stats on how the pandemic has impacted internet usage — traffic is up about 36% in Toronto between early January and late March 2020. Here is a heatmap of the city:
Similar maps are available for other major cities across the world. The red areas are places where internet traffic has declined and the green areas are where internet traffic has increased. Looking at Toronto, you can see that usage in the financial core of the city has, not surprisingly, declined. This makes sense. Most people are now at home using the internet there.
It would be interesting to see some sort of split between residential and commercial usage, because my mind is associating these red areas with businesses. And when you do that, some cities, like Toronto and New York, appear very monocentric; whereas others, like Berlin, appear far more polycentric.
The other thing Cloudfare looked at was internet activity by category (as of March 2020). What is also not surprising is that kids content is way up, and leads by a wide margin. For you real estate folks, you should also note that apartment searches seem to be down and are not far off from air travel. Now would be a suboptimal time to move.
Much of this probably won’t surprise you, but it is revealing nonetheless.
Yesterday I made a comment on Twitter about most people not understanding to what extent government bureaucracy inhibits the delivery of new housing in this city. It received a number of responses, including remarks about how development charges have also recently doubled and how this statement applies to pretty much every city out there. But there was also a comment about developers not being transparent and not properly explaining the impact to the public. In other words: please demystify the development pro forma. I thought that was a fair remark, and so this post is going to be a response to that comment.
Before I begin, it’s important to keep in mind that most developers have investors. These investors put up most of the money required for a project and in turn they take most of the profits. However, there is typically a “promote” in place, which is just an incentive structure that pays the developer more of the profits (disproportionate to the cash they invested in the project) if they perform and hit certain return benchmarks. All of this is to say that developers aren’t usually the ones holding all of the cash (which is what a lot of the public seems to think) and they are accountable to their investors to do what they said they would do.
Now let’s run through the costs that make up a “typical” development pro forma. For this example, I am going to assume that we’re talking about a 100,000 square foot mid-rise building; the kind that you might build and find along any one of Toronto’s Avenues. If we were doing this in real life, we would get more precise with the areas and consider gross construction area, gross floor area (city definition), and the net saleable/rentable areas. But to keep the math simple, we will ignore these differences. That’s the approach I’m going to take overall in the post. What you need to know, though, is that you have to pay to build the entire building, but you only get to collect revenue on a portion of it. That’s why the “efficiency” of a building matters.
Land
The value of development land is a function of what you can build and the revenue you can ultimately collect. So location matters a great deal. Based on the latest high-density land report from Bullpen and Batory, the average price of an unzoned mid-rise site in the City of Toronto is about $231 psf. So let’s assume a land cost for our project of $23.1 million. Assuming we can get land financing at 60% of the value of the land (loan-to-value), that would mean we’re putting up $9.24 million of cash (plus a loan guarantee!) and borrowing $13.86 million to start our project. At 5.25% per annum (interest-only loan), our annual interest charges would be about $727,650. From now on forward, we’re going to pay ~$60k in additional interest charges for every month that our project is delayed. Buckle up.
You should now begin to see why time is so valuable and why government bureaucracy can be so frustrating. As a developer, you’re heavily incentivized to move things forward, whereas it can often feel like everyone around you is trying to deliberately erect roadblocks in order to slow you down and make your project more expensive to build. Oftentimes, it is because it is less risky for them to punt things down the road and not make a decision. That is not the case for us and our project.
Hard Costs
Onto construction (or hard) costs. As many of you know, these have risen dramatically over the last 4 to 5 years. On some of our projects, we have added over $100 psf in hard costs alone. Part of this has to do with a busy construction market and part of this has to do with new building requirements: watertight undergrounds, new Green Standards, and so on. For our project, which is on the small side, let’s assume $360 psf for a total of $36 million. This would include our direct construction costs and our construction manager’s overhead (general conditions). We should also prepare for some of the trades to decline to bid on our project because it is too small and not worth their time.
Soft Costs
Soft costs include everything from consultant costs and interest charges to government levies and management fees. Like everything in your pro forma, these absolutely need to be broken out line by line. Don’t be lazy here. But for the purposes of this simplistic example, we’re going to use 75% of hard costs, which works out to be $27 million (or $270 psf). When I first started out in the development business, the rule of thumb was closer to 25% of hard costs. But times have changed. Government fees, alone, can make up about 1/4 of the price of a new condo in Toronto.
Adding up all of these costs, we’re at $861 psf or $86.1 million in costs. It’s now time to consider the revenue side. $1,000 psf seems like a nice round number, so let’s start there and assume we’re going to sell our condos for that. Typically in Toronto, the price you pay is inclusive of HST, so that liability will need to be deducted from our revenue line. It’s not a straight 13% because of the new home rebate, but the rebate also hasn’t been properly indexed since it was introduced and so the liability could still be upwards of 10%. (This is worthy of a separate blog post.) The result is $900 psf in revenue and a margin on costs that is less than 5%. No sensible developer would want to do this project. One misstep (or development charge increase) and you’re dead.
So let’s increase our condo prices to $1,100 psf. Maybe that will work. In doing that, we get to a margin on costs that is nearly 15%. Okay, now we’re in the range. But let’s say we just got delayed by 6 months (boom, interest charges) and our hard costs turned out to be off by $15. They’re actually working out to be $375 psf because of some new tariff and because the formworkers in the city are all tied up on bigger projects and couldn’t give a shit about our cute little infill project. Now we’re offside again in terms of our margin on costs. No problem, let’s try and push condo prices a bit more. Is $1,150 achievable? Perhaps. But ideally, given the above, we would want to be at $1,200 psf just to be safe.
This is an overly simplistic example of the math that goes into a development pro forma. But hopefully it begins to show you (1) just how many moving parts there are in a development project and (2) the kind of pricing that is required in today’s cost environment. Developers are reacting to the costs that they are being thrown and it is creating upward pressure on home prices. (See related post: Cost-plus pricing.) So far there has been enough elasticity in the market to absorb these price increases, but that may not always be the case. If you have questions about this post or disagree with any of my assumptions, feel free to leave a searing comment below.
In the fall of 2016, Lucas Manuel (Partner at Slate) and I traveled to Chicago in order to meet with Jeanne Gang and the rest of the studio. Our objective was simple: We were looking to find an architecture firm that we could partner with and do something very special with at Yonge + St. Clair. We wanted to start from first principles and rethink what a tall building could be in Toronto.
During our meeting and studio tour, Jeanne and her team asked a number of poignant questions about our vision for the area, our goals for the project, and our commitment to sustainable design. So much so that when Lucas and I left the meeting we both looked at each other and said: “That wasn’t us interviewing them. That was them interviewing us.”
It was obvious that they were committed to high quality architecture, environmental sustainability, and overall community building. And it was equally obvious that if we, Slate, weren’t committed to the same, then we weren’t the client and partner for them.
It has turned out to be a great partnership. Over the last three plus years, the team has remained committed to living up to the promises we made to each other in that first meeting in Chicago. And on many occasions, that has meant taking the more difficult path and fighting for what we believe is great design and great city building.
Since 2016, we have held and/or participated in multiple community visioning sessions with Councillor Josh Matlow and key stakeholders from the community. Two pre-application meetings with City Planning. Two big and public community meetings. A design charrette for the Yonge + St. Clair area. And five meetings with a local “community working group” that was formed following the bigger community meetings. Our application was also before the City of Toronto’s Design Review Panel (DRP) at the end of 2018, where it was unanimously supported (though with some constructive feedback).
It has been a long road working to create Studio Gang’s first project in Canada. One that I like to think started in a jazz bar in downtown Chicago (it actually started much earlier). And so I am thrilled to announce that City Planning, City of Toronto, are now recommending approval of One Delisle! Their report is public and the project will be considered by Toronto and East York Community Council this Thursday, March 12, 2020.
If you would like to speak at or submit a comment to Community Council — ideally in support of the project — please email the City Clerk at teycc@toronto.ca. Myself and the team hope to see many of you at City Hall this Thursday morning at 10:00AM.
For those of you who aren’t familiar with the project, here is a summary from City Planning:
This application proposes to amend the Official Plan and Zoning By-law to permit a 44-storey (143 metres plus a 7-metre mechanical penthouse) mixed use building with 293 dwelling units and 159 parking spaces within a 4-level below ground garage at 1-11 Delisle Avenue and 1496-1510 Yonge Street. A 2,506 square metre public park will be secured off-site on the rear portions of 30 and 40 St. Clair Avenue West. The Official Plan Amendment also redesignates a portion of the subject site from Apartment Neighbourhoods to Mixed Use Areas.
The proposed development is consistent with the Provincial Policy Statement (2014), conforms with the Growth Plan for the Greater Golden Horseshoe (2019), conforms with the applicable policies of the Official Plan and the Yonge-St. Clair Secondary Plan, and is consistent with the Yonge-St. Clair Planning Framework and Tall Building Guidelines. The proposal also meets a number of significant public realm and built form objectives, some of which are outlined in the Yonge-St. Clair Planning Framework, including: securing a 2,506 square metre public park in close proximity to the Yonge-St. Clair intersection; wider sidewalks along both Yonge Street and Delisle Avenue; enhanced street landscaping; restoration and relocation of an existing Art Deco façade; a pedestrian scale base building in keeping with the main street character of Yonge Street; a north/south midblock connection between St. Clair Avenue West and Delisle Avenue; high quality architecture; and consolidated access and servicing for the block.
This report reviews and recommends approval of the application to amend the Official Plan and Zoning By-law.
Images: Design by Studio Gang. Renderings by Norm Li.
Despite COVID-19, I am still going to work and going to the gym. (Zoom and Peleton are up 23% and 6%, respectively, from February 21 to March 5, presumably because there’s a belief we’re all going to start doing less of these two things.)
On my walk home from the gym today I noticed that some new wayfinding had just been installed at the corner of Church and Wellington. I’m not sure how long it has been up, but I am fairly certain it is new. Here is a photo.
The wayfinding is part of the City of Toronto’s TO360 project, which was launched in 2011 and includes everything from transit shelter maps to finger posts like the one you see here. (Don’t worry, I am confident that detailed shadow studies were conducted before this thing was erected.)
The “Astral” street furniture that we still have kicking around this city can’t be removed fast enough and so wayfinding like this is a significant improvement. I like the designs.
But I also think the project is important from a placemaking standpoint. Signage like this helps to brand the city and the places with in it. It also signals a certain degree of internationalism, because wayfinding is most useful for visitors.
The New Yorker recently published a “daily shout” on Instagram called, How You Know You’ve Made It, by City. It is essentially a series on city stereotypes, and it’s pretty funny. Sorry Cleveland. If you can’t see the embed below, click here.
There’s a lot of data/speculation out there about the impact of ride-hailing apps. Many dense urban centers are claiming that they have increased traffic (slowed average speeds) and pulled people away from public transit. The University of Toronto published this study last year. And the WSJ recently published this chart for Chicago:
To be honest, I’m not sure how much of the above is a result of ride-hailing apps, overall urban growth, e-commerce deliveries, public transit disinvestment, or other factors. But what is clear is that ride-hailing is pretty convenient and most (if not all) cities are seeing massive growth in this space.
But all of this feels to me like a bit of a red herring. People will obviously choose what is most convenient and relatively affordable. And congestion was a problem well before people started using these apps (demand > road supply). The only solution I have seen work is to price congestion/roads.
If you end up taking the time to read the articles, you’ll be reminded of a couple of things about the way cities work. One, the way we use buildings changes over time. Two, the kind of architecture we pursue is always a reflection of the socioeconomic milieu at that particular moment in time. And three, the way we perceive buildings also changes over time.
In the case of Amsterdam’s canal houses, their original function was live/work. They were residences, but they were also warehouses. Amsterdam’s maritime dominance meant that it was more profitable to store things, instead of just house people. (Sometimes as much as half of the house was dedicated to storage.) Trade patterns had moved from the Mediterranean up to the North Atlantic, and that worked out pretty well for the Dutch in the 17th century.
In the case of Berlin, their typical mid-rise “rental barracks” went from reviled to coveted as the buildings aged, elevators made the penthouses desirable, and people started to appreciate some of their idiosyncrasies. It’s an example of what I was getting at when I spoke to the CBC for this article about Toronto’s skyscraper boom. Some things, including buildings, take time. They need to settle in.
Few things go as well together as tacos and snowstorms. And so that’s exactly what I did for lunch today given the awesome — I love snow — storm that we’re having in Toronto this weekend. The garnish you’re seeing below is grilled cactus. Dave, the owner of Playa Cabana Taqueria, grows it on location and uses it for special dishes like this one here. If you haven’t been, I would highly recommend it. They’re located at 21 St. Clair Avenue East.
In addition to tacos, I also spent the morning with Gabriel Fain Architects working on our upcoming laneway suite collaboration. Some of you may remember that our previous laneway project was refused at the Committee of Adjustment back in 2017. Well now that laneway suites are permissible as-of-right, it’s time to get going. We are not planning to seek any variances from what is currently allowed.
But if you’re thinking about building your own laneway suite, there are still a number of issues that you might run into depending on your property. Servicing, proximity to a fire hydrant, access, and trees are maybe some of the most common. I know that the city is working to resolve / streamline some of these complications, as the objective is truly to build laneway suites across the city.
As Gabriel and I work through our project this year, my plan is to write about it here on the blog. And hopefully when the project is complete, the posts will serve as a kind of guide for homeowners. These suites are really setup to be built by individual homeowners, as opposed to by developers. If you don’t already email subscribe to this blog and are interested in learning more, sign up here.
In the meantime, if you have any questions about laneway suites, there are a number of experts in the city, including Gabriel Fain Architects and the folks over at Lanescape.
Feargus O’Sullivan is doing a series in CityLab right now on the “home designs” that define four European cities: London, Berlin, Amsterdam, and Paris. The first one is on London’s classic “two-up, two-down” design, which refers to a two storey home with a living room and kitchen on the ground floor and two bedrooms on the second. It’s a simple design, but one that has supposedly endured.
O’Sullivan argues that for many, or perhaps most in Britain, this is what a “home” feels like. It’s grade-related and there are two floors. Indeed, only 14% of British people live in an apartment, compared to 57% in Germany (a majority). This percentage is much higher in London, with about 43% of people living in an apartment. But about 25% of the population still lives in some sort of attached house.
Home equals house. And for us North Americans, this is of course relatable. But the Germany example is a reminder that this is not necessarily universal. Attitudes toward housing are cultural. And cultures can and do change. I am seeing that happen right now in Toronto. Some of us are becoming less like the British and more like the Germans.
