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: wharton school

  • Money and beauty

    I’ve told versions of this story before, but I was reminded of it again today.

    When I was in grad school studying both architecture and real estate, I used to walk back and forth across campus and jump between two very different kinds of academic experiences. On the one side of campus, it was taboo to talk about money. And on the other end, the only important thing to talk about was money. (I am exaggerating in both cases, but I think only slightly.)

    Given that I was studying and genuinely interested in both, this always felt like a weird false dichotomy. I mean, why not care about, you know, multiple things? But that’s generally not the way it was. Talking about money tainted the purity of design. And talking about things like design and beauty felt out of place and less serious in a room where cap rates were being debated and serious financial models were being honed.

    This is not to say that nobody was thinking across disciplines. I was in a joint program, after all. I can also remember attending a lunch & learn where a student asked a seasoned real estate executive what he should study in addition to finance. The response he got was something along the lines of, “the furthest thing from finance. Study something that will give you a different perspective on real estate.”

    I remember this really resonating with me — probably because I was searching for breadcrumbs to make me feel like less of an outsider at Wharton. Still, this came across as a unique perspective at the time.

    Knowing how money stuff works is absolutely fundamental. (We need to teach more of it in schools to young people.) And as a developer, it all starts with managing risk, executing (i.e. doing what we said we would do), and being an honest steward of other people’s money. Don’t do this, and you likely won’t be a developer for very long.

    But then, what else? What unique insights can we bring to the assumptions that feed a finely honed model? Fast forward to today and this is now the basis for how the Globizen team aims to look at real estate opportunities. We want to cover all ends of campus. And that means we are more than okay talking about unserious things like design and beauty.

  • Carleton University’s Certificate of Real Estate Development

    Next Tuesday, January 19, I am helping to teach the introductory class of a Certificate of Real Estate Development program that is jointly offered by Carleton University’s Sprott School of Business and Azrieli School of Architecture & Urbanism. Here is a full list of the instructors and key note speakers that will be participating in the program. Obviously it is all being done online this time around.

    One of the great things about this program is that it’s a partnership between their school of architecture and their school of business. As you might expect given my background, I am biased in my view that this is a great way to teach real estate development. And it’s one of the reasons why I enjoyed my time so much at the University of Pennsylvania. I was free to take classes at whatever “school” I wanted to.

    When I later went on to study at the Rotman School, I actually tried to advocate for a better real estate development curriculum and for increased collaboration across the business and architecture schools (both alma maters). The response I got, at least back then, was that Rotman already had a real estate major and that it was fine just the way it was. Cool.

    For more information or to register for Carleton’s Certificate of Real Estate Development program, click here. I think there are only a few spots remaining.

  • Amazon’s economies of density

    According to Amazon’s recent annual 10-K filing, the company leased and owned (most of their space is leased) about 288,419,000 square feet of space around the world at the end of 2018. Of this number, about 80% is used for “fulfillment, data centers, and other.” Amazon doesn’t break out this line item any further, but GeekWire reckons that a good 3/4 of their real estate is dedicated to their fulfillment warehouses.

    Here’s the full summary of their facilities (from the 10-K filing):

    Given that fulfillment is such a large share of their properties, I am most interested in understanding the geography of their warehouses and how that impacts their core value proposition, which is largely all about convenience.

    In April 2017, Jean-François Houde (of Cornell), Peter Newberry (of Penn State), and Katja Seim (of UPenn) published a paper on this very topic called, “Economies of Density in E-Commerce: A Study of Amazon’s Fulfillment Center Network.” There’s also this Knowledge@Wharton podcast on the paper if you’re looking for a quicker listen or read.

    In the early days of online retail, the decision of where to warehouse had meaningful tax implications. Because (in most cases in the US?) you only had to collect sales tax if you had a physical presence in the same location as your purchasers.

    As that changed, it then made more sense to create a broader distribution network and minimize the distance between fulfillment center and purchaser. By 2016, Bloomberg estimated that nearly 78 million Americans lived in a zip code where Amazon offered free same-dame delivery. That number has obviously increased since.

    And in the paper “Economies of Density”, they discovered the following cost savings as a result of Amazon’s growing fulfillment network:

    We find that Amazon saves between $0.17 and $0.47 for every 100-mile reduction in the distance of shipping goods worth $30. In the context of its distribution network expansion, this estimate implies that Amazon has reduced its total shipping cost by over 50% and increased its profit margin by between 5 and 14% since 2006. Separately, we demonstrate that prices on Amazon have fallen by approximately 40% over the same period, suggesting that a significant share of the cost savings have been passed on to consumers.

    The interesting question for real estate people and city builders — which is brought up in the Knowledge@Wharton podcast but is difficult to answer — is whether there are diminishing returns to this “economies of density” phenomenon. In other words, how dense does Amazon’s fulfillment network want to be?

  • The blue (real estate) bible

    Back when I was in grad school studying real estate, we used to refer to the below book as the “blue bible.” It is a comprehensive look at real estate finance and investments, and also development. But perhaps more importantly, it is written in a way that is clear, direct, and immensely practical to the actual world of real estate.

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    The reason I mention this today is because the fifth edition is out and my friend Bruce Kirsch is now an author, along with Peter Linneman. Thankfully the cover is still blue, otherwise I might be a little sad and this post wouldn’t make a lot of sense.

    Bruce has an MBA in Real Estate from Wharton (at Penn) and is the founder and CEO of Real Estate Financial Modeling, LLC, which I recommend to absolutely everyone who wants to get better at financial modeling and deal underwriting.

    I have a lot of people who reach out to me on a regular basis and want to ask me about getting into real estate, and in particular, development. I try my best to make time because I was once in their shoes. Usually that means an early morning coffee in Toronto’s PATH.

    My advice is fairly consistent. You have two options. Try and get your foot in the door at a shop or, if you’ve got the gall, go out and try and do it on your own. I have friends who have successfully done the latter with very little in the way of formal real estate training.

    Whatever your decision, knowledge of the industry will obviously serve you well. Oftentimes I’m meeting with design and/or planning professionals who bring a lot to the table, but usually lack the finance and investments knowledge. That’s when I remind them of my story: Don’t screw up the numbers.

    This is also when I suggest taking one of Bruce’s classes. I’ve taken a number of them. Because to learn how to model something in Excel you have to understand how it actually works and Bruce helps you do exactly that. Garbage in, garbage out. That’s how models work.

    But the other thing one should consider doing is picking up a copy of the blue bible. I have a copy sitting on my desk right now and will tell you that it’s a “must read”, whether you’re a designer and just want to learn more about the other side of the business, or you’re an experienced real estate professional.

    For more on the book, click here and then on Textbook at the top. Oh, and Bruce, congratulations on the new book!

  • How to achieve peak productivity

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    Lately I’ve been finding that I need to divide my time between multitasking and blocks of uninterrupted time. The multitasking phase is doing calls, responding to emails in 3 seconds, going from meeting to meeting, and so on. It’s a mode that many of us probably exist in virtually all of the time.

    But I can’t stay in this mode all of the time. I think of it as short attention span mode. There are times when I need blocks of uninterrupted time so that I can “go deep.” One example would be to review drawings. I really need to focus so that I can think of all of the externalities associated with the decisions being made.

    This is related to my post about managers and makers, but it’s also the focus of a recent book by Cal Newport called, Deep Work: The Secret to Achieving Peak Productivity. You can read more about the book here at Knowledge@Wharton, but I wanted to highlight two concepts. The first is this equation:

    High-Quality Work Produced = (Time Spent) x (Intensity of Focus).

    Obviously the argument here is that if you want to maximize your output, you need to increase the intensity of your focus. Minimize distractions. Ratchet up the intensity. There’s only so much time in the day.

    Newport gives the example of Adam Grant. He is a New York Times bestselling author and the youngest tenured professor at the Wharton School at the University of Pennsylvania. 

    He is so committed to intensity of focus that he batches all of this teaching into the fall semester, allowing him to truly focus on the students. He’s the highest rated teacher at Wharton. At the same time, this lets him focus on research and writing during the spring and summer semesters. He’s also known to regularly use auto-of-office responders when he’s in the office, but needs to focus.

    The second concept is that of “attention residue.” The idea here is that when we switch from some Task A to some other Task B, our attention doesn’t immediately snap over. A portion of our attention remains on the original task and distracts us from fully focusing. There’s residue.

    An example of this would be when you’re working on something and you see an email come in. As soon as you turn your attention to that notification, your attention gets divided. And even if you don’t immediately respond to that email, a portion of your attention now remains with that uncompleted task. It lingers in the mind.

    The above probably makes intuitive sense to a lot of you, but in many ways our work culture today does not encourage intensity of focus.

    Thanks for reading today. There’s lots of evidence to suggest that the best way to learn new things is to not simply read about it, but to share it with others. That’s one of the reasons I blog and hopefully you find that valuable.

  • America’s urban infrastructure — what to do?

    The Penn Institute for Urban Research recently asked a dozen experts to weigh in on the topic of urban infrastructure in the United States. More specifically: What should the US do? It is a direct response to President Trump’s inauguration speech, where he described America’s infrastructure in terms of “disrepair and decay.”

    The urban experts include Eugénie L. Birch, Saskia Sassen, Susan Wachter, Richard P. Voith, and many others. Richard Voith’s piece is called, Historical Patterns of Infrastructure Funding. (I was his teaching assistant while I was at Penn and I still follow his work.) 

    I found it interesting how infrastructure funding has shifted from the federal level to the local municipal level – especially in the realm of public transit. Given the rise of urban centers, this makes intuitive sense. But Voith also argues that “relying only on local funding of transportation will almost certainly result in an under supply of infrastructure.”

    For the full Expert Voices series, click here. I think many of you will like it.

  • Writing every day

    I often get asked about my daily routine and how I manage to write, every, single, day.

    Oftentimes people will say that I must not sleep. But the reality is that I love sleeping and I generally need a lot of it. I’m not someone who can function on 5 or 6 hours. I’m useless with that amount of sleep. One of the best productivity hacks for me is to simply sleep more and work less.

    In terms of when I write, my preference is to write first thing in the morning – even though I don’t consider myself much of a morning person. I like to wake up, make breakfast and a coffee, and then sit down at my desk to both read and write. I like to do this before diving into email, before thinking about all the stuff that I need to do that day, and before going into the office.

    Some days a post might take me 20 minutes and some days it might take me an hour. Where I struggle the most to write every day is when I’m traveling or when I have to be somewhere super early, which then means I’m writing in the evening. I like my routines.

    I’m thinking about this right now not only because I often get asked this question, but because I’m currently making my way through a book by Adam Grant called Originals. 

    Though talent still matters, one the things he argues is that creative people tend to be creative because they are prolific. They produce a lot of whatever it is they do. And while much of it may be crap – he argues that Shakespeare penned a lot of crappy plays – it is through sheer volume that they end up achieving those creative breakthroughs.

    This goes against the traditional notion of the “creative genius”, but I think there’s a lot of truth to it. It’s why good architects will iterate through many different building designs and it’s (partly) why bloggers like myself see value in showing up every day.