Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 611

Last year over the holidays, I attended a virtual wine tasting event that was put on by one of our partners. It was with a vineyard / winemaker in Spain and so it was evening for us and some ungodly hour for him.

At the end of the tasting -- which was exceptional, by the way -- I asked him what he thought about the Niagara region. Some of you may know that I love to support local Ontario wines. His response was hilarious and something along the lines of: "When we think of Niagara wines, we think of a part of the world that shouldn't produce wine but somehow does."

Ouch.

This was maybe the case before. But I think the region, vines, and industry have all matured. We also have some exceptional winemakers, some of which have come from the Old World because our startup-y wine region affords them far more creative freedom.

But you might also argue that things are changing because our climate is changing. The Financial Times recently published an interesting "big read" about how agricultural production and crop types are shifting around the world in the face of climate temperatures.

It turns out that wine grapes are a pretty good leading indicator. A canary in the coal mine if you will. Because climate matters a great deal if you're trying to make exceptional wines. And if you've been harvesting a particular thing at a certain time for the last 5 decades and you're now doing it several weeks earlier, it might be a sign that something is changing.

It also turns out that two countries, in particular, stand to disproportionately benefit from this shifting agricultural landscape: Canada and Russia. As temperatures change, a new agricultural frontier is going to be created. And it is expected that more than 50% of this land will be in these two countries. See image at the top of this post.

Of course, there's a flipside to this change. Countries on the other end of the spectrum with marginal growing climates and/or low production yields, could be severely impacted by higher temperatures. So perhaps it is a good idea to stay on top of what's happening in the world of wine. Might I recommend something from Niagara?

Image: FT

The typical way to build buildings is through a design-bid-build approach. The way this works is that you first design stuff and create drawings. You then ask people to price the stuff that you have drawn. And then you proceed to build what is on the drawings and what has been priced.

There are a number of possible risks with this approach. For one, the design/drawing phase is sometimes/often done in isolation without a lot of feedback from the contractor and/or subcontractors. So you might be designing and drawing things that aren't all that feasible or constructible. Pre-construction involvement helps address this.

Another risk is that you're buying what is on the drawings. So if the drawings suck or aren't properly coordinated, then you are likely opening yourself up to a barrage of change orders and lots of additional costs.

In theory, it all sounds fine. Here are my drawings and specifications. Give me a price. And then let's build. But as many or most of you will know, it's generally never that simple or easy. Though it will, of course, depend on the type and complexity of the project.

Another consideration is the kind of contract you enter with your constructor. Is it a cost-plus contract, where the constructor simply charges a percentage on top of whatever the costs end up being, or is it some kind of lump sum or guaranteed maximum price (GMP) contract?

While I was in architecture school I decided to take a class on construction delivery methods. The instructor was, in my mind, your quintessential construction person. He was built like a brick shithouse and he never minced words. He also had a voice that sounded like a subwoofer.

I wouldn't say I'm an expert, but I do remember him hammering home two points. One, GMP actually stands for guaranteed minimum price. This is forever imprinted in my mind. You're never going to pay less and you're almost certainly not going to pay the "maximum" number. You will end up getting change ordered and paying more.

Two, lump sum and at-risk contracts create a very different relationship between owner/developer and constructor. In his words, it is adversarial.

Because if I'm a constructor and I've promised a specific number, I'm likely going to do a few things. I am going to inflate the numbers to make sure my profit margin is protected throughout the project. And if my profit margin gets squeezed, which it likely will, I'm going to look for other ways to make money.

Personally, I side towards cost-plus and construction management arrangements. I don't want an adversarial relationship. I want a partnership where there's as much alignment as possible around a common set of project goals. Let's ride or die together.

Similarly, when it comes to the actual procurement and delivery methods, I find that we are often using more integrated approaches as opposed to cut and dry design-bid-build approaches. You want the competitive pricing that comes with bidding, but you also want collaboration. It's about striking that right balance.

The construction process is a messy one. These are just some of my thoughts this morning. If any of you have any insights, I would, of course, welcome them in the comment section below.

100 Franklin is my kind of project. Developed by DDG Partners, 100 Franklin is a small boutique condominium project that was completed last year in New York's Tribeca. From what I can tell, there are only 10 residences in the project, ranging from 1,427 to 3,673 square feet.

A number of things are interesting about this project, particularly when you compare it to how and what we typically build in Toronto.

One, it's kind of an awkward site. It is made up of two triangular lots that one could have easily dismissed as being not all that developable. (Granted space is a precious commodity in Manhattan.) But DDG made it work (they have an in-house design team). They also managed to stitch the two buildings together so that they read as one big awesome street wall.

Two, it's only about 30,000 square feet. I mention this because, you don't see a lot of development at this scale here in Toronto. With entitlements taking as long as they do (among other reasons), it can be a real challenge. So if you're not capital constrained, you may as well take advantage of the economies of scale associated with going bigger.

Three, I think it speaks to differing cultural attitudes around housing. By Toronto standards, these are very large suites. The average size of a new condominium in downtown Toronto is probably somewhere in the low 600s (square feet). I think that tells you a lot about who is buying and how they think about living in a multi-family building.

Four, it's downright just a beautiful building with some really terrific brickwork. For photos, check out here and here .

Image: Robert Granoff via DDG Partners