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: wall street journal

  • Western resort real estate is in very high demand

    People like ski and snowboard towns. Here’s an excerpt from a recent WSJ article talking about Park City:

    Prices continued to rise in most luxury ski towns this past year, but none grew as much as Park City, a former silver mining town 32 miles east of Salt Lake City. The average home sale price there grew 35% in 2023 from 2022, compared with a 9.4% increase at Vail and Beaver Creek and 3.2% at Aspen, according to the resort report by Summit Sotheby’s International Realty. 

    The main point of the article is this: Park City has gotten really expensive, and so people are now looking and buying homes further out in places like Heber City, Midway, and Kamas. Here’s how expensive expensive is:

    Over the last four years, Covid has stoked demand for western resort real estate. In Park City, single-family homes have sold for a median price of $4 million year-to-date, up from $1.996 million in 2019, according to Redfin, which averaged the monthly median sales prices weighted for the number of homes sold. One home was listed in September for $65 million, which could set a record for the state. It’s now under contract, according to listing agent Paul Benson of Engel & Völkers, who declined to disclose the sale price.

    This, of course, isn’t a novel phenomenon. It’s the whole “drive until you qualify” thing. But what’s interesting about this particular mountain example is that it’s not centered around access to a CBD or downtown; it’s centered around “how fast can I get to a ski and snowboard resort?”

    For example, Deer Valley has a new East Village that is expected to open up in 2025. This brings the cities mentioned above closer in. And buyers seem to be doing that math: “It’s a 25-minute drive today, but next year I’ll be able to get on a lift in 15 minutes. Score.”

    Given that Deer Valley also doesn’t allow snowboarders, it’s interesting to think about how these trends could be bifurcating the region between skiers and snowboarders. I don’t have any data on this, but I bet if you mapped it out, there would be some sort of clustering happen.

    The article also goes on to talk about transportation. Because you can’t talk about new development and real estate without talking about traffic. But I think Bill Ciraco (Park City Council) gets it exactly right in the article: This is a car problem, and less of a people problem.

    In my mind, the Wasatch Range is destined for something like this ONE Wasatch concept, which is/was a proposal to link seven resorts through a handful of new skiable connections. This is similar to what you’ll find in Europe, and it means less driving and more time on the mountain.

    That’s what everyone wants to be doing anyway.

    Photo by Lauren Pandolfi on Unsplash

  • Florida proposes stricter condo rules

    In response to the tragic collapse of the 12-storey Champlain Towers South building in Surfside last year, the state of Florida is set to pass new stricter condominium rules around inspections and reserve funds. And according to the WSJ, the requirements would be some of the strictest in the US.

    Under the House bill that has already passed, condominium buildings that are three or more stories would need to be fully inspected and recertified once they are 30 years old. For buildings within 3 miles of a coast (salt water is impactful), the requirement would be 25 years old. Following this recertification, the buildings would then need to be inspected every 10 years. Under the proposed Senate bill, the inspection process would start after 20 years and be required every 7 years. In both cases, the reports that come out of these inspections would need to be submitted to all unit owners and to local building officials.

    If approved, these rules would have an immediate impact on the market given that about 900,000 of the approximately 1.5 million condominium units in Florida are older than 30 years old.

    But is all of this enough? I think the devil is in the details.

    Under the House bill, unit owners would no longer be able to waive the collection of certain building reserves. But under the Senate bill, the requirements for waiver would simply be tightened. How tight? In all honesty, I don’t know the specifics. I haven’t read the bills. But the collection of reserve funds is paramount. And after reading the above WSJ article, I can’t help but feel like these new policies might still be less stringent than what we already have here in Ontario.

    Here are two excerpts from Ontario’s Condominium Act:

    Put more simply, all buildings and structures need to have regular inspections. Materials and systems naturally depreciate over time and so the point of a reserve fund study is to determine (1) what will need to be repaired/replaced, (2) when it will need to be repaired/replaced, and (3) how much it might cost. You then need to ensure that the money is in place to carry out the execution of said study. In all cases, there should be zero compromises around life safety.

  • Buying condos with crypto

    If you happen to have made boatloads of money in crypto (which sadly isn’t me), one sensible thing you could do is put some of that money into luxury residential real estate. You know, to diversify your portfolio.

    According to this recent WSJ article, it is already happening, with some developers and some homeowners now accepting cryptocurrencies in lieu of US dollars and other fiat currencies. This is helpful if you’ve managed to accumulate a bunch of crypto and don’t want to convert it. It can also be easier when it comes to moving the funds around:

    Avi Dabir, vice president of business development at FTX US, said he sees real estate as a growing sector for the company because crypto transactions are faster and more efficient than traditional deals, which rely on an often-cumbersome banking system.“If I want to send a wire transfer today using my traditional bank account, it’s got to be banking hours, I need to make sure I hit that wire cutoff time and I can’t do it on the weekends,” he said. “That’s not a problem with cryptocurrency. It’s open 24/7.”

    But of course it is still early days for crypto. The article suggests that most developers and owners are arranging for any crypto received to be immediately converted into US dollars at closing. This is presumably because of how volatile cryptocurrencies tend to be — at least right now.

    To accept crypto, PMG had to partner with a regulated exchange that could quickly convert crypto to U.S. dollars, then convince an escrow agent to accept down payments from the exchange, rather than directly from the developer. Mr. Shear said most escrow agents looked at him like he was crazy, but “20 lawyers, one year later, and a lot of brain damage, everybody got comfortable.”

    There are also tax considerations (that I am really not an expert on). If you bought $100 worth of Ethereum and it is now worth $10 million, you are responsible for paying tax on this gain if/when you sell, trade, or otherwise dispose of the crypto. And it is my understanding that if you were to use this $10 million in Ethereum to buy something like a condo in Miami, it would also be considered a taxable event.

    Maybe all of this becomes commonplace or maybe it doesn’t. But it sure is interesting to see crypto already starting to flow into hard assets like real estate.

  • The Zillow postmortem

    The postmortems surrounding Zillow’s exit from the algorithmic home-flipping business are starting to surface. Here’s an article from the WSJ and here’s Matt Levine’s take on it. The latter piece is very Levine-like and is called, “Zillow tried to make less money.”

    The obvious story is that Zillow’s algorithms were not valuing homes correctly. But the story is more nuanced than this. In Q1 of this year, Zillow’s home flipping business was actually more profitable than it had initially expected. And that’s because its algorithms were consistently undervaluing homes. So when it did transact, it was doing so at favorable / low cost bases.

    The problem was that the company was not transacting enough and there was a fear of losing ground to competitors like Opendoor. Apparently only about 10% of people who requested an offer from Zillow actually ended up accepting it. Margins were good, but volumes were too low.

    So what Zillow did was tweak its algorithm to be more aggressive (see above chart from the WSJ). But this created the opposite problem: low/negative margins, higher volumes.

    Once again, it shows you some of the challenges with bringing real estate online. The supply of homes is largely heterogenous and there are a lot of qualitative factors that play into what someone is willing to pay.

  • Urban China’s empty homes

    China Evergrande Group has been in the news lately for being one of the most indebted property companies in the world. The company is now looking to raise some $5 billion by selling a stake in one of its business lines. That seems like a lot of money, but apparently it has upwards of $300 billion in liabilities. As I was reading about the company (in this WSJ article) I was surprised by some other stats about China’s housing market. According to some sources, nearly a third of the country’s GDP can now be tied back to real estate-related activities (see above chart). On top of this, about 21% of homes in urban China were thought to be vacant as of 2017. This equated to about 65 million empty homes. I don’t know what the exact numbers look like today, but these are staggering figures that speak to overbuilding.

    Chart: WSJ

  • Cost of the Olympic Games, 1960-2021

    There are many reasons why one might want to host the Olympics. Brand building is certainly one. Making some kind of profit is another. But the direct economic benefits aren’t always clear. Embedded above are two recent charts from the WSJ outlining 1) the cost of the Olympic Games over the years (the exact numbers are likely debatable) and 2) some of the overruns that host cities have seen. Montreal stands out as an unfortunate outlier with cost overruns exceeding 700%. And Tokyo stands out as being the most expensive games ever. As I understand it, the economics are challenging in the best of times. So one can only imagine what kind of dent the Tokyo Olympics might leave behind.

  • Plastic surgery, LA mega-mansions, and digital NFT art

    “Price is what you pay. Value is what you get.” -Warren Buffet

    According to the Wall Street Journal, there is a real estate trend underway in Los Angeles: Celebrity plastic surgeons are piling into the business of building over-the-top spec homes. (Spec means that they are built speculatively, without a buyer in place, and sold — hopefully — upon completion.)

    What is clear from this phenomenon is that there appears to be a bit of money to be made in the world of LA plastic surgery. What is also clear is that the market value for a 21,000 square foot mega-mansion in Los Angeles is basically who-the-hell-knows:

    The rush of new contemporary spec homes built in the Los Angeles area has put downward pressure on prices. While Dr. Nassif says he’s had significant interest in his home since listing it earlier this year, Dr. Kanodia recently slashed the asking price of his home to $99 million from $180 million. Developers like Nile Niami, known widely as the king of Los Angeles spec homes, handed the keys over to his lenders on at least one project and is facing default on others, The Wall Street Journal has reported.

    Is the market price $180 million? Is it $99 million? Or is it much less? Probably depends on which way the winds are blowing that day. At this snack bracket, you’re looking to harpoon a whale and there are only so many of those. But ultimately, the market price is whatever someone is willing to pay.

    One thing that is interesting to see in some of these homes — besides hidden DJ platforms on hydraulic lifts — is that NFT art displays are now starting to get incorporated into these new builds. Assuming that digital NFT art does continue to take off, which is still TBD, there is going to be an explosion of different display/gallery solutions.

    Perhaps these mega-mansions are a leading indicator for that trend.

  • Net flow of households across US regions

    These are a set of diagrams taken from a recent WSJ article talking about how, “the pandemic changed where Americans live.” I know that this is a topic that gets a lot of air time (both here on the blog and elsewhere), but these diagrams do a good job of showing the flow of people, as well as how things may have changed/accelerated since 2018.

    These diagrams also remind me of the work of Charles Joseph Minard. A French civil engineer, Minard is best known for his contributions to the field of information graphics, and in particular his flow maps. His most famous piece of work — which I happen to have hanging at home — is his depiction of Napoleon’s losses during the Russian campaign of 1812.

    The map itself is from 1869 and is packed full of information. It shows the number of Napoleonic troops as they left for Moscow, the distance they traveled, the outside temperature (the French weren’t properly prepared for the cold), latitude and longitude, the direction of travel, and the location of the troops relative to specific dates.

    The point of the diagram was really to show how disastrous this campaign was for Napoleon. The thick beige band on the left is showing over 400,000 troops setting out. But by the time they reached Moscow — which, by the way, had been abandoned before their arrival — only about 100,000 troops were left.

    The thin black bar on the bottom is showing how many troops ultimately remained and returned at the end of the campaign — the number was only about 10,000. So the vast majority of Napoleon’s troops perished. Supposedly over half either starved or froze to death.

    Some 150 years later, and we are still using flow charts to clearly depict the movement of people and things.

  • A modernist utopia at Summit Powder Mountain

    About 60 miles north of Salt Lake City is the largest ski resort in America, called Summit Powder Mountain. It’s some 10,000 acres. But beyond just being big, there is also a fascinating story and philosophy behind the mountain.

    It was started by four partners — Elliott Bisnow (of Bisnow events), Brett Leve, Jeff Rosenthal and Jeremy Schwartz — who partnered up with Learn Capital in 2013 to buy the mountain from a distressed seller for $40 million.

    The four guys were already running a successful invitation-only event series for entrepreneurs and creative types called the Summit Series, and big part of their vision for the mountain was to recreate this same ethos.

    The idea was to create a community focused on relationship-building, entrepreneurship, innovation, environmental sustainability, and good design. Put differently: a kind of utopia for rich people.

    So far, about 80% of the home buyers at Summit Powder Mountain are members of the Summit Series.

    All of this has translated into some pretty cool mountain architecture (see above). In fact, people who buy vacant lots within the community are effectively banned from building the kind of faux chalet stuff that permeates a lot of (or most?) mountain towns.

    Here is a taste of some of the homes that have already been built.

    Image: Paul Bundy for the Wall Street Journal

  • Upsizing to a larger apartment in New York City

    This is an interesting story about New Yorkers starting to seek out larger homes. Last month, Manhattan saw 140 purchase agreements signed for homes priced at $4 million or more. In the last week of February alone, 40 contracts were signed, which is apparently a weekly record for this price point that hasn’t been seen since August 2016.

    What’s also interesting is that, in some of these cases, we’re talking about buyers who bought preconstruction and then went back to the developer to swap for a larger apartment. Developer Scott Avram is quoted in the above article saying that 10 buyers have “upgraded their contracts” at 130 William (David Adjaye project) over the last six months.

    As we’ve talked about before, this is likely happening for a bunch of reasons. People have been working from home and want more space. Interest rates are low. And New York saw some softening in prices and now people are jumping back in to seize on those opportunities. At the same time, it is yet another example of people going long on dense urban living.