Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1528

A friend of mine posted this article on my Facebook wall yesterday: “ A Snowier Silicon Valley in BlackBerry’s Backyard. ”

It essentially talks about the fact that despite the rapid decline of BlackBerry (it just reported $4.4 billion in losses ), the Kitchener-Waterloo region is thriving. Many companies—both local and international, such as Google and Motorola, Square, Desire2Learn, Kik and others—have all hung their shingle in the area. 

Part of this certainly has to do with the University of Waterloo , but much of it also has to do with the legacy of BlackBerry. In fact, you could argue that BlackBerry (formerly Research in Motion) is what started at all.

In reading the New York Times article I was reminded of a post that Fred Wilson wrote last year called, “ The Darwinian Evolution of Startup Hubs. " It’s a great post. In it he talks about how he looks for the company that gave birth to the hub. In Silicon Valley he argues that it was Fairchild Semiconductor and in New York it was Doubleclick .

Once started, he likens the hub to a growing forest. The big trees (mature companies) start dropping seeds and new trees then start to grow (more startup companies). This is important, because it kick-starts a non-linear cycle of entrepreneurial growth.

Here’s how he maps out Silicon Valley:

"In my mental model of Silicon Valley, the first "tree" was Fairchild Semiconductor (founded in 1957) which begat Intel (founded 1968) which begat Apple (1976) and Oracle (1977), which begat Sun (1982), Silicon Graphics (1981), and Cisco (1984) which begat Siebel (1993) and Netscape (1994), which begat Yahoo! (1995) and eBay (1995), which begat Google (1998) and PayPal (1998), which begat YouTube (2005), Facebook (2004), and LinkedIn (2003) which begat Twitter (2006) and Zynga (2007), which begat Square (2010), Dropbox (2008), and many more."

Using this logic, Fred Wilson argues that Silicon Valley is about 10 cycles in and New York is at about 2. So what about Kitchener-Waterloo? Well if you buy into the argument that BlackBerry is what started it all, we’re really only into our first cycle. BlackBerry created a lot of wealth and talent, and now it’s being deployed into local startups. Our forest has begun.

Part of me worries, though, if Kitchener-Waterloo is the right place for a startup hub over the long term. Sure it has the University of Waterloo, but does young talent want to be there? At about 320,000 people, it’s no San Francisco, New York or Toronto. And we’re already  seeing a significant pull towards urban centers.

But let’s look at it from the perspective of Southern Ontario as a whole. We’re at a critical moment in our evolution. The mother tree has caught a disease and it’s starting to take its toll. It may be able to fight it off, but right now it’s not looking promising. Thankfully, there are many young trees sprouting up to replace it. But we’re going to need to take special care of them, because they’re probably our best shot at creating our own thriving forest.

I’ve said many times before that the real estate market is an imperfect one . Participants lack access to a lot of valuable information and there’s a significant amount of friction between buyers and sellers.

A perfect example of this can be found in this recent Toronto Star article , which is suggesting (at least in the headline) that only about 23% of Toronto’s condos are owned and rented out by investors. The article is reporting on the Canada Mortgage and Housing Corporation’s annual publication called the Canadian Housing Observer .

Of course, to come up with this number, CMHC is only reporting on data held by the MLS. It does not include units that may have been rented out via Craigslist, Kijiji, social media, a billboard in the lobby, or some other means. And I would argue that the rental side of the marketplace has a much stronger tendency to go outside of MLS as compared to sales.

So what what this means is that we have absolutely no idea what the actual percentage of investor owned units in the city really is. Here’s how CMHC put it:

Mathieu Labarge, CMHC’s deputy chief economist, acknowledged that “to complete the picture there’s a need for data,” and it simply doesn’t exist.

Nobody seems to know exactly where buyers, or their money, is coming from, why they are buying and how they intend to use the condo.

In reality, the investor percentage is going to be higher:

“We think the number is closer to 50 per cent,” says veteran Toronto development consultant Barry Lyon. “The data they (CMHC) are using has some shortcomings. It’s only part of the story.”

Now, I don’t have the answer, but I think it’s pretty safe to say that consumers and the market as a whole would be better off if it had all the information.

Marketer Seth Godin just wrote a typically short blog post called, “ Am I supposed to like this? ”

In it he talks about the fact that we are, for example, more likely to enjoy the food at a fancy restaurant. And we’re also more likely to enjoy a bottle of wine if it’s expensive or if we believe it comes from some desirable wine region and it’s supposed to be good (you can even just switch the bottle).

He then sums up this idea in one line that I really like: "Judgments happen long before we think they do."

Now, I’ve thought about this same idea with respect to cities. Take New York, for example. New York is famous. If I had to pick a capital for the world, it would probably be New York.

You watch it in movies and shows (even if it’s actually filmed in Toronto, Chicago or some other stand in). We read about it. We hear about it. We generally form judgments without the actual experiences. That builds brand equity. We’re supposed to like New York. Sex and the City told us so. And that makes it all that much better when we eventually get there.

Of course, it’s a bit of a catch-22. You have to be an awesome city for people to want to make movies and songs about you. But in this era of global connectedness, I think everyone, from citizens to economic development agencies, can fake it until that city makes it by investing in “ supposed to. " Am I supposed to like this city?