Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 330

Here is a recent post by Scott Galloway comparing Uber and WeWork. In it, he praises the virtues of asset-light business models:

For most of business history, having assets was good, and having more was even better. However, one of technology’s tectonic unlocks has been elevating information (bits) over objects (atoms). In the information age, owning assets is one business, while operating them is another, and each demands distinct capital structures, management approaches, and operational skills. Businesses offering the greatest return on invested capital don’t have much capital (assets) and can scale up faster, as they don’t bind themselves to cars, apartments, or even inventory.

We know this. Uber doesn't own cars. Airbnb doesn't own rental properties. And most hotels, as Galloway mentions, also don't own their real estate. Generally speaking, hotels are brands that enter into fee-earning management contracts with people who own real estate.

However, WeWork is not this. According to Galloway, WeWork had $47 billion of pre-IPO lease obligations. These ran/run through to 2038. In this regard, WeWork is more bank-like: they have a similar mismatch of short-term assets and long-term liabilities.

Galloway also argues that asset-light businesses offer the greatest ROI because they can scale up faster. And this is certainly one of the virtues of tech businesses. In more asset-heavy businesses like real estate development, each project/asset is largely a discrete effort.

But there are significant advantages to owning real estate; one of them being that, at the end of the day, you own a hard asset.

Venture capitalist Fred Wilson once wrote on his blog that one of his big lessons from the dot-com bubble was that he learned to take his tech wealth and funnel portions of it into hard assets -- namely real estate in New York City.

This, of course, comes with its own set of risks. But clearly there is something to be said about owning real estate.

As a broad rule, I like videos and movies that feature Toronto. I think it should happen a lot more often. So here's Drake's latest music video, which does exactly that. If you can't see it below, click here .

https://youtu.be/Xty2gi5cMa8?si=7knWJiL3hYm_jDTZ

We have spoken before, here and here , about so-called "use-it-or-lose-it entitlements".

The catalyst behind this idea -- and it is just an idea at this stage, at least here -- is the belief that too many developers are sitting idle on zoned land. And they're allegedly doing this because they believe it will be worth more tomorrow.

Why bother building anything when you can instead just wait and make money that way?

To counteract this speculative force, some believe that one answer is to just strip land of its zoning entitlements if it's not used within a certain period of time (right now it lasts forever). I get why this is sometimes proposed, but my response to this has consistently been: it's a terrible idea.

It is a terrible idea because developers are generally always incentivized to move as quickly as possible. And it is a terrible idea because every now and then a period in the cycle will arrive where, it's not that developers don't want to build, it's that many/most can't.

And guess what? Right now is one of those times .