Real estate investors are able to sleep more soundly knowing, as much as they can be assured, that the development they are committed to incorporates the building blocks of a successful project.
Those necessities include sufficient density to capitalize on the cost of the land, good location, not being timid about striking, a marketable design and quality materials. It costs more, but a building will lease and sell faster, and for a higher premium, than a property that looks like it was built cheaply and will run down in a few years.
Clifford Korman is an architect and urban planner with 25 years’ experience and a senior partner in Toronto-based Kirkor Architects and Planners. The firm specializes in the design of high-rise residential towers. However, in the 20 years since it was founded, it has been involved with most property types. NREI recently sat down with Korman to discuss development, design and the secrets to success.
NREI: Are developers and owners looking for a good deal with more architectural originality in their new buildings these days, or are they stuck in a groove with safe but tired design?
Korman: They want more marketable architecture, more one-of-a-kind imagery, with some familiar themes worked into the design. New hotels in Las Vegas, for example, are meant to instantly "read" New York, Paris and Venice. While those are obviously extreme examples, uniqueness has become more important.
Developers who continue to build "boiler plate" buildings are having trouble in this market. Unique buildings are doing much better attracting tenants. Do they cost more than conventional-looking buildings? Not necessarily.
Clients today are much more conscious of the difference between bland and standout buildings. A one-of-a-kind building constructed with cost-effective material and 85% or more floor-plate efficiency will do better in this market. Good designs sell; great designs sell even better. It’s better for the community, and holds its value longer through the real estate cycle.
NREI: Is density of development, without jamming too much on to a small site, one of the more important elements of a successful real estate development?
Korman: Absolutely. There must be enough density to reduce land value per apartment unit or square feet of commercial space to a rate where the developer can absorb the costs and make a profit. That’s why there is so much downtown intensification and development, and why sites can sell for four times or more what the same acreage would fetch in the suburbs.
NREI: What are some of the other factors? Hard and soft costs? Paying for location?
Korman: Say a developer invests C$160 to C$165 per sq. ft. to produce an average 1,000 sq. ft. midtown condominium apartment. That includes land, hard construction and soft costs (accountants, architects, planners, zoning, development charges and marketing). The developer sells it for C$190 to C$200 per sq. ft. per unit, for a C$25,000 profit per unit.
Success is also, of course, about location. People will pay, depending on the city. To illustrate the point, here are some pricing examples: C$200 to C$210 per sq. ft. for a condo in the suburbs; C$250 to C$265 per sq. ft. in midtown; C$300 to C$320 per sq. ft. for downtown; C$320 to C$350 per sq. ft. on the waterfront or particularly trendy neighborhoods; and as much as C$500 to C$700 per sq. ft. in special buildings and locations.
(These figures are in Canadian dollars and relate to Toronto, although the general principles prevail in U.S. cities, and likewise depend on specific urban markets and neighborhoods.)
Construction costs downtown are usually higher, but that is factored into the budgets and anticipated profit. We designed a 60-story Ritz-Carlton hotel and condominium for a quarter-acre site in Toronto’s downtown financial core. That’s going to create staging and manpower problems, with special steel to be ordered, concrete having to be poured during the night, cranes swings that won’t work because of neighboring buildings and so on.
NREI: Sounds straightforward enough, except for the constraints of building in a congested downtown. What can go wrong?
Korman: A developer may have paid too much for land, or didn’t get approval for as much density as he originally contemplated, which results in less revenue.
NREI: Why does your firm favor glass cladding over pre-cast concrete for high-rise residential towers.
Korman: Tall, narrow glass towers are elegant, and may look expensive but in fact cost about the same as pre-cast because the lower price of the product and higher cost of installation roughly cancel each other out.
There is, admittedly, a slight loss of efficiency in a glass tower. A typical concrete slab building with consistent 20,000 sq. ft. floor plates, two stairwells 200 ft. apart, served by three elevators, is about 88% efficient (net-to-gross saleable or rentable-to-gross floor area) after deducting common areas and elevators.
Four glass-point condominium towers we designed for a client in Toronto — 11,000 sq. ft. per floor tapering to 8,000 sq. ft. at the top — is 86.2% efficient. But that minor loss in efficiency is more than offset by 90% of the 1,000 units being pre-sold before a shovel went into the ground.