Conventional wisdom suggests that if you're going to invest $10 million into an illiquid real estate investment that will not bear delicious fruit for 7 to 10 years, you may want to be compensated for the illiquid nature of your commitment. In other words, there's an "illiquidity premium." Flexibility is worth something. If you can get the same return and have the flexibility to get your money back when you want it, isn't that better? I don't know; maybe that's not always the case. Here's an excerpt from a clever article written by Cliff Asness, founder of AQR Capital Management, where he argues the reverse:
If people get that PE [private equity] is truly volatile but you just don’t see it, what’s all the excitement about? Well, big time multi-year illiquidity and its oft-accompanying pricing opacity may actually be a feature not a bug! Liquid, accurately priced investments let you know precisely how volatile they are and they smack you in the face with it. What if many investors actually realize that this accurate and timely information will make them worse investors as they’ll use that liquidity to panic and redeem at the worst times? What if illiquid, very infrequently and inaccurately priced investments made them better investors as essentially it allows them to ignore such investments given low measured volatility and very modest paper drawdowns?
Perhaps another way to think about illiquid private investments is that they kind of force you to think more like Warren Buffett. He has so many great lines to this effect: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." And: "The stock market is a device for transferring money from the impatient to the patient." He has also written over the years about how a tolerance for short-term volatility can improve long-term prospects. So, behaving in this way, it would seem, is generally good for making money.
The problem — and this is really Cliff's more precise argument — is that the majority of people simply aren't good at being like Warren Buffett. We're impatient and emotional. That's why he's so remarkable. His approach certainly sounds simple, but it's clearly not so easy. Illiquidity can help with this. It removes the fraught thinking part and might actually protect you from your own thoughts and emotions.
Conventional wisdom suggests that if you're going to invest $10 million into an illiquid real estate investment that will not bear delicious fruit for 7 to 10 years, you may want to be compensated for the illiquid nature of your commitment. In other words, there's an "illiquidity premium." Flexibility is worth something. If you can get the same return and have the flexibility to get your money back when you want it, isn't that better? I don't know; maybe that's not always the case. Here's an excerpt from a clever article written by Cliff Asness, founder of AQR Capital Management, where he argues the reverse:
If people get that PE [private equity] is truly volatile but you just don’t see it, what’s all the excitement about? Well, big time multi-year illiquidity and its oft-accompanying pricing opacity may actually be a feature not a bug! Liquid, accurately priced investments let you know precisely how volatile they are and they smack you in the face with it. What if many investors actually realize that this accurate and timely information will make them worse investors as they’ll use that liquidity to panic and redeem at the worst times? What if illiquid, very infrequently and inaccurately priced investments made them better investors as essentially it allows them to ignore such investments given low measured volatility and very modest paper drawdowns?
Perhaps another way to think about illiquid private investments is that they kind of force you to think more like Warren Buffett. He has so many great lines to this effect: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." And: "The stock market is a device for transferring money from the impatient to the patient." He has also written over the years about how a tolerance for short-term volatility can improve long-term prospects. So, behaving in this way, it would seem, is generally good for making money.
The problem — and this is really Cliff's more precise argument — is that the majority of people simply aren't good at being like Warren Buffett. We're impatient and emotional. That's why he's so remarkable. His approach certainly sounds simple, but it's clearly not so easy. Illiquidity can help with this. It removes the fraught thinking part and might actually protect you from your own thoughts and emotions.
At the end of this month, the last tenants will vacate the Tour Montparnasse in Paris to make way for its renovation. Nouvelle AOM, a collective of architects formed to respond to the project's international design competition, first won the commission back in 2017. And initially, the plan was to complete the renovation in time for the Paris Olympics in 2024.
But that time came and went, as it does, and now construction is starting this year. Nouvelle AOM, which includes Franklin Azzi Architecture, ChartierDalix Architectes, and Hardel Le Bihan Architectes, is in charge of the tower. And Renzo Piano Building Workshop is in charge of redesigning the commercial podium at the tower's base.
At the end of this month, the last tenants will vacate the Tour Montparnasse in Paris to make way for its renovation. Nouvelle AOM, a collective of architects formed to respond to the project's international design competition, first won the commission back in 2017. And initially, the plan was to complete the renovation in time for the Paris Olympics in 2024.
But that time came and went, as it does, and now construction is starting this year. Nouvelle AOM, which includes Franklin Azzi Architecture, ChartierDalix Architectes, and Hardel Le Bihan Architectes, is in charge of the tower. And Renzo Piano Building Workshop is in charge of redesigning the commercial podium at the tower's base.
The March issue of Monocle just dropped, debuting a new format called the Monocle 100. It's a list of the people, places, and things worth knowing about. And in the middle of it is something called the Monocle Property Survey, which was deliberately timed to coincide with MIPIM, the massive real estate conference that takes place every March in Cannes.
As a quick aside, our team contemplated going to MIPIM this year in search of both friends and money, but then we thought to ourselves: Why bother going to the South of France when we have Toronto in the middle of March to enjoy?
The first thing the Property Survey does is give a rare nod to developers: "While architects often nab all the credit for building our cities, streets and homes, it's actually developers who should get much of the kudos (and blame, in some instances). Because it's usually developers — small, large, private, state-funded — that must secure land, raise capital and take risks." It almost feels weird hearing somebody say something positive about our kind.
The March issue of Monocle just dropped, debuting a new format called the Monocle 100. It's a list of the people, places, and things worth knowing about. And in the middle of it is something called the Monocle Property Survey, which was deliberately timed to coincide with MIPIM, the massive real estate conference that takes place every March in Cannes.
As a quick aside, our team contemplated going to MIPIM this year in search of both friends and money, but then we thought to ourselves: Why bother going to the South of France when we have Toronto in the middle of March to enjoy?
The first thing the Property Survey does is give a rare nod to developers: "While architects often nab all the credit for building our cities, streets and homes, it's actually developers who should get much of the kudos (and blame, in some instances). Because it's usually developers — small, large, private, state-funded — that must secure land, raise capital and take risks." It almost feels weird hearing somebody say something positive about our kind.
We've spoken about the Tour Montparnasse many times over the years on the blog (here, here, and here). Parisians customarily hate it, and after visiting it in 2023, I can confirm that it's desperately in need of a renovation, and that the ground plane experience is abysmal at best. It is of that era where grandiose "slab-based planning" was going to elevate us beyond the pathologies of fine-grained urbanism.
We've spoken about the Tour Montparnasse many times over the years on the blog (here, here, and here). Parisians customarily hate it, and after visiting it in 2023, I can confirm that it's desperately in need of a renovation, and that the ground plane experience is abysmal at best. It is of that era where grandiose "slab-based planning" was going to elevate us beyond the pathologies of fine-grained urbanism.
Here's a Google image from atop the site's enormous podium:
Here's a Google image from atop the site's enormous podium:
What's interesting about the design from Renzo Piano is that it will reuse a lot of the structure that's already in place. The plan is to carefully open up the site, stitch it back together with the surrounding urban context, and then build up from there. Importantly, at the centre of the project will be a large, planted piazza that is intended to become a new civic space for the community.
The project renovations are expected to last until "at least 2030." So, we have several years until we'll know if it's an urban and financial success. But my prediction is that this project will positively transform how Parisians think about the Tour Montparnasse, and maybe how they think about tall buildings.
The tower itself will, of course, need to be beautiful. It's a highly visible object. There's only a trifecta of buildings and structures inside Paris proper that exceed 150 meters in height: the Eiffel Tower, Tour Montparnasse, and the Tour Triangle (Herzog & de Meuron), which is currently under construction and expected to finish this year. In this case, architecture is not irrelevant.
What's interesting about the design from Renzo Piano is that it will reuse a lot of the structure that's already in place. The plan is to carefully open up the site, stitch it back together with the surrounding urban context, and then build up from there. Importantly, at the centre of the project will be a large, planted piazza that is intended to become a new civic space for the community.
The project renovations are expected to last until "at least 2030." So, we have several years until we'll know if it's an urban and financial success. But my prediction is that this project will positively transform how Parisians think about the Tour Montparnasse, and maybe how they think about tall buildings.
The tower itself will, of course, need to be beautiful. It's a highly visible object. There's only a trifecta of buildings and structures inside Paris proper that exceed 150 meters in height: the Eiffel Tower, Tour Montparnasse, and the Tour Triangle (Herzog & de Meuron), which is currently under construction and expected to finish this year. In this case, architecture is not irrelevant.
But it is the ground plane experience that will ultimately revitalize the area and demonstrate that tall buildings can be good urban neighbours, even in a sea of Haussmannian mid-rise buildings. I've said before that the reconfiguration of the podium is arguably the project's most crucial design move.
Get it right and you'll see what happens.
Cover photo by Luxigon via Nouvelle AOM
Aerial and street view photos from Google
Model photos from Renzo Piano Building Workshop
But even better, the survey includes a full page on our unique creative residency program at Parkview Mountain House (Park City, Utah):
But it is the ground plane experience that will ultimately revitalize the area and demonstrate that tall buildings can be good urban neighbours, even in a sea of Haussmannian mid-rise buildings. I've said before that the reconfiguration of the podium is arguably the project's most crucial design move.
Get it right and you'll see what happens.
Cover photo by Luxigon via Nouvelle AOM
Aerial and street view photos from Google
Model photos from Renzo Piano Building Workshop
But even better, the survey includes a full page on our unique creative residency program at Parkview Mountain House (Park City, Utah):
A big thanks to the Monocle team for the feature. If you're in Toronto and would like to pickup a copy of this month's issue, visit their shop in Little Italy at 776 College Street. And if you'd like to learn more about PMH, including our creative residency program, visit pmhpc.com.
A big thanks to the Monocle team for the feature. If you're in Toronto and would like to pickup a copy of this month's issue, visit their shop in Little Italy at 776 College Street. And if you'd like to learn more about PMH, including our creative residency program, visit pmhpc.com.
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Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
