Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1344

Au Canada by Samuel Auguste on 500px

https://500px.com/embed.js

Not everyone who reads this blog is Canadian. Not by a long shot. But for those of you who are, Happy Canada Day. Today, July 1, 2015, celebrates the Constitution Act of 1867 .

Canada is a young country, especially since we were still quite British in 1867. But we are a great country. And I feel privileged and proud to call myself Canadian and to have been born in this country. The best years are ahead of us still.

As Pierre Elliott Trudeau once said (15th Prime Minister of Canada):

“The past is to be respected and acknowledged, but not to be worshipped. It is our future in which we will find our greatness.”

Oftentimes I feel that many Canadians struggle with their sense of national identity and that we don’t have the same patriotism that our neighbors to the south have. (Some would say that’s a positive.)

But Canada actually feels incredibly distinct to me and I love this country. So I hope you are celebrating today. I’ll be celebrating with tacos and margaritas. What about you?

“This will be a game changer and will establish Toronto as a leader in running a truly smart city.”
- John Tory, Mayor of the City of Toronto

Yesterday I registered for a hackathon  called TrafficJam that’s taking place this October 2 - 4, 2015 here in Toronto. It’s being organized by Evergreen CityWorks and the City of Toronto, with the goal of fixing Toronto’s traffic troubles.

Tickets are free, but going fast. If you’re interested in this sort of thing, I would encourage you to sign up today . And if you do register or are already registered, drop me on a line so we can connect. I’m excited to see what kind of solutions we’re all able to come up with over the course of a weekend.

But as I was registering and reading through the website, I couldn’t help but think about some of the traffic problems that we won’t be solving over the hackathon weekend, namely the politicization of transportation planning in this city.

As an example of that check out a post by transit blogger Steve Munro called, The Vanishing Relevance of SmartTrack . 

SmartTrack is the transit platform that Mayor John Tory ran on last year. And this post explains why it is unlikely to achieve its pitch promises.

When you build a new office building, the typical strategy is to pre-lease a certain portion of it. That is, you sign leases with a tenant or a few tenants so that you know for sure that X% of the building will be occupied upon completion. It’s a way to manage risk. If you don’t do this, then you are said to be building the office building “on spec.” 

When you build a new condo building, the typical strategy is to pre-sell a certain portion of it. That is, you sell suites to purchasers based on plan drawings, certain finishes, and a model suite intended to illustrate what that future suite will more or less look like. And the reason this is typical is because most construction lenders will require you to do that.

So when you see office buildings and condo buildings going up, there are usually already tenants and residents who plan to move in or investors who plan to rent out their suite and have generally transferred that risk away from the developer. 

Because really the only time that a purchaser or investor wouldn’t close on a condo suite (and walk away from their deposit) is when the market corrects so badly that it actually makes financial sense to do that. That happened in the U.S. in 2008-2009 in a number of markets.

But by contrast, when you’re building a rental apartment building you don’t have anything to pre-sell and your tenants (unlike office tenants) aren’t going to sign leases with you for some space that will be ready in 3 years. If you’re lucky, they might sign a lease with you for an apartment that will be ready in 3 months. This means that by default you are also building “on spec”.

Now rental apartments are often considered to be the safest real estate asset class and the least correlated with the macroeconomy. But as a developer and city builder, this dynamic is still something to keep in mind.