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.

Tag: urban capital

  • Development charges are an insidious problem

    Here is a recent chart from Mike Moffat showing how much development charges have increased in the City of Toronto from 2009 to today:

    We’ve, of course, seen this before. Back in 2020, I shared an article that developer Urban Capital published where they did a cost comparison between a project they had done in 2005 and a project they were doing in 2020. What they uncovered was that development charges alone had increased by 3,244%! The most of any line item in their pro forma.

    Development charges over the last real estate cycle have been an insidious problem. Meaning, the industry knew they were crazy high, and we were all trying to be vocal about it, but let’s face it — the general public doesn’t have a lot of sympathy for developers complaining about high fees. They are also largely hidden from purchasers and renters. The charges just get lumped in.

    If our industry could figure out how to be more transparent and separate out these charges, much like a sales tax, I think it would go a long way to showing consumers what they’re actually paying when it comes to new housing. And then maybe something positive would happen. Because this is a major reason why new housing has gotten so expensive in this region.

    Can you imagine if property taxes had increased by 3,244% over the last 15 years? I can’t. Because no one would have ever allowed that to happen.

    For better and for worse, the current market is going to serve as a rude awakening for municipalities. We’ve reached the breaking point. The housing market is, as we’ve talked about, in a “state of economic lockdown.” And when people don’t buy new homes, it means developers no longer have the money to pay development charges.

  • How to brand and market a new development

    The typical way to do it looks something like this:

    • Hire a creative agency
    • Come up with a new name and brand identity that speaks to your target market
    • Create a new website and new social media accounts
    • Start marketing the project with this new single-purpose brand and identity in the forefront (the developer’s brand is usually far less prominent)

    Of course, this is the typical way and things do vary. What I would like to discuss today is this last point: the interrelationship between new project-specific brands and developer brands. Because in most other industries, the brand of the company is paramount. It is everything. When BMW releases a new car model, it is BMW and then the something. It is not the something, with BMW hidden at the bottom of the page.

    So why is real estate any different?

    One possible explanation is the entrepreneurial and opportunistic nature of development. New projects are often the result of people and groups coming together to make a specific “deal” happen. And unless you’re an established player with a long history, you may not have a consumer-facing brand with much equity in it. So you rely on a new single-purpose one instead.

    But perhaps the main reason is that, as an industry, we have never really succeeded at making buildings a product (architects sometimes despise when you call buildings this). It is for this reason that every building can feel like a prototype and that prefabrication remains this dream that never seems to become a reality. A product implies something repeatable and producible at scale. And buildings are generally not that. Every market and site are unique.

    All of this said, there are ways that developers are building meaningful brands for themselves.

    The first way is to obviously focus on building your own brand alongside or in lieu of strong project brands. One example of this is Toronto-based Urban Capital. They build a specific kind of condominium building/product and, to the extent that it’s possible, it doesn’t change whether they’re building in Saskatoon or in Halifax. David Wex, one of the partners, describes this as branded vs. opportunistic real estate development.

    Another example is Toronto-based Fitzrovia (which I wrote about, here). They are one of if not the most active rental developers in the city. And if you go into one of their apartment buildings, you’ll find the same No. 10 Dean coffee shop and bar in the lobby; the same rooftop pool (called LIDO); the same gym (called The Temple); and the list goes on. Their goal is to build a consistent and hospitality-like experience for apartments.

    The second way to go about building a brand is to make it so attractive that other developers will pay you to use it. The best example that I can think of is London-based YOO. A partnership between John Hitchcox (a developer) and famed designer Philippe Starck, they have built a business out of creating branded residences for third-party developer clients. And this is in some ways the holy grail of development: you get paid without taking on the risk of building.

    Of course, this same licensing model is also used with hotels. And hotel brands are globally the most common kind of branded residence. What this obviously tells us is that brands matter a great deal in real estate. They matter so much that developers will pay to use the right one, because it will likely command a premium and it will likely increase sales/leasing velocity.

    It is for this reason that I’ve always felt it important to grow the parent brand alongside any project-level brands. And it’s why we never bother creating new social accounts for our individual development projects. Brand building takes time. If you’re going to invest time and money into one, why not take advantage of the compounding at the very top of the house.

  • This may not actually work

    I am, of course, generalizing, but we live in a world of comparables and proof. In the slightly-modified words of Seth Godin, we have been trained to show up with proven and verifiable answers because that’s what will get us an A on the test or what will allow us to keep our jobs. And there’s nothing wrong with that. Risk mitigation is an important part of any organization. But if everything you’re doing is already proven, then by definition, and regardless of any claims, you are not innovating. Because if something is truly new, then it may not actually work.

    My friend David Wex — who is on a mission to develop modern condominiums all across Canada — once told me that if he were to hire consultants to prepare market studies for his projects (he doesn’t), they would almost always tell him never to build. And that’s because there are often no comparables to point to and say, “look at this thing over here, it shows that somebody has already done this before and has been successful.” Instead, he has been forced to ask himself, “is there no comparable product offering because the market doesn’t exist or because nobody has done it yet?”

    This is a risky proposition. Because if you’re wrong — and the market doesn’t exist — then you will likely fail. But if you’re right, and you get to introduce something new to people that want it, then you get the benefit of a commanding market position. You were right about something that most people thought was wrong and/or didn’t bother to explore. That’s why Seth Godin has argued that innovation really requires two things. It requires guts, because the thing you’re trying may not work. And it requires generosity, because innovation is, after all, about trying to make things better.

    I think this is a great way of putting it.

  • Making River City

    My good friends over at Urban Capital recently released a short film about the making of their River City project here in Toronto. (If you can’t see the embedded video above, click here.)

    For those of you who aren’t familiar, River City is a 4-phase development on the east side of downtown that was really the first project in what was known as the West Don Lands area. Urban Capital secured the right to develop the then government-owned lands in 2008 through a public tender process that was run by Waterfront Toronto.

    It’s a tricky and unobvious kind of site in that it’s surrounded by infrastructure and it came with a whole host of development challenges, including flood risk. But the team figured it out and River City has gone on to win a number of awards including the Ontario Association of Architect’s Lieutenant Governor’s Award for Design Excellence.

    River City is an important project for Toronto in that it dared to be different. It’s like no other project in the city, and I’m not just saying this because they’re my friends. I’m saying it because I want our city to be a global leader in architecture, design, and development, and to continue to push the envelope.

    River City did exactly that.

  • It’s okay to put buildings close together

    This morning I came across this beautiful photo by @callicles of the 11th in Paris. After admiring it for a few moments, I then immediately tweeted it out with the above caption: “It’s okay to put buildings close together.” Because here’s the thing about this photo: It represents one of the great paradoxes of city building. When most people look at this photo, I suspect that they will find it beautiful. They will like the mid-rise architecture and they will like the quaint European-scaled streets. But despite its fairly universal appeal, very few cities are able to build this way today. It’s often not allowed. So instead what people do is travel to Europe in the summer, sit in cafes, admire the architecture and urban design, and then lament the fact that we don’t build cities like we used to.

    What is it that makes this intersection so inviting? Well, the buildings are tight up against each other. I’m guessing that the right-of-ways (ROWs) in this picture are maybe 6-9 m wide. There are no building setbacks or stepbacks to speak of, save and except for the penthouse floors which taper back slightly. And so all of the spaces in these buildings would likely have some sort of direct facing condition with their opposing neighbors (but partially mitigated by the fact that these aren’t all glass buildings). The ratio of ROW to building height is, I’m guessing, something like 1:4, which, at the end of the day, is a large part of the reason why these streets feel so intimate and inviting. The buildings frame the streets and public realm.

    What I just described breaks many of the guidelines that I suspect many of you in the industry are accustomed to following. In our world, the streets should be wider to allow for adequate fire and service vehicle access. The buildings should stepback to allow light to reach the sidewalks, to mitigate impacts on any surrounding single-family homes, and to provision for sky views. Here in Toronto, the midrise guidelines also stipulate that buildings should have a ROW to building height ratio that is closer to 1:1. Though to be fair this guidance is often rightly broken. But the truth remains, we generally don’t build like this anymore. Why is that?

    It’s not because we can’t do it. We certainly could. We are, for whatever reasons, choosing not to. Is it because we’re bad at understanding what we actually like and what makes for great cities? Is it because what we end up liking is a bit counterintuitive? My unproven and untested theory is that it is at least partially the result of an approach to planning that is defensive — instead of offensive — in nature. We plan around and bow completely to existing contexts. We plan to mitigate impacts. We plan to satisfy some very individualistic concerns about how cities and neighborhoods should be built. For better or for worse, we plan to piss off the least amount of people. Politics also play an outsized role.

    What is far less common to think about is how to plan offensively. The fact of the matter is that the Paris we all love today pissed off a lot of people when it was being constructed. The approach was top-down and hugely disruptive. It ignored and completely erased much of the city’s previous urban context. Artists at the time, and probably many others, despised the new regularity of Paris’ street wall buildings. They longed for the old hodgepodge of medieval blocks and the visual variety that they created. But today, it’s hard not to think of this offensive move as anything but visionary. Of course, there are also countless examples of top-down offenses turning out terribly bad for cities.

    Perhaps the right approach, then, is to simply start being more deliberate about introducing elements of planning offense. My friend David Wex of Urban Capital likes to remind me that Montreal is a city with grandeur and that Toronto, for the most part, is a city without it. So as I have argued before, over here, I think it’s time we rethink our approach. Instead of just worrying about things like shadow impacts and angular planes (defensive), we should also be asking ourselves offensive questions. How refreshing would it be to sit down in a project meeting and have someone ask: “Okay, but does this design contribute to the overall grandeur and beauty of our city?”

    And maybe once we take this new perspective, we’ll come to the conclusion that sometimes it’s okay to put buildings close together.

  • The development value chain

    When I was in graduate school, my plan was to create a vertically integrated design and development company. I loved designing things and wanted to remain close to those sorts of details, but I had already decided that I wasn’t going to be an architect in the traditional sense and that I was going to be a developer. And so my objective was to figure out a way to combine everything under one roof. How could we be designers, but also be the entrepreneurs that make buildings happen?

    In some ways, Mackay Laneway House is a manifestation of that model. Through a partnership with Gabriel Fain Architects, we (Globizen Studio) have been heavily involved on the design side. Gabriel did all of the drawings and the overall architecture, but we weighed in (more than your typical client), selected most of the FF&E, and even designed things like the kitchen (with Scavolini) and the exterior signage. I wouldn’t call it true vertical integration, but we did start to blur the lines between architect/designer and developer.

    One of the interesting things about this approach is that it begins to create some consistency and a bit of a branded product. The hope is that when Mackay Laneway House is fully complete, it will read as a Globizen project, which is not that dissimilar from what David Wex of Urban Capital was talking about in this recent podcast. Their projects are a specific kind of product. They generally repeat it, and if that’s not what you’re interested in, then you don’t buy an Urban Capital home.

    But this also raises an important question: what is the role of architects and architecture in the case of buildings as very specific products? (This is something that we have discussed before on the blog.) Is the job of the architect to create an interesting exterior shell that then gets populated on the inside by a specific product offering? Or is it even worse, is architecture sometimes just an “empty vessel” that gets interior design and a brand slapped onto it? In some cases and with some projects, it does feel this way.

    I am a firm believer in the value of architecture and design. An “empty vessel” is not architecture. It is, well, an empty vessel. And that is not what I aim for in any of the projects that I’m involved in. Creativity, function, thoughtfulness and, yes, beauty, are all important. At the same time, I think this is a valuable debate. These sorts of questions are helpful in dissecting the architecture/development value chain. And so I would be interested in hearing your thoughts in the comment section below.

  • Design makes everything better — architecture as product

    https://dmeb.castos.com/episodes/interview-with-david-wex

    My friend David Wex of Urban Capital Property Group — who I featured in my “BARED” blog series back in 2016 — was recently interviewed by architect Vincent Van den Brink (of Breakhouse) for the firm’s podcast called, Design Makes Everything Better. It’s a great listen and I particularly like the bit around branded vs. opportunistic real estate development. In the case of Urban Capital, David would describe his firm as being a branded developer. They build a specific product and it doesn’t really change when they build across Toronto and in other markets. Expect exposed concrete ceilings and exposed ducts, among other things. If you can’t see the embedded podcast above, you can have a listen over here.

  • Site Magazine: Why have Toronto condos become so %@$#$! expensive?

    Every year my friends at Urban Capital publish an annual magazine called Site. And every year it contains some great articles about the real estate development industry across Canada. (Some of you may also remember that I’ve written a few articles for it in previous years.)

    Well this year’s issue is out and there are a few featured articles that I’d like to draw your attention to:

    • What happens when 175 (mostly) women get together to design a condominium? Link
    • How (not) to build a public park Link
    • Why have Toronto condos become so %@$#$! expensive? Link

    This last one is a topic that we have talked about many times before on the blog. But here, UC has provided a quantitative comparison between a project they did in 2005 and a project that they’re doing today in 2020. Here’s what they found:

    Average condo prices in the City of Toronto are up about 150%. But…

    Land costs are up 160%.

    Soft costs are up 118%.

    Construction and related costs are up 91%.

    Financing costs are up 93%.

    Government fees, charges, and taxes are up 413%.

    And development charges (a subset of the above) are up 3,244%!

    At the same time, the profit margin over costs is down about 45%.

    (As a point of comparison, CPI only increased by about 26.5% during this same time period.)

    The point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost bucket.

    If you’re developing new housing in Toronto, you have no choice but to accept these rising costs. You have to pay development charges and you have to pay them when you’re told, even if that means swallowing some new massive increase.

    So by necessity, end prices get continually pushed as a way to try and absorb these costs. You figure out what your costs are going to be and then you price accordingly. But of course, you also have to ask yourself: Can people actually afford this kind of pricing and can this neighborhood support it?

    Sometimes the answer is yes, which is why development continues. But sometimes the answer is no. In this case, the next step is simple: you don’t build.

  • An all-women development team

    My good friend Taya Cook (of Urban Capital) and her development partner Sherry Larjani were featured in the New York Times today as a result of their Reina project and their remarkable efforts to gender balance the male-dominated commercial real estate industry. I am thrilled that their work is getting the attention that it deserves.

    Here’s an excerpt:

    That’s because, despite progress in many other professional realms, women remain severely underrepresented in real estate development and investment, particularly in senior roles.

    Women held just 4 percent of senior investment roles at major real estate firms, according to a widely circulated 2011 study, and their numbers have improved only “marginally” since, said the study’s author, Nori Gerardo Lietz, who is a senior lecturer at Harvard Business School and a longtime real estate investor.

    Ms. Lietz reviewed the senior ranks of 82 major real estate investment firms for the study, as well as many more private equity and venture capital firms, and found that women were noticeably absent from the most highly paid, “touch the money” jobs.

    For the full article, click here. And for more on Reina Condos, click here.

  • Toronto’s first all-female condo project

    Real estate development has historically been, and unfortunately still is, a male dominated business. (The story of Florence Casler is, however, a great outlier.) If you want some empirical evidence for this, pay attention to the length of the line for the men’s bathroom the next time you’re at a real estate conference or event.

    This needs to change. Which is why my good friend Taya Cook (of Urban Capital) has just announced, in partnership with Sherry Larjani (of Spotlight Development), the first all-female development project in Canada. It’s called Reina and it’s planned for a vacant site at 689 The Queensway, Toronto. Here is an excerpt from a recent RENX article:

    “We’re embarking on this project to create more visibility for women in real estate development, and to inspire younger women to see career possibilities,” said Cook, the director of development at Urban Capital, in a release announcing the project. “It’s a huge industry and a massive economic driver for the region. For some reason it has been seriously lagging behind in gender equity.”

    Two things are probably important to mention about the team and project.

    Firstly, the women developing Reina are all leaders and key decision makers. This is important for the project’s broader mission, but also because it will likely remove male biases from the design process. Everything from architecture to construction will be led by women and will incorporate a “female perspective.” Secondly — and this just makes the narrative even better — the site used to house a strip club.

    Congratulations Taya, Sherry, and the rest of the project team on a terrific development and initiative: “Condominiums designed by women. Developed by women. Built for everyone.” Follow Reina on Instagram, here.

    Image: Reina Condos