Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 313

This example , by Matt Levine, is a funny way to understand how many negotiations work:

In negotiations, it is often helpful to have someone else, some “absent principal,” to blame for your position. You go to a car dealership, the salesperson says “this car costs $25,000,” you say “I want to pay $21,000,” she says “I like you, I want you in this car, but my boss won’t let me go lower than $24,000,” you say “$22,000,” she says “I really want this to work out, let me check with my boss,” she goes into the break room and watches TikToks on her phone for five minutes, she comes back and says “my boss is really mad at me but I talked him down to $23,500.”

The boss is a crutch, an excuse. The salesperson is adversarial to you — she wants to charge more, you want to pay less — but wants you to feel like she’s on your side, so you trust her and agree to her proposals.

Now, Matt ultimately goes on to talk about how in some situations, such as in the financial industry, this could be considered criminal behavior. But that's a more nuanced topic for his column, and not for this blog. Here, we're just going to use it as a lead-in to say that negotiating is kind of important for real estate.

In fact, when I was in grad school, my mentors used to always say to me, "everyone should take a negotiating class." And so I went and did that. It was a lot of fun. I remember us being given "positions", and then we'd have to go out and see what we could negotiate.

One particular concept that I often find myself coming back to is something referred to as the "ZOPA." The Russians in my class were quick to point out that this sounds like the word ass in their language, but in the world of negotiating it stands for " Zone of Possible Agreement ."

What it describes is whether there's an overlap between what both parties are willing to accept. For example, if a buyer is willing to pay as much as $100 for a particular piece of real estate, and the seller is willing to go as low as $80, then there is a positive ZOPA of $20.

This means that a deal should theoretically happen. However, interestingly enough, I discovered in my classroom simulations that negotiations can still arrive at an impasse, even with a positive ZOPA. Some people want to do deals, and some people like to extract everything they can from a negotiation.

Of course, if you have a negative ZOPA (i.e. no overlap in what the parties are willing to accept), then it's obviously pretty hard, if not largely impossible, to come to a deal. And since 2022, you could say that the real estate industry has been characterized by a greater number of negative ZOPA scenarios.

But if my predictions for this year are correct, then 2024 will be the year where we start to see some more positive ones.

I'm so predictable. This is the kind of house that tends to grab my attention: modern design, relatively small footprint (~7.8m x 12.3m), narrow street (~4m), and panoramic views (of Seoul). But what does it take to actually build a house like this in an urban fabric as dense as Seoul's?

If you read TIUM Architect's description (using Google Translate for those of us who don't speak Korean), you'll see that the house was built out of concrete and steel, but that concrete trucks couldn't stage on the narrow and dead-end street.

So what they ended up having to do was build a 100-meter concrete conveying pipe (~328 feet) and staging somewhere else. It was such a pain in the ass that they only wanted to do this for the foundations. The rest of the house was built out of steel. (I think because of the clear spans that they wanted.)

Sometimes small infill projects aren't as simple as they may seem. In this case, the lot size is 92 m2. The building footprint is 51.53 m2 (56% lot coverage). And the total floor area is 136.52 m2.

Photo: Lee Hanul via ArchDaily

Last week we spoke about how many businesses don't want to own their own real estate, but that some do. We then spoke about Prada's recent acquisition of 720 and 724 Fifth Avenue for $835 million. However, they're not the only ones. According to New York's The Real Deal (thank you John Bell for the article), last year saw the following transactions:

• Swiss fashion house Akris bought a property from SL Green for $40.6 million

• Japanese coffee retailer Geshary bought a property on Fifth Avenue from the Riese Organization for $38 million

• And Dyson bought a building in Soho for $60 million

Now, some, or a lot of this, is strategic. New York is New York, and global brands need to be there. Another part of this is that there was less competition last year. Fewer real estate companies wanted to buy retail and office buildings, and so end users seem to have stepped in at what they presumably saw as favourable prices.

But it's also not totally foreign for retailers to want to own their own real estate. Perhaps the most famous example is McDonald's , which owns its own real estate and then leases it out to franchisees. Though as I alluded to last week , it's important to know what business you're ultimately in. And McDonald's knows it's in the real estate business.