Real estate development is often described as a hyper local business. You need local relationships and you need to understand the nuances of your market so that you can identify opportunities and best manage your risks. This is all true. New buildings don't exist in a vacuum; they are the result of land use policies, politics, economic conditions, culture, and countless other very specific factors. So when capital invests with a local "sponsor", they are expecting that developer to have the knowledge and experience to navigate all of these local risk factors.

At the same time, the world is only getting smaller and more interconnected. The result is that there are many things that aren't actually different across markets. For example, I find it interesting that, today, you can speak to a developer on the other side of the world and for it to feel like they're living the same life: "yeah, so, office vacancies are up (though we're looking at conversions), residential demand is down (individual investors have left the market), but there's still demand for student housing and distribution centers." On some level, we are all living and operating in the same market.

So perhaps a better way to think about real estate development is that it's both local, and global. And you need to be able to operate at all of the different scales in between. You need to worry about what's happening down the street and the R-value of your wall assemblies in the context of your local climate, but you also need to think about the macro environment. And this is likely to become only more true as time goes on and as new technologies continue to bring us closer.

The obvious response to sea level rise and storm surges is to try and keep the water out by building things like walls. But there are other options. At the southern tip of Staten Island, New York, for example, a new near-shore breakwater system was just completed this past October.

Designed by landscape architect Kate Orff of SCAPE, the project cost $111 million, runs about 2,400 linear feet, and is designed to "break" future storm surge waves as they approach the coast. This won't completely eliminate the risks, but it will help to reduce them.

At the same time, by slowing currents next to the shoreline, these barriers are expected to reduce shoreline erosion (and eventually reverse it) and improve the overall habitat for plants and animals along it. The breakwaters themselves are also intended to attract organisms, hence the term "living."

It's a novel approach when it comes to flood infrastructure in the US. But it's certainly not a new idea:

Breakwaters is an ancient idea for how to protect shorelines – and the people who live close to them – by building underwater seawalls to defend a harbor or a beach from the force of waves. Kate has designed an extraordinary, modern-day interpretation, the Living Breakwaters, which will not only protect humans and revitalize the coastline of New York City, but also restore lost marine biodiversity. This is a visionary project that tackles the full task of adaptation, and which has the capacity to inspire and to positively impact vulnerable shorelines worldwide.

It'll now be interesting to see how this performs during storms. But in the meantime, you can find more information about the project on SCAPE's website.

Photo from SCAPE and Ty Cole

Today I have two things to share.

One, I'm not very good at following proper protocols during council meetings. You know, where you're supposed to direct communication via the chair person and say things like, "Through you, Mr./Madam Chair." I will work on improving this.

Two, I'm thrilled to report that, last evening, the proposed zoning and Official Plan amendments for Project Bench were approved by the Town of Lincoln Councillors in an 8-1 vote. This is following the positive planning staff report that I wrote about last month. Once again, this is an important milestone for the project and we're excited for the next steps.

At the same time, we recognize that change can be difficult. And this development represents change for the community. Three people from the community spoke last night in opposition of the project.

I spoke to one of them after the meeting and he was very respectful and said, "congratulations." But he also went on to say, "I hope that you and the team will continue to work with the community as you have been doing." My response was, "absolutely we will."

Onward.

Update: Just to be clearer on the planning process details, last night was the Town of Lincoln's Committee of the Whole meeting. The Committee of the Whole has three areas of focus: community services & infrastructure, general business & finance, and planning & economic development. All Town of Lincoln Councillors, including the mayor, voted on the project at this meeting. The next step is for the Committee's recommendation to go to Council for final approval, and this meeting is scheduled for December 16, 2024. Following this, a formal Notice of Decision will be issued.

There are countless rankings of cities out there. And most of them probably don't mean very much. But the concept of a "global city", as coined by Saskia Sassen in the early 90s, is still immensely fascinating to me. And that's because there is, in fact, an order. There are cities that are less and more important to the global economy.

To this end, Resonance Consulting has just released their annual ranking of the world's best cities. And this year, they've introduced something new to their methodology: perception data. For this, they partnered with Ipsos and asked more than 22,000 respondents across 30 countries the following three broad and open-ended questions:

1. What are the top 3 towns or cities you would most like to live in someday?

2. What are the top 3 towns or cities you would most like to visit in the next 12 to 24 months?

3. What 3 towns or cities do you believe currently offer the best job opportunities?

The intent with these questions was to not anchor people to a specific list of places, and to not necessarily anchor people to big global cities. Maybe the best job opportunities are believed to be in small towns that most people aren't thinking about. The result is that thousands of different towns and cities were mentioned during the survey period.

While this didn't necessarily impact the cities and usual suspects that you would expect to see in a ranking like this -- cities like London, New York, and Paris -- it did change certain things and offer some interesting insights. For example, the strong global perception of Sydney helped to move it into the top 10 for the first in the ten-year history of this report.

On the other end of the spectrum, negative sentiment (outside of China) toward Hong Kong caused the city's ranking to drop precipitously. It is now ranked 97th, behind cities like Naples (Italy), Birmingham (UK), and Rochester (US). Singapore, in case you're wondering, is ranked 5th:

Broadly speaking, the perception data also served to remind us that we continue to have a bias toward cities. When people are asked where they want to live, visit, and work, they still think of the world's biggest and most important places. So despite the rise of decentralizing technologies (i.e. Zoom) and the bad things that happened to cities as a result of the pandemic, big cities remain at the center of the global economy.

This is not at all surprising.

Cover photo by Aaron Gilmore on Unsplash

I'll be the first to admit that I have an urban bias. I like walkable narrow streets. I like being able to cycle around. And I like not having to drive when I want to do things. But this can create a city-building blindspot and Paul Kulig, Principal at Perkins&Will Toronto, reminded me of that this week. Here's a tweet where he compares two streets, both of which have a right-of-way width somewhere around 40m:

Paul Kulig

@PaulKulig_TO

Both these streets have similar, 40+ metre rights-of-way. One is designed for people, the other prioritizes getting 18-wheelers on and off the 400.

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9:45 PM • Nov 29, 2024

The image on the left is Prenzlauer Allee in Berlin. And the image on the right is Finch Avenue West in Toronto. Despite both having light rail running down the middle, one of these streets is walkable, vibrant, and generally urban, and the other is very suburban. What this reminds us is that a wide street isn't necessarily an insurmountable challenge. It's ultimately how we design that street that is the make or break.

Here's another look at Prenzlaurer Allee:

In addition to transit running down the middle of it, it also has a ton of on-street parking. In many cases, the cars are parked perpendicular to the curb. So it's not like this street isn't also accommodating to motorists. The key differentiator is how the buildings are placed. They come right up to the street and are accompanied by a great pedestrian realm (note all the patios below).

This is one of the things that Toronto needs to be focused on following the investments made in public transit on streets like Finch and Eglinton. We don't want generous setbacks on these streets. Make them 0m. Towers in a park kill any chance of street life. We can talk all we want about "active frontages" on our arterial roads, but who wants to sit on a patio on a street like Finch? Nobody.

But as Berlin shows, there's absolutely no reason why we couldn't change that. Thanks for the reminder, Paul.

Cover photo via Google Street View

If you're a longtime reader of this blog, you might remember this post from 2020, which was about a cost comparison that developer Urban Capital had done between a project they completed in 2005 and a project they were doing in 2020. What they uncovered was that the biggest culprit in terms of rising costs was none other than development charges. This line item had increased by 3,244%!

Everyone in the development industry knows that this is the reality. Not only have developers needed to carry a big budget for development charges, but they've also had to carry allowances for escalations; and that's because they have tended to jump multiple times throughout the course of a single project. It's frankly hard to keep up.

So for anyone to say that development charges have generally increased at the rate of inflation -- which some do say -- I'm guessing they don't know math, they don't know how inflation works, or they're lying because taxing new homes is politically easier than the other ways of collecting municipal revenue.

Thankfully, the Bank of Canada has an easy-to-use inflation calculator. And if one were to plug in 2005 and 2020, it would tell you that over this 15-year period, the average annual rate of inflation was 1.63% and that, as a total percentage change, this equates to 27.43%. So, 3,244% vs. 27.43%. It's not even close.

For a long time, nobody cared to listen to developers complain about this. The market was, you know, too good. Isn't this just developers being greedy? Well, that is no longer the case and consumers are waking up. Here's an excerpt from a Globe and Mail article published this week:

But cities started to enjoy that revenue stream too much. They began to gorge on development fees, a flow of money that allowed politicians to keep property taxes low. Who was going to complain? Future owners of homes are often people who don’t yet live in the city and can’t vote. It’s the city-building equivalent of that Monty Python joke about an innovation in how to raise government revenue: taxing foreigners living abroad.

But even more importantly, municipalities are now waking up. Last week, the City of Vaughan -- which previously had the dubious distinction of the highest DCs in the Greater Toronto Area -- announced that it would be reverting back to the rates they had in effect on September 18, 2018, and that these rates would remain in place until November 19, 2029.

This takes the development charge for a single-family home from $95,466 per unit back down to $50,193 per unit. This is significant! And given the current strains on housing affordability, these savings will almost certainly flow through to end purchasers. (FYI, all of the developers who have signed the CANT pledge have all agreed to pass on any tax savings dollar for dollar.)

Here's a quote from Vaughan Mayor Steven Del Duca:

Development charges have become an unfair tax burden on homebuyers. Too many of our residents, in particular young families in our community, have seen their dream of buying a home close to where they grew up, disappear completely as housing prices have spiraled out of control.  We have a housing affordability crisis and it’s time for us to get real about the solutions needed to solve it. Today’s decision by Vaughan Council to dramatically reduce our development charges for the foreseeable future is a strong step in the right direction. I urge other municipalities to follow our lead and do the right thing.

He makes a good point. It behooves other cities in Ontario to follow their lead.

Cover photo by Allen Y on Unsplash

Every year, the Canadian Armed Forces deploy soldiers to Canada's Arctic for a series of activities that are broadly called Operation NANOOK. One of the main reasons for doing this is to show that Canada is present and active in the area. And this is becoming increasingly more important to our country for at least two reasons.

One, climate change is making the area more accessible and navigable. So there's growing interest in it as a global shipping route. And two, the waters, specifically the Northwest Passage, are contested. Canada claims them as internal waterways, but many other countries continue to argue that the passage is an international strait.

This should not surprise anyone.

So I am of the strong opinion that this is a critically important operation for Canada. In fact, it's very possible that we're not doing nearly enough. The North can feel pretty far away from Middle Island in Lake Erie (which is the southernmost point of our country). And that's because it is. But it should never be out of mind.

If you're interested in this topic, I would encourage you to take a look at this photo essay by Gavin John, published in the Globe and Mail. Gavin takes incredible photos and you can find more of his work here and here.

Cover photo by Gavin John

I'm not an expert when it comes to roads and highways. I mean, usually we talk about bike lanes around here. But today I learned, via Brian Potter over at Construction Physics, that there is such a thing as an International Roughness Index (or IRI). In simple terms, it measures how much a car bounces up and down over a given distance of driving, and it is usually expressed in units like "millimeters per meter." A low IRI is good. It means less bouncing up and down. And a high IRI is bad. It means more bouncing up and down, suggesting the road is poor. This, it turns out, is the most commonly used index in the world for evaluating whether a road sucks or not.

And in this recent post, Brian uses the index to chart out road quality across the US. Here's non-interstate roads for the 19 largest metro areas:

At least two things can be readily gleaned from the data in his post. Number one, US Interstates tend to be pretty good. More than 80% of the mileage is classified as "good" or "very good." Non-interstate roads are, on the other hand, much poorer. And in every single case, urban roads are worse than rural roads, presumably because of their higher traffic volumes. Number two, there doesn't seem to be much of a correlation between climate and road quality. Intuitively, one would think that freeze-thaw cycles and road salt would give cold cities the worst roads, but that is not actually the case.

Los Angeles sucks the most.

Cover photo by Thaddaeus Lim on Unsplash

In years past, it was relatively simple for Toronto condominium developers to underwrite pre-construction sales (which, as most of you know, is a requirement for construction financing). Notwithstanding the temporary blips, like at the start of the pandemic, it was easy to feel generally confident that the sales would be there when you needed them. It was just a question of 1) pricing and 2) how quickly could you get there (i.e. get through the zoning and entitlement process).

This is not the case today. And it's happening in many (most?) markets, not just Toronto.

Today, the market clearing price for new condominiums is below the cost of actually building them. So no developer knows what the pricing should be, because no developer can price there and still have a feasible project. In addition, the question of timing is no longer dependent on approval timelines (though please don't take this to mean that approval timelines don't impact projects). At this point in the cycle, there are lots of zoned sites available. The question is now: When will the pre-construction condo market return?

It is impossible to know the answer to this. If you have a truly differentiated product catering to a specific buyer pool, then it is possible the answer could still be today. But if you look at the number of condominium suites under construction in the region (more than 85k) and the number of suites expected to finish construction this year (around 27k the last time I checked), most people are broadly assuming the answer is, at the very least, a few years from now.

Not surprisingly, this is having a meaningful impact on high-density land values. If you don't know when and for how much you can sell for at the back end, then it's pretty challenging to run a residual land value model today. Because it's a lot harder to have conviction in your assumptions. What this also means is that, if your assumption is the market will take years to return, then you need to add in this additional cost of time into your model.

To provide an indicative example, let's say that you're buying land today for $75 per buildable square foot, but that you don't anticipate being able to launch condominium sales for a few years. The result could be that once you add in interest charges and other carry on the land, your effective land basis could end up being somewhere closer to $125 pbsf. (Again, these are just indicative numbers.) The end result is that you have to pay that much less today.

In today's market, you need to have the flexibility of patience. So this is one of the ways that developers are thinking about new acquisitions, assuming they're still active. And it represents a significant discount on land (>50% in many cases) compared to where we were a few years ago.

Photo by Nadine E on Unsplash

Home, as I've always said, is not an actual building typology. A home can be anything. For some people, a comfortable home might be a suburban single-family house in a bucolic community. And for others, a home might be two converted office spaces in Le Marais that also double as a highly coveted event space for art and design. That's the thing about homes, they're very personal.

This latter scenario describes the home of Jérémy Rocher and Kym Ellery -- a space that seems to be making the rounds in Paris and getting people in the art and design community excited. It was featured in HTSI magazine over the weekend and looks like the below. (In case you were wondering, the answer is yes, that is a piece by James Turrell.)

The design brief given to architect Simon Pesin was to create "a home and a meeting place for art." This is a fascinating use case to me. Because it's cool and interesting and, in my view, a positive thing for the city. Brands like Danish furniture company Frama are some of the groups that have programmed it, which suggests there's maybe a need for more unique spaces like this.

But at the same time, as a real estate developer, it's mostly impossible to underwrite spaces like this. If you were developing this building and thinking about the various buyers/tenants who may want to one day occupy it, this segment would never be on your list. In fact, it is yet another example of Jane Jacobs' famous mantra that "new ideas require old buildings." This is an old building. Here's an excerpt from HTSI:

Rocher bought the property six years ago, though he and Ellery only moved in last year. “It’s funny, the property was on the market for six months because people didn’t see the potential behind it,” he says of what was formerly two office spaces fitted with partition walls, false ceilings and carpeting. “Even the windows and skylights were hidden,” he adds, pointing skyward.

Thankfully, all you need is one person to see the potential. That is one of the magical things about cities.

Photos: Depasquale + Maffini