The Prefab Pod

Episode 22 - Jordan Bem, Moliving

The Prefab Pod

 

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TranscriptMichael Frank - Prefab Review

Hi, My name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people and companies in the prefab and modular housing industry. Today we're speaking with Jordan Bem of Moliving - a company that makes a kind of hotel in a box offering. Though he'll give more information on that, using beautiful prefab modular units. This is the center of something we're getting a lot of interest in, and that's the convergence of short term rentals, high yield real estate assets, and modular. Jordan, thanks for joining and can you tell us a little bit more about your offering.

Jordan Bem - Moliving

Thanks for having me Michael. My name is Jordan Bem and I'm the co-founder of Moliving.  Moliving is the first luxury nomadic hospitality solution. It's a lot of words, but what we basically created is the first truly mobile hotel room.

Prefab Review

Awesome! So can you provide some more details on what that means when you say, “the first truly mobile hotel room.”

Moliving

Yeah, absolutely. So a lot of companies you know are utilizing prefab today, whether it's utilizing containers or utilizing airstreams or whatnot to create hotels. Where we believe we position ourselves basically between that mobility space. So the wonderful companies like autocamp the casinos of the world. The collective retreats, getaways, and so on. And on the other side the luxury resorts, The 4 Seasons, the 6 Senses of the world. So that's where we position ourselves today. What we've created is a truly mobile hotel room that's supported by true 5 star operations.

Prefab Review

Cool. So one of the things that caught my eye when I learned about your company, at least on your website. It shows these kinds of very attractive units. Maybe you can talk about this a little more, kind of 1 bedroom modular units. Is that right? And is that the sort of standard unit or is there a variety of different types of units?

Moliving

Yeah, so every footprint is basically the same, all of our units are about forty five feet long and twelve feet wide which makes a big difference compared to all the tiny homes and usual prefabs that we see. So most prefabs you see are actually eight feet wide. Ours are 50% wider. The inside square footage of our rooms is 399 Square feet plus we have two exterior decks that are about 120 square feet each. The rooms that you see online are actually real rooms that we took pictures of. They're not renderings. And the package is basically the same and every single setup is going to be a 399 square foot setup. What changes from location to location is your FF&E package. So obviously your rooms that are going to be positioned by the water, you know by the beach, will have a different interior décor than they would have if there were in the mountains.

Prefab Review

Got it that makes sense. And then we were talking about this a second ago, you're talking about how this is really a joint venture between you and I guess the landowners, can you talk a little bit more about who you're trying to appeal to. And just what the value prop is all around.

Moliving

Yeah, absolutely. So our goal is to democratize the hospitality space both on the development side and on the experience side. So on the development side, what we basically do is we joint venture with landowners and as we joint venture with landowners, landowners provide the land and some minor permanent infrastructure, in forms of utility hookups or in forms of an existing building on a property where we can operate all the FMB out of. And we bring in all the services that are common to the hospitality space. Your reservation systems, your operations, your staffing, your marketing setup. And so instead of providing key money to entice landowners to let us utilize their land, what we do is we bring in our hotel rooms. And then in exchange for that, what we basically do is that on every dollar that comes in, there's a profit split on the bottom line.

Prefab Review

I see. So essentially the equity that the landowner is putting in is essentially the land in that situation. 

Moliving

Correct, so we focus on seasonal markets and the real issue of seasonal markets in terms of development is that first of all, development is expensive and second of all, it's a very short period of time where you can generate profits. So if you're in a location by the beach it could be 2  or 3 months out of the year or 4 months out of the year for example. In markets near New York which usually is memorial day to labor day. So banks are very iffy on providing very large loans to build permanent infrastructure. What we do is, since we bring in our hotel keys at Molivings cost to the table, if a landowner goes to a bank for a senior, basically on a project. Let's use the example of our first hotel that's going to be in Upstate New York, the permanent infrastructure development plus you know the acquisition of the land and so on, roughly represents a $12,000,000 - $13,000,000 development cost. So that JV partner went to the bank and asked for a loan on that amount but is showing performance on a project that's actually $24,000,000 because the rest of the money is actually brought in in terms of rooms by Moliving itself.

Prefab Review

Got it. That's Interesting. What are you all looking for? So it sounds like location, right? Having enough demand and willingness to pay your sort of daily rates are and have the occupancy necessary to generate revenue to make these JVs kind of work for everyone. So what are the metrics and information you're looking for in terms of picking locations.

Moliving

So we can't really tell you too much about the metrics because they're proprietary to the brand. But you pinpointed it quite well, we're looking for seasonal locations that generate high ADRs and high occupancy in short spurs. So pick and choose, I don't know, a market for example near New York, the Hamptons for example or upstate New York have very high ADRs as well as very high occupancy for periods that are roughly four to five months out of the year. During the rest of the time we have pieces of land that we jv on. That are in opposing markets. So what we'll do during the low season, is pick up our rooms from location a and all the excess inventory and move it to location b. So hotels from both locations a and location b will be open year round but what we basically do is tailor the supply to respond in real time to demand.

Prefab Review

Got it. And just for context for our site, I know we have hundreds of thousands of visitors a month but then on our sort of concierge service, we  help tens of homeowners a month actually get in homes. So we have some level of experience moving modules from place to place and you know getting them set and all that stuff and you know not necessarily at the scale of doing 20 or 50 or however many are in sort of your kind of hotel style places at a time. But the cost isn't totally trivial in moving stuff. I guess my sort of question is, how much of an issue are switching costs because it sounds like you're basically, it sort of sounds like your canonical example is, “you're gonna have a partner in Florida who is going to take your upstate New York units for the winter or something like that. How big of an undertaking is this from both a time and money perspective to move a bunch of units you know twice a year.

Moliving

Yeah, money wise we underwrote a $6 mile cost, it seems like for the moment we're paying on average $4 a mile to move our units. On the undertakings side,

Prefab Review

Yeah, that's actually almost exactly what we see on the residential side as well.

Moliving

Yeah, so it's um, you know it's just a semi-truck basically coming to pick up our units. And they hook on directly, sort of exactly what you've seen previously. It hooks on to the semi and goes. So it takes about 15 minutes to basically get it ready, to go unhook the unit. 

Prefab Review

And are you using RV style connections?. 

Moliving

Absolutely.

Prefab Review

Okay, got it.

Moliving

In addition to utilizing RV style connections, we can also operate 100% off the grid. So that makes the process a little bit faster. The only lengthy process is basically taking apart the FF&E package because obviously your FF&E package upstate isn't going to be the same one as Florida for example.

Prefab Review

Right.

Moliving

But you're talking about probably an hour and a half to 2 hours to actually empty out the unit.

Prefab Review

Yeah, so one of the things that we've helped people do a lot who are doing this subscale right? You know like we’re working on a really cool project right now aimed at golfers in Palm Springs is kind of designed these sort of purpose built,  ground-up modules. Yeah for like very sort of specific tailored models. Can you tell me a little bit about the sort of design and factory process for your unit? So far, I saw you have job listings for Oklahoma and Texas for your engineering team. So. I'm guessing you may have a factory down there or are working with a factory. Can you talk about it? Yeah, just to sort of the architecture process and then like are you using your own factory, are you partnering with someone else, etc.

Moliving

Yeah, so everything we've done in regards to our units is designed in house. So Stephen Chen, who's currently one of our advisors, designed the unit. Basically every single bolt has been designed by him. The units are then fabricated in Oklahoma with our partner SG Blocks. So SG Blocks and Moliving have been partners for the past four years. And we build them out there and then ship them. Basically we have partnerships with a couple different trucking companies that take care of us.

Prefab Review

Got it. So are these are not containers? They're just these factory built modules, right?

Moliving

Correct. So we voted to not utilize containers. It's been something that's been done. Yeah, but you could still cut through the center of the container and make it wider. What we did is we inspired ourselves.

Prefab Review

I assume because containers are usually eight feet wide so doing the twelves that you talked about would be right?

Moliving

By the engineering of a container with the 4 corners and so on and decided to really tailor make a product specifically for the hospitality space. And what we realized is most of these other companies that utilize tiny homes, containers, and so on, you feel cramped in eight feet wide. But when you walk into one of our units, you really feel like you're walking into a 5 star product. I mean you walk in and the ceilings are extremely high. The insulation is extremely good. You can't hear anything around you. But as you walk in, there's these beautiful huge windows. So you're immediately projected to be outside while having the comfort of a 5 star space around you.

Prefab Review

And then I guess one question I had is, I'd say we spend a tremendous amount of time with clients trying to navigate, especially on these sort of higher end vacation markets, navigating permitting and all that stuff. Again, these are mostly for residential areas, not commercial areas. I guess you've at least done that in New York a little bit so far. How much of a beast of a task is that, given that you're doing something kind of innovative and maybe a little different than probably what's been approved before?

Moliving

Without giving you guys the whole secret sauce, what I could tell you is that the undertaking of permitting, the first hotel was huge and took us about two and a half to 3 years to actually permit it properly. Ah, the beautiful thing from there is that our product is the same and everything's replicable and today we have a replicable process that's actually a real legal case. So wherever we go, the process is now extremely quick.

Prefab Review

Got it, and extremely quick as in like six months or a year from like the time you start doing stuff or is it faster than that?

Moliving

We can open a hotel in six months today which is unheard of in the hospitality space or construction space because the real advantage of not only you know, developing modular, is not only the permitting, but is really the fact that we're building an assembly line. And as we build on the assembly line, we don't have weather delays. We also at the same time know exactly how much product is going to be built. S  I know that for unit one I need you know x amount of steel. So my waste is exponentially lower than it would be on a regular job site. So on a regular job site for something that's four hundred Square feet, maybe you’d have you know half a dumpster. Yeah, probably half a dumpster of  trash and unused materials versus when we're building in a factory. We now have probably half a trash can and that's unbelievable.

Prefab Review

That makes sense. You mentioned the upstate New York one, I think that's called Hurley House, can you talk a little about that project?

Moliving

Yeah, yeah.

Prefab Review

And yeah, just like the scale and scope of it.

Moliving

Sure. So it's actually going to be called Moliving at Hurley house. But your research is right. The project is a 55 acre project there's going to be about 60 rooms on the property. It is going to be a flagship for Moliving. It's going to be opening later this year. The project itself is going to be a true five star with full FMB and an amazing eighty feet long pool. 300 person capacity pavilion, 2 lakes, miles of trails. A really unbelievable piece of land. We're very fortunate to be launching a product there.

Prefab Review

Then I guess 2 more questions. One question I have when I hear all of this, is like it sounds like you guys are bringing a ton of value with your offering. Why JV? Why not just buy the land too? Does this just make it more capital efficient or are there other things that I'm not appreciating?

Moliving

I think today it's more capital efficient and it just matches our schedule better. My previous experience is in the development space. And today I think, if there is an unbelievable piece of land that we absolutely want to be purchasing,  maybe we will purchase it. But today, we really want to focus on developing the brand itself. You know, the real value of what we're doing is the intrinsic value of Moliving is the brand. If you're staying for 4 seasons for example, wherever in the world, 4 seasons don't own their pieces of land. But you know it's synonymous to a 5 star experience. Same thing with six senses and with W hotels. Wherever you go, you know what to expect and that's what we want to create at Moliving, is this unbelievable experience.

Prefab Review

So one of the things we get a lot of people to our site are people who are interested in the idea of, you know, making money. They love the idea of, “hey I get to put this beautiful thing on my land. So what you're doing may actually resonate a lot like, you know at least dozens of people who sort of comment into our site or reach out every month. Maybe thousands. So from the perspective of a landowner and a potential JV partner for you all, What is the elevator pitch? How do you quantify the opportunity for them? Like a lot of times, people are looking for IRR or cash on cash returns. Yeah, how do you sort of describe both the economic and just general opportunity to potential land partners.

Moliving

Well we're more in cash on cash than IRR because IRR depends specifically on the re-sell, cash on cash makes more sense. Most of the people we've dealt with today and we have a lot of sites that are currently under due diligence for actually early2023 openings, so just be ready to see way more Moliving  sites. The most important part from the economics that we found is actually finding people that have the same vision as us. And when it comes to vision, it's not only the vision for the property itself but its respective nature. That's what we found was actually the biggest selling point prior even to discussing economics and as we discuss economics, it's very simple, it's minimum capital going in. 9 out of 10 times you already own the piece of land and maximum capital coming out because we're bringing in a lot of the capital ourselves basically to the table and we're just splitting it on the back end.

Prefab Review

And is this pretty passive for the landowner because you're doing operations?

Moliving

It's it's a hundred percent passive

Prefab Review

Okay, so this is like, so I'm sure you know what Triple net leases are. This isn't exactly like that. But like there's sort of some similarities in terms of like you and the lease but like most of this stuff is actually taken care of by you, the lease or operator etc.

Moliving

It's the equivalent of a triple net lease. So just to give you a little bit of background on myself,  My previous life was development throughout Europe. And that's the only thing we deal in is triple net leases on commercial spaces. Yeah.

Prefab Review

So that's actually kind of helpful in terms of an analogy. This has been super helpful to learn about. just ah now that we've learned a little about you. One thing we try to do is sort of tap into the expertise of the people we're talking to quickly. It sounds like you have a rich investment background. So if you don't mind, we're going to do a quick fire around these are sort of some general questions. If possible, try to keep your answers to 1 minute or less. That'd be great, but not too much of a stickler on this.

Question number 1 is, in terms of evaluating sites for this kind of undertaking can you give us a quick checklist of the kind of things you look for for a hospitality site to work?

Moliving

Yeah, we look at the comp-set, usually look at high ADRs, high occupancy, short periods of time. So seasonal markets basically and construction cost.

Prefab Review

When you're looking at ADRs a lot of people in our sort of neck of the world end up using a lot of these airbnb sites, sort of the air DNAs of the world. For your projects, do you end up just looking more at hotel comps or do you look at the short-term rental cops as well?

Moliving

Now we of course take a look at air DNA, I actually met with them probably about five, six years ago when they were launching it which is just really neat right? It's crazy how big that company's become but air DNA makes sense for  less rural areas and more city areas, basically more urban areas. We take a look at it because it turns out their appraisers request it. We haven't really found a value in air DNA specifically so we look closer to the sdr reports than than the air DNA.

Prefab Review

Yeah, that makes sense. Can you talk about the interior design of  your rooms? That's something we get a lot of questions on too, like okay so you've got this box. How do you fill this out with the kind of furniture that strikes the right combo of I guess in your case, luxury but also sort of economy on the operator/owner side?

Moliving

Ah, so I'm a developer and I am not an interior designer, so we actually enlisted the help of a designer to help us.

Prefab Review

That makes sense. Did you have a sense for sort of the features in rooms that guests care most about? This is something we get a lot. In terms of, okay how important is a hot tub? How important is an on suite bathroom in every room etc? Were there specific features that you were like we need to have this etc.

Moliving

Yeah, so we wanted seamless integration of technology. These are sort of the instructions that we gave to the interior design team. We want the unit to be filled with technology but the technology to actually not be visible. So for example, our desks have integrated induction chargers so you put your phone on the desk and the phone charges. Or we have Samsung frame Tvs or we have devialet speakers which are very high end. We wanted the wood to feel warm. These are sort of the instructions that we gave to the interior design team that came up with an unbelievable at least to my taste unbelievable package in the unit. But at the same time the idea was giving true 5 star almost city like interiors. But with nature as your party piece. The whole concept of Moliving is that I love nature. I love walking around and in nature sitting next to a lake you know, enjoying myself and so on. But I don't want to stay in a tent. The idea is really creating a product for that is to enjoy nature while being in the comfort of what I'm used to.

Prefab Review

That's great and then I guess the final question, this is not a fire round question but we ask this to everyone. What are you most excited about for your company or industry in the near future?

Moliving

Honestly, just developing more and more sites and changing the face of hospitality. I mean I really think that our product and our brand will really revolutionize the seasonal market because we can build cheaper than anyone else. And as we build cheaper, that means that we can sell our rooms slightly under market value. And if we're selling a room slightly under market value. We're opening up the market to more and more people to be able to come to places that had high barriers of entry prior. So we're just really, we're stoked to to be quite honest with you to really change the way things currently are. I don't think it's right that places like the Hamptons, for example, are charging $2,000 a night or you're from San Francisco. I don't think it's right if you're going to Napa. You're paying $2,700 a night, I saw the other day.

Prefab Review

That makes sense. We are definitely looking forward to hopefully seeing a lot of Molivings pop up and yeah, just seeing the way this concept develops and hopefully getting to stay in one soon. Thanks again. Jordan, it's been really great learning more about this. For more information about Jordan and Moliving - moliving.com I think it's the best place and as always you can visit us at prefabreview.com. Thanks again.

Moliving

Awesome! Thank you so much!

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Episode 21 - Sam Ruben, Mighty Buildings

The Prefab Pod

 

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TranscriptPrefab Review

Hi, my name is Michael Frank and this is The Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Sam Ruben of Mighty Buildings, a company that makes small homes in the US out of California. Welcome, Sam.

Mighty Buildings

Thank you, Michael. It's great for the opportunity to be here.

Prefab Review

So I'm definitely excited to learn more about your company. But first, I was just hoping to learn a little bit more about you. How do you get into this business?

Mighty Buildings

Well, before Mighty Buildings, I was working as a sustainability consultant, having gone to Presidio Graduate School here in the Bay Area, which is one of the first programs in the world to center the entire curriculum around systems thinking and sustainability. And so I had been working with organizations, helping them optimize their impacts while: so impacts both in terms of sustainability, so environmental and social, as well as the impacts to the bottom line. So looking at everything from building envelopes to HVAC systems, LEDs to what's it mean to move a garbage can 10 feet and what's the impact on the waste disposal and recycling rates that way? And so it's been a really, really exciting journey and connected with my fellow co-founders who were originally at the time based in Singapore and had seen how they build there. In Singapore, the government owns all the housing, so they rebuild it every 20 or 30 years with the latest and greatest. And so they'd come here and they'd seen that we're still building, for the most part, using technologies one hundred twenty years old and just kind of blew their mind. And then for me, in terms of 3D printing and this is where it becomes obvious just how big a nerd I really am. I've been in love with 3D printing ever since I realized that Star Trek replicators, which has the atomic level 3D printing with energy modulation. And so as my capstone, as part of my capstone for my MBA, me and my team developed a business plan to take uncontaminated plastic hospital waste and convert it into 3D printer filament. And so when my my co-founders connected with a former classmate of mine who they worked with when she was at Indiegogo, they reached out to her to find out someone who could help them with the sustainability and the regulatory side of things. And she posted on one of our alumni Facebook pages. And I happened to reply, I think I may have actually even suggested a for another classmate who had been an advisor on my capstone. But I think he'd already taken a job like attaching smart cities or something. And then I met with our CEO, Slava, and he shared the idea with me and the vision. And just it made sense. And it was already clear to me that the world needs a better way to build both in terms of solving the housing crisis, but also doing so in a way that doesn't exacerbate the climate crisis. And so when he shared the vision that they had and the technology that was in development, it it clicked. And so I was really excited to join and I have been leading our compliance and certification, as well as our sustainability efforts ever since. And so I'm sure we will get into the regulatory side of things a bit more, because obviously with 3D printing, it's a new space and the building codes are literally written in blood. So it's imperative that we demonstrate that safety in code compliance. And we can talk about that in a bit.

Prefab Review

Yeah, totally. Just before we do, can you explain, and you can go to the Mighty Buildings website, MightyBuildings.Com to see some examples. But can you explain at your core, what you do?

Mighty Buildings

Yes. So what we do is we 3D print houses. We've been moving incrementally in  how much of the units are 3D printed. Again, given the conservative nature of building regulators, just to make it as easy as possible at each step to say yes as we continue to build out our testing portfolio to demonstrate compliance and further use cases. But what we do is we've developed a unique material. It's a thermoset composite. So many people are familiar with corian by DuPont, which has been used as cladding and countertops since the 60s. And it's a similar class of materials. So it's effectively a synthetic stone without silica. But what we've done is we've developed a unique formulation and a unique production process that allows us to 3D print it. And what that means is that we use light to cure it. And so it allows us to print an entire three hundred fifty square foot studio shell in less than 24 hours. And so that's something we already have the ability to do. We're not delivering those units yet, again because of the regulatory side of things. But we will have that ability in short order based on the introduction of 3D printing into the building, into the 2021 international residential code as a part of Appendix AW, which is based on the new UL 3401 standard, which we are the first and only company and technology certified under it, and which was developed as a as a result of the process that you all went through in evaluating our technology for code compliance. And so with the 3D printing, with the light, what that means is the material cures quickly enough that it can support its own weight, which means that not only can we print the floors and the walls, but we also have the opportunity to print the roof and other unsupported spans. And it also allows us to have the ability to do free form design and bring more organic shapes into construction. And that's something we hint at with the curved wall on our ADUs that we're delivering currently, but something we're looking forward to continuing to develop into what our end goal, which is really to be a tool for an industry. And really be a production as a service platform to allow builders and developers to do more. Given the constraints that we're seeing on the material supply chain and on the labor force across the construction industry more broadly.

Prefab Review

That makes sense. In terms of what you make, you're basically making ADUs  and small homes in California, exclusively?

Mighty Buildings

So our initial market has been accessory dwelling units and going direct to consumers. And the reason we chose the ADU market as our beachhead and kind of a starting point, is the changes in state law starting in 2016 that went to effect in 2017, which really streamlined it. And the simple fact that because of their size, somewhat cost prohibitive for most builders and developers unless they're doing many of them at the same time because of the overhead associated with that. And so what it also meant was that it was a space that we could demonstrate the viability of our technology,  our compliance and certification portfolio without competing against the builders and developers who we've always seen as our end customers. And so along with what we're doing with ADUs, last month, we actually also announced our first BTB project, Villas, down in Rancho Mirage, which would be the initial phase will be 15 single family homes plus ADUs, and that'll actually be the world's first zero net energy 3D printed community. And we're looking to replicate that in a few different locations across California. And our long term vision is to actually have a distributed network of factories all across the United States and the world where we have demand and where we have partners so that we're not A exporting California construction cost to other states because that's just really silly, given how expensive it is to build here, but also that we're reducing those logistic costs, that we're able to take advantage of the local cost structures and most importantly, that we're creating jobs for that local market. Because one of the really cool things about using 3D printing robotics, because the 3D printing is actually the first step. So we have the world's largest light based printing system in which we can print up to a 450 square foot footprint and up to a 3,700 cubic foot volume, which means we're actually more limited by over road transport than we are by the actual print volume. And then it goes from there to our robotic finishing cell where because of the nature of our material, well, first we have a 3D scanning attachment which scans the object or the module to make sure that it matches the digital file that it was based off of, while also creating an exact digital copy of the physical object itself in order to create toolbars for post processing. So after the scan, we switch to an attachment that has a CNC head because even the raw material is really strong. We are able to mill it using CNC heads that are normally used in metals like aluminum, copper, and we're able to use that so we can either leave the beautiful printed surface, which some people really, really like and actually are willing to pay a lot of money to have done on traditional materials. Or we can mill it so it is a sort of smooth stone like finish. And it also opened up a future possibilities of increased design versatility, both from the 3D printing and the ability to print different forms, but also the ability to do things like mimic brickwork or mimic siding based on how we mill the surface or even create facade looks that have never been seen before. And so that's something that we're where we're going is to really unlock that versatility of design and really unlock that creativity. And so we have a rapid plugin that allows designer developers and builders to work with a new panel system, which we call it we call the mighty kit system, kind of like the Sears kit home for the twenty first century and the mighty house line that we have and that we're using for the villa project with our group down in Rancho Mirage and Coachella Valley is the first deployment of that. And those mighty houses have been designed by architects out of Los Angeles, one of the world's leading modern design firms and also in partnership with one of the world's leading engineering firms. And so that's been really exciting. And the first deployment of that and in the future with that plug in the plan is to continue to develop it, to actually allow designers to work directly with our technology, opening up that ability to do free form because we already have a software stack that can take 3D models and convert them into printable objects.

Prefab Review

So in terms of 3D printing, when we talk about the vectors of benefit, right. Like you talked about design, you've talked a little bit about potentially the sustainability of the materials. Is there a cost advantage here right now as well?

Mighty Buildings

There is, yeah. So right now the units we're delivering are type two summer luxury and we're able to deliver them for about 40 percent less than comparable stick built. And then in the sustainability side, because we're using 3D printing, we're able to print only what we need. So where we are right now, it's about 95 percent waste diversion. We're in the process of adding the ability to capture the milled material from the milling process, and we use that as filler and new material at that point will be over 99 percent elimination of waste that you would see from a traditional build. So that's two to five tons of carbon. Because we're eliminating three to five pounds per square foot that would normally go to landfill in a traditional build.

Prefab Review

Got it, I've seen you started out with these modular buildings and then you talked about sort of your kit system, which it looks like are both sort of apparent in your homes. And I guess in sort of the more interoperable stuff you talked about in terms of  the plug in with Rabid and other architects. Why why kits versus modular for all this? Is it just greater flexibility?

Mighty Buildings

Yeah. So it opens up additional opportunities. Because one of the things that we've learned in delivering modules is that as amazing as they are and as quick as I mean, we have the ability with our studios, which are a single model, even with our duos, which are two models, to have those set in a day and fully installed in about a week. So they're amazing for that. And fully finished ready to go. But you generally need cranes and cranes and power lines do not play well, and once you start getting into removing power lines, it gets very expensive and you start seeing potential timeline extensions of six months or more in order to get those permits. And so it means that with modules we're limited in where we can deliver and with the kit system, it allows us to increase that flexibility because with the kits where we only need about six feet to get into a backyard versus the ability to crane over. And so that's a huge opportunity to address a larger market, as well as to demonstrate the versatility of our production system. Because, again, where we're going is really a design and product agnostic production as a service platform. And so having the ability to do modules, having the ability to do panels really opens up a variety of design possibilities, as well as delivery opportunities that can be customized to the needs of a specific project.

Prefab Review

Got it. So why user facing it all at this point? Just because you need to bring proof of concept? We should talk about your service offering in general to consumers, but, you know, coordinating all these different parts is a lot of work.

Mighty Buildings

That it is.

Prefab Review

It's much more work than just being a technology provider. So, yeah. Why do that?

Mighty Buildings

Yeah, and you're right, because we also do offer a full turnkey experience for our customers where we handle the entitlements, we handle coordination of site work, all of that to make it as easy and as painless as possible. But yeah, you're right, a lot of it basically was to allow us to have the chance to prove the viability of the technology, prove the market fit because most builders and developers tend to be conservative, understandably so, they tend to be risk averse. And so when it comes to new technology, there's some reticence to be the first mover and to be the first one that's taking it up. And so by being able to demonstrate that we can do it with homeowners, it has opened up those other opportunities on the B2B side, especially ever since we announced the Villas project, that interest has gone up even more. That said, we've been talking with some of the biggest builders from the very beginning. And so there are ongoing conversations there that as we demonstrate the ability to deliver and the ability to scale, those will definitely pick up.

Prefab Review

So if I'm thinking about your product lines right now and I'm looking at the fact that you are, it looks like you're also continuing to expand your product line in general.

Mighty Buildings

Exactly. We started with ADUs now we're also offering single family homes. And our goal is hopefully by end of next year to be doing low rise multifamily. So townhouses and three to six story low rise apartment buildings using our new fiber reinforced version of our material that we're moving into a certification later this year.

Prefab Review

And then in terms of your actual, like single family homes and your current products, it sounds obviously you're saying that your technology is infinitely flexible. But if I'm a consumer and I'm a homeowner, like particularly for single, I mean, if you're in the Bay Area, we do a lot of products in the Bay Area. And one of the I would say not my favorite parts of the process is the design review process in some areas. So, like, if I'm trying to build a single family home, even if I really wanted to look this way. Right. Like I might get substantial feedback, how much flexibility if I'm a consumer, do you all sort of so provide me with, you know, design.

Mighty Buildings

Where we are now, it's relatively limited. I mean, particularly because we are operating with state approved plans, which means that we're getting the building permit for at the state level rather than when we get to local level it's more, say, permits for the site work. And then also, as you mentioned, design review and planning and plan checks were zoning purposes.

Prefab Review

And that's true for single family home kits as well? Or are you just kind of on the ADU side?

Mighty Buildings

Well the kits are nice because they have the opportunity to either be certified under the state or with the local authority, depending what makes the most sense, because we also do have the ability or one of the things we're working on is that ability to also to preassemble the kits into modules for sites where that makes sense too. So that also adds to the versatility.

Prefab Review

So that's essentially the same thing as modular.

Mighty Buildings

Exactly. And so one of the things with that versatility is that ability to kind of approach it, the permitting and entitlement process from the route that makes the most sense.

Prefab Review

Right. And because I've found a kit and I don't know what your experiences are. Modular is considerably more complicated to get financed than kits in our experience, just because of the, and maybe it's not different for you, but we we've seen like draw schedules and stuff just be a little, there's a wider variety of lenders we use for when we're doing kit builds then for modular builds.

Mighty Buildings

For ours it's been, I mean well it also depends if the modular is modular or if it's manufactured.

Prefab Review

I mean like non-HUD.

Mighty Buildings

Yeah. For us we haven't noticed a ton of difference yet, but it'll be interesting to see how that changes over time because obviously having those comps makes a huge, huge difference. And so where you're building can often really impact how easy that financing is.

Prefab Review

So in terms of flexibility, just because I mean, I'm looking at the homes on your website right now.

Mighty Buildings

Yeah, it's right now. It is pretty limited.

Prefab Review

So if I wanted to change floor plans within a shell is that kind of, like is it basically only cosmetics, but like any kind of floorplan structure is out?

Mighty Buildings

If you're a B2C customer, we do have some limited customization that we can do. And depending on the project, it's something we can discuss. If it's a developer builder, there's a much greater opportunity to do that because then obviously we're doing a number of units at a time and so more scale and then it makes more sense to go through the process of getting the approval for a new design. But in the future, yeah, the goal is to have a much higher level of customization possible and a lot of those cases will actually be working with builders, developers and kind of doing a white label. Some of them may be custom home builders who are doing larger projects and single family homes, one off. And then some of them will be more developers who are doing a number of units at once. But the goal is eventually to kind of be able to offer that level of versatility, but for where we are, it's not efficient for us to do so yet.

Prefab Review

Looking at your existing product line, can these go on any kind of foundation? Like, I know you're in Oakland and we've done projects in kind of Oakland Hills, Berkeley Hills, and you see a ton of like post and pier foundations and other such things because they sort of it's both kind of the style.

Mighty Buildings

But yeah, I mean, the versatility and all the different soil types. And then, like, if you don't want to do, how much grading do you want to do, or have to do. And so, yes, we designed our modules. I think we already have designs for seven different foundation types, including helical piers and everything we've delivered so far has made sense to do as a slab. But yeah, we do have that ability to adapt to different foundation types depending on the needs of the specific site.

Prefab Review

Got it. So the question we get most, which is riddled with nuance. But that's OK. We'll do the best we can here around cost. So like I'm looking at your website right now and I'm looking at like, let's say, the mighty duo ADU, which is 700 square feet. If we assume that you're installing that in an expensive area, which are probably almost exclusively areas you work in if you're located in Oakland. But, you know, let's say like a flat lot.

Mighty Buildings

Well, I mean we've delivered units to East Oakland. We've delivered units all across the Bay Area, San Diego. So it really doesn't make a difference as far as the neighborhood. We got interest from all over and they're able to deliver.

Prefab Review

Cool, OK, so I just meant like an area. If you were moving units to Riverside County, at least the local area, labor might be a bit different than like.

Mighty Buildings

Yeah, and we do notice that for particularly when we're looking at the full turn-key, we often are able to provide lower final estimates in Southern California than we are for our projects here in Northern California. And that just reflects the nature of the subcontractors for the site work and everything.

Prefab Review

But so let's say I'm talking about building the Duo B, which is like your 700 square foot, one and two bedroom. Can you help me? And I mean, you're really good about sort of breaking down, like starting at prices. But can you sort of explain, like, what you would expect, like a typical build to come out at assuming right, a flat lot And just explain kind of where the cost variabilities are, because I assume the local labor is probably the biggest one.

Mighty Buildings

So, yeah, so the unit itself, a two bedroom, I think we're selling the two modules fully furnished, including a washer-dryer, induction cooktop, dishwasher, everything. High-end finishes, beautiful bathroom, lots of storage. So that is with the two bedroom version, I believe $169,000 for just the unit itself. Right. And then we generally see 30 to 40

Prefab Review

And that is just the module, not including anything else?

Mighty Buildings

Exactly, not counting the site work, not counting the entitlements, not counting any of the delivery, installation. And we generally see about 30 to 40 percent on top of that. So that's where the starting at $255,500 you see on our website for starting out is generally what we see on average. And so that's kind of where that starts. That's going to be more or less what it's going to be for a pretty basic site where it's easy access, flat lot, a community that doesn't have particularly high fees, which obviously now that states cap those in most cases under

Prefab Review

Under seven forty nine, right?

Mighty Buildings

And so where it starts to get expensive is on sites that maybe are on hills, that require grading, that might have a retaining wall that may require or if perhaps it's a site where you've maxed out your utilities and you need to add in another utility box or upgrade your sewer line. So those are obviously things that can add significant costs. But if it's just straightforward, it's pretty, pretty basic. And once the entitlements are in hand, we can have it on the ground and completed in less than a month.

Prefab Review

Are you including solar on those?

Mighty Buildings

They are solar ready and we do have an upgrade available for solar.

Prefab Review

Is it necessary though? I'm sure you're much more knowledgeable on title 24.

Mighty Buildings

Yeah, so it has to be at least solar ready. And then the homeowner is required to install solar, though depending what the shading looks like, that can impact how much solar they're actually required to install. And it also depends because some of our units are actually approved under the previous codes, like I'm ready studio design is basically my studio design. And some of those variations of that actually don't require solar because they were approved under the previous building code and which is good for three years that approval of those ones. So it really varies. But yeah, but we do offer it and we are looking at kind of also offering battery storage to be able to take it off grid because it is, they are pretty efficient. The amount of energy required is relatively low. And so it's yeah, it's definitely an opportunity. And I mean, part of it, like with the Villa project, those are zero net energy because we are both the energy efficiency, but then also the inclusion of solar and the inclusion of battery storage to add not only resiliency, but then further ensure full title 24 compliance and going beyond that to zero net energy.

Prefab Review

And you said all your building is happening out of your Oakland facility right now?

Mighty Buildings

Currently. Correct.

Prefab Review

And obviously, I would say there's one or two companies that we work with that do a bit of construction out of L.A., but part of the idea of prefab or modular, it seems like it's to take advantage of lower cost labor pools. Right. So, you know, as I said, locate your factory in Utah or in Riverside.

Mighty Buildings

Right. I mean, that's why a number of the manufacturers here in California. They're being built in Washington or Idaho.

Prefab Review

Yeah, exactly. I imagine margin matters a little bit for larger builders. So I imagine the ability to just have lower cost inputs probably helps a lot in that stuff. So is that on the roadmap for you all to kind of locate somewhere, in kind of a more rural area probably, or at least a less coastal area?

Mighty Buildings

Sort of. So we're not trying to race to the bottom. What we're doing really is helping the existing labor force build more. Where we're able to capture significant savings per unit is that we can eliminate up to 90 percent of the labor hours and really optimize it so that the human touch is being used for the parts that make sense. In doing so, we're also looking to increase productivity by as much as 20 times. So at the end of the day, we're actually hoping to create more work. And so for us, because of the way we kept our savings, it's not as important to be setting up in rural areas. And in fact, that's one of the things that we can do that you really can't do with traditional prefab and still be cost efficient is that where we are in Oakland. We're in an old Peet's Coffee Warehouse by the Colosseum. So we're in the heart of an industrial center. We were able to find an empty warehouse space that we can take advantage of and not need to build hundreds of thousands of square feet or a million square feet out in a rural or semi-rural area that's far from demand and far from your labor pool. We can actually set up near that demand and use that labor pool while still being efficient. And so that's one of the real big advantages. So our vision is actually a distributed network of factories around the country and around the world, like looking at places like Phoenix, like Detroit, like Pittsburgh, like Seattle, and really being able to set up factories using existing warehouse space. So we're not having to build a bespoke factory, you can actually spin up a factory in three to six months, a relatively low cost, and serve that market and create new jobs for that market. So we're not necessarily trying to avoid the labor. We're actually just trying to think what that labor looks like and what where it makes sense and in order to maximize its value.

Prefab Review

That makes sense. Got it, and then in terms of actually the fulfillment of your existing homes, have you just built a builder network around California to actually do the kind of local foundation and site work and all that stuff?

Mighty Buildings

Yes, we've got a network of contractors that we work with across the state who we've vetted and trained. And we also provide additional tools to make it easy and to help ensure that we get first time right on the foundation every time and make it as cookie cutter and IKEA easy as possible.

Prefab Review

Is there any special training they need to do?

Mighty Buildings

Yeah, no, no special training. I mean, everything they're doing is things that they already know how to do. But we've been looking at how we can help optimize things for them. So providing various forms and things like that just make their lives as easy as possible and also help ensure that it minimizes any rework that's necessary. So in that regard, we're looking at both digital tools, but then also physical things, like what it looks like to create a form or have custom form work for the concrete that we provide to make sure that it is exactly what it's supposed to be. Things like that.

Prefab Review

And you have some details of this on your website. So sorry for the redundancy. From a timing perspective, is the time to build these pretty similar to, you know, most modular and prefab homes?

Mighty Buildings

I mean, we can build the unit in about a week. So once we have permits in hand, we can have a unit fully installed in under a month. I mean, the biggest variable in the entitlement process is the permitting. On our end. We've got it, we've got it locked. Like, once those permits are in hand, we're good to go. We can do it in a month. The issue is that those permit timelines are still incredibly variable. I mean, we've had permits that have taken a week. We've had permits that have taken six months.

Prefab Review

I mean, the state of California has 60 days to get feedback. Right?

Mighty Buildings

They have to take some sort of action within 60 days. And so some of it comes down to , one of the few benefits we've seen from the pandemic is the digitization of planning departments. So that's been a great move. But we're also still dealing with that. They're still dealing with large backlogs and they're doing everything they can. But it's still moving slower than I mean, and from talking with city officials, I mean, it's slower than they want it to be. Like they're not trying to make it slow. It's just the reality of where things are for a lot of projects right now. But they're working on getting better. And part of it is also taking advantage of opportunities like pre-approved plans in places like L.A. and San Jose and others. And so that's one of the methods that we are working on and getting out. And we believe either some have been approved or are in the process of and will be posted there shortly. And so we're looking at ways we can accelerate that way also through just developing that relationship with the local officials because they want to get more housing. I mean, with the regional housing needs allocations as they are, ADUs have become so much more important in helping cities avoid massive fines and lawsuits. So there's real opportunities. But we also have to do education around the fact to build housing programs. We provide an educational packet around who is responsible for what phase of the approval. So there is also an educational component both because of the 3D but because of the familiarity with the approval process for our homes.

Prefab Review

That's awesome and great to learn a little about Mighty Buildings. I want to quickly transition to our fire round where we sort of ask a question to the extent you ca,n answer in one minute or less.

Mighty Buildings

Fire away, I feel like we should be eating hot wings.

Prefab Review

There should be a siren or something. So I guess the first thing is sort of in terms of evaluating sites. I mean, this is a particularly Bay Area, L.A. question we get a lot, which is I'd love to do an ADU. I don't know if my sight is too steep, et cetera. What are the things that homeowners should look for?

Mighty Buildings

Power lines. At least if you're looking to do modular, understanding where the power lines are is a big part of it. Understanding what kind of access you have to the backyard where if you're building with modular, think through like, is there an opportunity, maybe you have a neighbor who has easy access to that location through their driveway or something. And so it's looking for those opportunities. But then also thinking through how steep is it? What kind of soil might you have? What kind of foundation is going to be required? Is it going to require an extensive retaining wall? And these are all things that we help with. So if they're interested and they're not sure, they should reach out to us because we have a wonderful compliance team that does, one of the first things we do, is that we take a look at the site. First we start on Google Maps to do a basic quick understanding of the feasibility, and then we actually send out one of our local partners to confirm what we've learned on the site and look at things like the utilities, understanding the capacity there, whether any upgrades will be required and the viability of the site in terms of delivery and installation.

Prefab Review

OK, that makes sense. In terms of sustainability, we get a lot of press releases from companies claiming a new breakthrough in sustainability and just like in the same way on construction, we get a lot of press releases where people are like, you know, now we cut to one one-thousandth of a millimeter. And this is precision like you've never seen before. So one of the things that we sort of are to figure out is how do we, like, sort of cut through the marketing speak and evaluate what really matters? How would you say on a sustainability process that homeowners who want to kind of live their values, what should they look for?

Mighty Buildings

Yeah, so they should be looking and be asking about how much waste is generated during the construction phase, because that's kind of  an often  hidden sustainability impact. They should be looking at what kind of energy efficiency does it provide or what are the potential savings to their energy bill? Because, I mean, that's all because the cool thing about sustainability, particularly in terms of energy efficiency and the ability to do zero net energy, is that not only does it have amazing impacts in terms of carbon, I think a zero net energy home in California saves on average about 400 kilograms of carbon a month. So you're looking at like four tons of carbon, almost five tons of carbon a year, but then also looking at about $115 in savings per month on average on the cost. So that's one area, is what's the actual energy efficiency and the performance of it there? And then you should also be looking at things like what's the embodied carbon of the material and what's being used? And I'll admit there, that's one area that we're currently higher than we want to be. But we've also committed to being carbon neutral by 2028 and going beyond that and really shooting for carbon negativity by 2040. So one of the things that we're actively doing right now is we're certifying a new material that has lower carbon. We're identifying new possibilities for further improvements through incorporation of things like recycled materials, as well as continued improvement in terms of strength to allow us to use less material and reduce the carbon impact in that way. But then also what happens at the end of life? Because that's when we're thinking about it, we actually have incorporated lifecycle assessment into our design phase, both in terms of new material as well as new designs. And when we do that, we're not just looking cradle to gate. So we're not just cradle to foundation, we're not looking to just when it's installed, but we're looking all the way to the end of life. And so currently we have the ability to recycle our material, to grind our material up, and we use it as filler. We're looking fifty, a hundred years down the line, but we're already thinking about it. And in the future we're looking at opportunities to go beyond that. And so we're also incorporating obviously design for assembly and for manufacturability and assembly, which is a key part of any manufacturing process, but also adding into that disassembly and reuse. So what's it look like to identify opportunities for reusing the material and end of life? Because it's really important that we're avoiding that landfill at the end, even if it's fifty or a hundred years from now.

Prefab Review

That makes sense. What are the use cases that people are actually using your homes for now? Is it mostly like,  "I want a little more room in my house, I want an office" or you've seen people doing this for investment purposes as well?

Mighty Buildings

It runs the gamut. So we've had customers, some who are landlords who want to add an additional unit to an existing rental property to provide more rental options. People who are homeowners who have added a unit to turn that into a rental property and have that income generation people have used them as pool houses, multigenerational living both in terms of younger people moving back, as well as parents kind of moving in as they downsize, guestrooms, as you say, home offices, needing more space. So it really runs the gamut.

Prefab Review

OK, that makes sense. OK, this has been awesome. You definitely passed the fire round.

Mighty Buildings

Oh, good.

Prefab Review

I know you're concerned about that. The final question we ask this to everyone, is what are you excited about for your company or the industry in the near future?

Mighty Buildings

Yeah. So for us I'm really excited about this new project in Rancho Mirage and our step into B2B and really helping become that tool that can unlock the productivity needed while not exacerbating the climate crisis. And more broadly for the industry, I'm really excited by some of the exciting initiatives that are out there, like the Advanced Building Construction Collaborative that's working on either launching or is going to be launched shortly to help unlock productivity in the American offsite construction sector, similar to what was done for silicon chips back in the 90s, because there's a huge new opportunity there. And so it's been really exciting. I'm seeing a lot of stuff happening through, like the Housing Innovation Alliance, a lot of interesting conversations happening about healthy buildings and the build to rent market as kind of growing opportunities, particularly in areas where you have more land and where it's not necessarily competing as much on kind of sensitive environmental areas. So it's definitely some really interesting conversations. And it's great to see the industry really moving towards embracing new technologies as a way to solve the crisis while mitigating those climate crisis impacts.

Prefab Review

That's awesome. Yeah, I agree and we appreciate all the work you all are doing to push this forward. So thanks again, Sam. For more information about Sam and Mighty Buildings, visit mightybuildings.com. And you can also always visit us at prefabreview.com. Thanks again.

Mighty Buildings

Thanks so much, Michael.

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Episode 20 - Jeremy Nova, Studio Shed

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

Hi, my name is Michael Frank, and this is The Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab housing industry. Today we're speaking with Jeremy Nova of Studio Shed, a company that makes kit ADUs, sheds, and a bunch of other cool stuff. Based in Colorado, I believe. Welcome, Jeremy.

Studio Shed

Thanks a lot for having me.

Prefab Review

Awesome. Yeah, we're really excited to talk to you and excited to learn about your company, but first I was hoping to learn a little bit more about you. We were just talking about how you are a professional cyclist or mountain biker. You know, not everyone we talk to here was a professional athlete before they got into the prefab housing industry. So how did you get into this?

Studio Shed

It's actually, well, they're related stories. I was a professional mountain bike racer for about 15 years. My wife was as well. And the way that crossed over into the prefab world was we lived in a small ranch house in downtown Boulder. And I think between the two of us, we had like twenty mountain bikes and nowhere to put them. And I've always been a real enthusiast of modern architecture and clean design. And I got an engineering degree at the University of Colorado in Boulder. And so I just decided to design and build my own kind of cool storage shed for mountain bikes. And that was how the company started. I never well, I actually never even envisioned starting a company about doing that. But my now business partner, Mike Koenig, he loved what I did, and said, hey, can I do the same thing? He built one and turned it into a home office. And that was back in 2005. And then we kicked around the idea of doing it,

Prefab Review

Was that just two by fours and like very DIY in your backyard?

Studio Shed

Yeah, it was a total DIY. Not permitted. I mean, the design aesthetic of that original one is actually still pretty similar to what our signature series is now. But I had yeah, it was all stick built. I put the glass panes in and built my own window stops and had metal fabricated and all that stuff. And so it was, it was a true DIY project and then his was as well. And then the first stage of the company was really figuring out, OK, how do we turn this into like a prefab concept? How do we actually make it? How do we create the technical details that make it? So it's actually like a good technical product and not just a DIY shed in your backyard.

Prefab Review

And so why do this as a  prefab product? I mean, there's a big record of me being a fan of prefab. Like, you know, if you had done it stick built, why not just create like a local builder in Boulder and just build these for people around there?

Studio Shed

So it's a great question. I think part of it was we always sort of envisioned it as this fun Legos for adults kind of project. And we wanted to make it so it was something that you could put together with a lower skill set than needing to know, like, say, framing, carpentry or any of those kinds of things. And so we wanted it to be kind of like this IKEA-type product. And we haven't gotten there. Right.

Prefab Review

So this would be like a kit for the everyman and not something that requires a local builder.

Studio Shed

Right, exactly. And obviously, like, you know, that was 13 or 14 years ago now. And so the product has evolved by light years. But there is, we're obviously plugged into the the prefab landscape as well, but what we found and where we are fully committed as a company now is sort of like a more hybrid prefab model where we've learned that there are things that are very, very efficient to do in a factory and they result in a much higher quality product. And there are still some things that are just more efficiently done in the field.

Prefab Review

And what specifically are you talking about? I know a lot of the homes, especially bigger single family homes, like garages, for example, which are still site built compared to like, sometimes they're panelized, but they're largely still site built even on modular homes.

Studio Shed

Yeah, yeah, yeah. I mean, even like something like putting in a garage door. Right. Or something like, you know, I mean plumbing, you know, like stitching together plumbing fixtures. In my opinion, like some of the dream of prefab are around, like not having to do any sort of the hard work of the field labor. And there's truth to that. Like, it's difficult to find quality contractors to do these things and you need to say, OK, if I can move all of that manufacturing into a controlled environment, that's going to potentially lower cost. But it doesn't work as well as it could. And so I think and we think there are efficiencies to sort of 2D prefab as well. Where you're panelized, you can use a crane, you can access more sites more easily with things like that, and so I think that that's really where we see a lot of this going, is to do what makes sense in a factory, and then do what makes sense in the field, in the field. And the field piece is harder. Like that's one of the things for our company, having built out a real network of professionals that are able to service this and do that field work, that's the harder work than, say, creating the specs to have a module that's factory built. But building those relationships and building the service side of the business has been paying large dividends, now that we have a bigger footprint with those install teams.

Prefab Review

So let's go back to the actual company, Studio Shed. And I know this, and check out Studio-Shed.Com if you want to see, like, beautiful photos. But what is the focus of Studio Shed? What do you do? What are your products?

Studio Shed

Yeah, so there's really. Yeah, that's a great question. So the company started, as I said, with just small, backyard, high-design sheds and pretty much immediately moved into smaller home offices and single room studios. That still makes up the majority of units that we sell. They're, 10 by 12 is our most popular size. So it's a single room perfect for a home office or a creative studio. A little backyard sanctuary, and that's our signature series line, that goes up all the way to 12 by 20. So that's pretty big. You get just a little bit more than two hundred square feet. And then our other main product line is called the Summit Series. And then that goes from about two hundred square feet up to a thousand. And then those are available directly through us with kitchenettes, bathroom, one bedroom configuration on the larger ones. And so that's really obviously the ADU landscape and that's the portion of the business that's growing the fastest right now. And we see, you know, I'm sure you're plugged into this as well, but the ADU landscape and market is really beginning to mature and communities are embracing that.

Prefab Review

Particularly California.

Studio Shed

Yeah, California is huge. I mean, there's so much legislation there that's passed that's made ADU construction far more favorable recently. So we really specialize in that thousand square feet and down small prefab single room studios and then up to like nice accessory dwelling units.

Prefab Review

And in the smaller kind of offices, do they have electricity? Do they typically have, they're typically conditioned, right? Like they have some kind of like HVAC kind of thing?

Studio Shed

Kind of depends. So if you're talking about something that's like a 10 by 12, electricity always, yes. And that's something that we handle with our installation teams, the plumbing sometimes in the small units, that that plumbing is the one thing that bumps what we do into another level of permitting complexity. But we have, we do it all the time for the ADUs, so we know how to do it. And then as far as HVAC, some people will choose to do it in smaller studios. It's not always necessary. Like if you have enough cross ventilation and a space heater if it's cold and a fan if it's warm. But if people are doing a more substantive product or project and want that, we have some turnkey, mini split options for that. And that works really well. You just have there's actually some really clean, wall mounted small units now that, look, the design is nice on the inside. You know, it's not like we call it, the sausage on the wall. Right. I'm sure you've seen those types of mini splits. There's some new options out there that are really nice and they're pretty easy to install into our smaller units.

Prefab Review

I noticed, like your interior package is sort of an option, at least from what I've played around on your site. Do most people take advantage of that?

Studio Shed

Yeah, most people do. And so it's the one opportunity and we're comfortable sharing that it is an area where you can save money if you want to do the interior yourself. So it's a mix like we use the building shell you can purchase with no interior,  but with interior it's sort of a white box, right? It's like insulation, drywall, electric, like ready to finish flooring and ceiling and you are ready to go. But if you're the kind of person that wants to do interior finishes by yourself, that's generally the easiest part of the product. So a lot of people do opt for just a shell.

Prefab Review

From a permit standpoint, is that something you will handle for people? Do you provide construction drawings or something, and then like a local builder will handle it?

Studio Shed

We do. We try to do as much as we can to take it off the customer's plate. And we have a whole permit services division within the company that facilitates it. And so we build the document plan set. You know, everything from the site plan and the foundation details. We have a relationship with an engineering firm that can stamp in all 50 states. So we do that. We do the engineering. We do need assistance from the homeowner sometimes. Right. Like they need to assist on the site plan. We'll have like an installer go out there. For example, like in California, energy codes. It depends on where the glass is, on the structure, combined with the orientation. And so there are often a couple of site visits that we need to gather information from from the homeowner. But we are the ones that would compile the document set and then deliver it to either the homeowner or there are some places where we can submit.

Prefab Review

Interesting. It's title twenty four is the California one?

Studio Shed

We can do the title 24 certification. That's like a turnkey add-on to the permit process for us.

Prefab Review

Does that mean that it's pretty easy to add solar to your products as well?

Studio Shed

It is. We're in the process right now of a couple of different turnkey solar packages that we retail. Currently, you wouldn't purchase it through us, but we would kind of help you navigate that process. And that's one of our things, is to actually integrate that to our specific product offering. But right now, it would be done by a third party. But we would facilitate the appearance of that on the plan set and engineering and things like that.

Prefab Review

And then from a foundation perspective, do you use a standard foundation for all your homes or do they vary from home to home, or do you even need them for the smaller homes?

Studio Shed

It's a good question. And the short answer is it depends. You know, the small, small, single room studios, something like a 10 by 12, it's often more than sufficient just to do small peers and like a deck type wood frame foundation on that, especially if it's unpermitted, if it's permitted, we often still do that style of foundation. There's just usually additional pier depth required.

Prefab Review

Is that just because it looks better because I would assume a slab costs less? Is that just because you like the look of that better, or is it actually more cost efficient?

Studio Shed

It's often more cost effective. It's kind of close, you know, we find the cost is pretty comparable to either a slab or, that's a popular option. That's probably the most popular option as you get up into the larger sizes. And then we have done a handful of stem wall foundations too on larger structures. And that's usually necessitated by site conditions. Right. Like there are places where if you have like some slope or something like that, like a slab is often not as desirable. So that's something that we would work with, like our local installer and the customer to determine the right foundation type. And then we would have that engineered as part of the permit plan set.

Prefab Review

Cool. And then I think the hardest thing and it is the thing we get asked most and the hardest thing for you to explain. But I think the easiest way to do it is to break this out into components. If we were like, let's just take like an eight hundred square foot ADU from you and think about the costs on a flat lot and let's call it like Denver, because it's an expensive market. And again, your site actually, really one of the issues we have with the industry, which we try to stem, is just incredible price ambiguity and opaqueness. And you guys are very good about kind at explaining out, at least on your kit, the costs. But how might that break down in terms of thinking through, like the kit costs, the interior costs, and then what one would likely expect on the sort of other components in terms of like the local site costs?

Studio Shed

Yeah, no, I mean, that's a great question and it is a challenge. And I think it's going to remain a challenge for the industry because everything still is so site specific. Right. And that's why, I think that's why you have that opaque quality to pricing on a lot of these things. And a lot of established prefab home builders and or what we're doing, it's very easy for us to create clear, transparent pricing around what our building is. And the reality is every market is so different around when you get into site work and foundation and trenching and utilities and compliance with local codes and even square footage, estimates are, it's often difficult. Right. If you have a flat site, it's mostly soil. You might be looking at like five thousand dollars or something like that. And it's like if it's a site that's got some slope to it, it's full of rocks and it's got this and you're looking at fifty thousand for site work and you know, the considerations of like plumbing too, do you have the right drop to tie in plumbing for an ADU to your home's utilities and the siting of all that stuff. And so it generally is, because we've actually wanted to roll out some type of site work estimator or calculator so that people can wrap their heads around the budget number in a more clear, sort of a more clear and straightforward way. But it's very difficult because those pieces can often vary by an order of magnitude from site to site.

Prefab Review

Do you think you can go through an example for like let's say Boulder, Denver, or some market you all know well? Let's just say 800 square feet and let's assume it's a flat site.

Studio Shed

Look, as the person that's not on the front lines of the sales team here, I hopefully don't misspeak around any of these things, I want to say that, like. I want to say that, I'm trying to think of, I have so many square foot numbers kicking around in my head, like 30 to 40 square feet for concrete or what. Right. Like all these different things, I think. I think of, I guess, the number. I guess I really don't want to misspeak, I can speak to the cost of the product, but I almost don't want to throw out site work estimates because I'm not an expert on it, you know what I mean?

Prefab Review

Yeah, well, give us as much info. I mean, we have actually estimates for your company that I think we've cleared with your team. So, you know, mostly it's just kind of understanding. Yeah, just speak to whatever you can. And, you know, we understand that this is complicated.

Studio Shed

Yeah. I think, you know, I mean, like so let's see site work and trenching. I mean, I think the ballpark. Well, do you have numbers? You said that you were because I actually am pulling some.

Prefab Review

I have overall for you all. And again, tell me if I'm wrong, you probably end up in being overall in the two hundred to three hundred dollars per square foot range.

Studio Shed

Yeah, no, and that's correct, I'm trying to think about how that breaks out right now. Right.

Prefab Review

I would guess it probably breaks out about 50 50 between, maybe 60 40 between kit and site work. But do you think it's more?

Studio Shed

Probably less than 40 would be my guess. I think, you know, I think

Prefab Review

Our estimates are normalized too. We normalize all our cost calculations to the Bay Area, so that might be why it's you know, it's a little bit more expensive on the site work side.

Studio Shed

So that sounds about right, I mean, so for an eight hundred square foot ADU, so that is about two hundred and fifty thousand dollars, like as an all in price, that if someone came to us and said, I have that as a budget and I want to do an eight hundred square foot ADU, we would say that's probably realistic. And so I think that's a good starting point. The building, with interior finishes and a turnkey, white glove installation with all of your rough-in and finished plumbing and fixtures and appliances and bathroom and hook up and all of that, I think you're probably going to be in like the one hundred and seventy five thousand dollar neighborhood. And then the balance of that would be site work and foundation. Seventy five thousand. So that's I mean, at a very high level that does sound like probably about right.

Prefab Review

OK, anyway, yeah. We understand that if someone really wants to find this out, contact your sales team. Sure.

Studio Shed

I mean, I think that even just sort of the I mean, whether it's not It's not that I don't want to throw something out there, because I don't want to showcase it, it's more like I don't want to misinform people about anything. But even just that exercise shows why it's difficult to pin such a specific cost on these things. I think a lot of times when you kind of do have to speak in those generalities of ranges, right. This is going to be the building is going to be one hundred and fifty to one hundred and ninety. And then your site work is probably going to be 40 to 70 or something like that.

Prefab Review

Let's transition this into talking about how you build out your local builder network, because one of the things we actually see sometimes is sometimes not necessarily you all, but right. Sometimes we find out that the easiest place for our clients to gain savings is just be like, well, that quote looks OK on the local builder side. Let us introduce you to two other people. And we see people especially in California, we see big differences on foundation costs on steep slopes and stuff like that. So tell me about how you built out your builder network, because that sounds like a pretty laborious thing in and of itself.

Studio Shed

Yeah, we find that same thing too, you know, and we get estimates from people, the customer will say, I was way along in the process and then I got this foundation quote and oh my gosh. Right. And so we're familiar with that dynamic. We have an absolutely stellar network of installation partners at this point. And it has been one of the more difficult pieces to grow for the company. I think we've got about 50 builders in the network now. They're typically small GC firms and we have a thorough process to kind of vet that they're all licensed, insured, and trained in the assembly of the studio shed product. Some of our larger teams, the majority of their work, is doing studio installations at this point. And for other people on the team, they'll do other work as well. Often, one of the benefits of being a part of the network is we basically do all the marketing for these guys. We bring them good jobs and they typically see quite a bit of additional work from the customers. So we will bring them a job to say, hey, we've got this ADU installation for you. And then they also end up doing retaining walls and all these other things. So we homes in on a good win-win model with those installers. And it's been, that's really been an organic process. You know, outreach, recruiting. We do active recruiting in markets that we know we want to move into. We have gotten referrals from customers before. You know, customers have said, I have a great contractor and we've on boarded some of those people into the network. We don't hesitate to have customers work with their own contractor. So that's something that we will work with. It's often desirable. So you can purchase our product as either a DIY or you can use our installation service. Like I said, pretty much most major metros and then a reasonable radius around that. And then our DIY sales are split between what we would consider like a true DIY where the homeowner actually does it, and then DIY where a customer works with their own trusted contractor. And we like that. And we'll work them, give them the same kind of training tools, videos and all of the documentation that we use with our own teams. And so that's often a good model. And we're not hesitant to say that is an area where you can save money, especially if you do have someone who's good. That's the key, right? We like customers to have someone already that they've got some confidence in, not like, hey, I just found this guy and that project goes sideways.

Prefab Review

Do the contractors need to have experience with panelized construction or does it not really matter?

Studio Shed

It doesn't really matter because what we're doing is not like it's not technically way outside the box as far as like SIPs. The panelization is still traditional stick frame construction. We use the zip system, the zip sheathing. It's just such a good vapor barrier and it installs really cleanly. And the factory tolerances that we're able to achieve on a framing level are just so good that the building goes up so fast and so cleanly that it's pretty easy for anyone with just general framing experience to put it together and have success and even homeowners with kind of minimal experience. We say it's not, it's not putting together an IKEA coffee table, but it's within the reach of a handy homeowner.

Prefab Review

And then in terms of the speed that you were just talking about. So let's say I said I want like, I go through your online tool or whatever, and say I want this one. This looks great. What are the next steps and how long is this process going to take if I'm a motivated homeowner?

Studio Shed

For the installation piece or the whole process of purchasing and manufacturing?

Prefab Review

From the time I want to purchase one to completion.

Studio Shed

The big question there is if it's permitted or not. And so for an unpermitted, if you order one right now, it would be about probably six weeks, six weeks out for our production schedule and then it would ship and then to build it, something like a single room studio, home office, our crews will usually have that dried in in one day. And then the second day would be all of the additional exterior finishes, sliding doors, you know, any of those final little touches. And then they usually begin the interior and then wiring electrical and then interior finishes are typically another one to two days all-in. And so it's less than a week for a turnkey studio. For our installation teams, a larger ADU would probably be more like two to three weeks at a minimum. It kind of depends on the inspection schedule. That's usually what makes those projects stretch any longer than like three weeks is usually that. And then if your project is permitted, the way it works is we would work with you to develop that permit plan set and get any information that we needed, things like site plan, site building, location on the site, confirm setbacks, foundation engineering details, and then we would deliver that document package to the permit office or the homeowner would take it in. And then that's sort of the black hole. That process usually takes about three to four weeks to get those documents submitted. And then some building departments turn it in like a day or two and then some it takes four months. In Berkeley or some of these longer ones, like in the Bay Area, can be quite a ways out. And so once we get the permit, we won't start building the unit until we have a permit in hand. And so then you're looking at about six weeks for the fabrication and then delivery after that.

Prefab Review

That makes sense. This is the question I've been wanting to ask all time, what are the coolest kind of use cases? And I've seen a few on your website, but what are they, the coolest studio sheds that you've seen your customers.

Studio Shed

We have had some really cool ones like that, you know, like a lot of the art creative studios are really cool. Seeing the art that people have created or there are musicians that have set up like a really cool music space, photography studios. Some of those are really inspiring. Home offices are our most popular. And obviously over the last year that's accelerated. That's not exactly the most amazing, inspiring use case. We've got a couple of learning pods, like there's a couple of buildings that are almost like a little home school set up and that's super cool. We had a guy that was like a YouTube celebrity and teaches banjo lessons out of his studio shed. So, yeah, I mean, some really, really cool stuff. It's kind of like you name it. You know, I think that's one of the things that people have found over the last year, certainly is that their home is no longer a sanctuary. So a lot of people need a place whether it's to work or to create or to just get away but still on their property.  heard a lot of really positive responses from customers, especially over the last year, "I'm just having a place of my own  just helped that life balance and stuff like that." 

Prefab Review

Can you talk about what scale you're at, in terms of customers, et cetera?

Studio Shed

We don't share like specific revenue or unit numbers, but I mean, we're shipping twenty plus buildings a week right now. So, you know, right now that's what we're at.

Prefab Review

I think one of our clients or someone mentioned this to us, you're now in Costco as well, is that right?

Studio Shed

There is a  selection that's available through Costco, it is a great program. If you're familiar with Costco's model, they want to retail something awesome, at a great price. And so we pick some of our most popular studio configurations that are kind of perfect for a home office. And I'd say it's kind of ideal for like that un-permitted size that you can get in your backyard an 8 by 10 and 10 by 12, a few different models. And it's free shipping. It's like we roll up a bunch of that stuff and create some efficiency around getting a little bit more scale in repeating the same product over and over again with them. So it's a really good option if you're looking at just those simple home offices, things like that.

Prefab Review

Yeah, I mean, I see there's some reviews on the site. It is very cool. We know how much our entire site is based on the idea that people want more education and hand-holding. In terms of like doing this process or the fact that you're I mean, I assume it's not a high touch process for you if you're selling through Costco.

Studio Shed

It's surprising I mean, it still is, actually. I mean, so Costco is less high touch. But I mean, but you're right. And that's one of the things that we also have a full customer experience team. They are all terrific. They are professionals. They know the buildings inside and out. They can speak with, you know, a lot of confidence to all of these questions around like permitting and installation and foundations and things like that. One of the things that we think in the prefab industry and landscape in general is that it's still a construction project. And I think we sometimes, like, shied away from kind of making it, like we want to make the easy button. Right. Like, this is easy. And you do still need to set the right expectation that this is a significant project, even something like a small home office requires you know, you have to dig an electrical trench and you have to hook something up to your main electrical box. And just like none of it is overly complicated. But just to set the right expectation that there is work involved and we will help you. That's the thing that's great about where we are now is we have the resources to really handhold a homeowner through what's a large purchase decision and just help them with all the steps in the process to have success. So I think that's a real key of our success has been to support customers every step along the way.

Prefab Review

So we're actually running a little longer than we usually do, which is awesome. So we're now moving into our fire round where we typically do one minute or less per question. Typically we do these kinds of things more generally. But because I have a bunch of stuff I want to ask you still about your business or that we've been asked by our readers, we might just go for that. So do you own your own factory and tell me about how setting that up worked?

Studio Shed

We do. And we are in the process of about doubling the size of it. So we don't, we don't own the building that we're in, but we own our own factory. We own the manufacturing process. It's in Lewisville, Colorado. And, you know, like I said, we're trying to double the size of it right now into 2021.

Prefab Review

That's awesome. Have you seen people do Studio Sheds, we see a lot of people trying to be opportunistic again all over, especially in California, about ADUs for investment purposes. Do you see that happening often with Studio Sheds?

Studio Shed

We do. And we are bullish on that as something that's going to happen because, for example, the finance cost of building an ADU is often offset on day one by rental income. So it's an excellent ROI for a homeowner and it's the kind of option that allows more people to get on the housing ladder in high cost real estate areas. So we think that's going to be an increasing part of the conversation at our business.

Prefab Review

Are you involved in any kind of multifamily projects yet? We see this sometimes in tiny homes, like people order twenty of these and make these little resorts or workforce housing out of this. Do you have experience doing that?

Studio Shed

We don't have experience doing that, but we've had some conversations. And I think that it's probably only a matter of time before we do. We did a large school up in Lake Tahoe that leveraged our panelized product so we've done some larger scale things, but not like a multifamily development yet.

Prefab Review

And do you have any Studio Sheds that have been off grid?

Studio Shed

Yeah, we do have some that have been off-grid. Yeah, it's pretty easy to do that, you know, between solar and especially for something like an office, certainly it's easier and plumbing is a little bit more of a challenge, but there are a lot of options for that. And it is something that works well with the product.

Prefab Review

Cool. And then the last question is, is there like a size threshold for certain cities that are just way easier from a permitting standpoint to get this stuff done?

Studio Shed

Yes. So 120 square feet is the easiest. So for single room studios that size and smaller often is a pretty smooth process. A lot of communities, the other cutoffs that are common is around 200 - 400. There are often different rules. And then for ADUs we're finding that 700 square feet, give or take, obviously different communities. It might be 720 or something like that. But those are the typical ranges, something around 120, something around 200 - 400 and 700. Those are, it seems like, those are some of the regulatory thresholds that are pretty common.

Prefab Review

And then the final question, we ask this to everybody. What are you most excited about in the near future for your company or for the industry?

Studio Shed

I'm excited about a couple of things. The ADU landscape is very exciting. You know, I think seeing the liberalization of zoning on that, I think it's a great way to add density in a thoughtful way to single family neighborhoods. I think it's easier on neighborhoods than kind of large multifamily infill development. And so I think that the expansion of that is going to be a real benefit to the housing pressure in the country in high cost areas. And then on the Studio Shed front, we've got some really, really cool new ADU and small home concepts that we're working on that I think will probably come to fruition over the course of the next six to 12 months. And to move even more into that prefab small home landscape is going to be exciting because I love the design aspect of it.

Prefab Review

Awesome. Well, thanks again, Jeremy. It's been great learning about your company. Your scale is super impressive, so it's going to be fun seeing how you develop over the next couple of years. For more information, everyone, about Jeremy and Studio Shed, studio-shed.com. And as always, you can visit us at PrefabReview.Com. Thanks again.

Studio Shed

Thanks for having me.

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Episode 19 - Parlin Meyer, BrightBuilt Home

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

Hi, my name is Michael Frank, and this is The Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Parlin Meyer of BrightBuilt Home, a modular home company out of Portland, Maine. Welcome, Parlin.

BrightBuilt Home

Thank you. It's great to be here.

Prefab Review

Well, so we're really excited to learn about your company. But first, you know, we're in sort of a niche industry, so we wanted to learn how did you get involved in this space.

BrightBuilt Home

My personal involvement with the space has come from various angles. I joined this particular venture back in 2013. I actually was brought in by a local architecture firm by the name of Kaplan Thompson Architects. This was, at that time, a relatively small firm that was largely focused on the residential realm and specifically high-performance and net-zero residential. When I joined the team in 2013, we were working together to try to develop an idea at that time of tapping into the offsite manufacturing industry in order to be able to bring high-performance homes and net-zero homes to a broader swath of the population. So that's kind of how I came to this specific firm and the specific venture that is BrightBuilt Home. I also had some other previous personal involvement in working in the  industry. I was connected with the Solar Decathlon from the Department of Energy and other various efforts. So I had exposure to off-site construction and prefab ideas prior to joining BrightBuilt.

Prefab Review

Are you an architect by trade or did you come at it from some other kind of building background?

BrightBuilt Home

I am. I have a master's in architecture.

Prefab Review

Got it. Cool. So at its core, what is the focus of BrightBuilt?

BrightBuilt Home

Our focus really is steeped in that initial mission of trying to bring net-zero homes to more people and make it more accessible, more attainable and in that mission, tapping into that existing infrastructure of the construction industry in order to make the process more efficient, make the process more predictable in terms of cost and as a whole, through those efficiencies and through the streamlining of the process, ideally bring the overall cost of construction and the overall project cost down to a more sustainable price point. So that's that's been our mission from the get-go. That remains our driving force. And we continue to work on ways to improve, modify, streamline, find efficiencies and continue to drive those price markers down as much as possible, whether it be in smaller footprint designs or in efficiencies in the process itself.

Prefab Review

And when I look at your homes on your website, a lot of them sort of have, you know, sort of a kind of a farmhouse feel to them. Is that just sort of the sensibilities in your company in Maine or is there something about, and we see that with some other quote unquote, high-performance builders, especially like passive home companies. Is there something about that design that lends itself particularly well to your goals around your net-zero energy consumption?

BrightBuilt Home

Yeah, to some degree, yes, and to some degree, it's drawn from the local vernacular, but what's driven the local vernacular is what's sensible for this climate. So the 12th pitch, steep roofs that you see that are so typical of the farmhouse style, so to speak, is shedding snow and, of course, given the latitude that we're at, especially here in Maine, it also just so happens to be a pretty appropriate roof angle for solar panels. So there's a lot of practicality that drives the design for sure. There definitely seems to be a market interest in that vernacular. So there's market driven aspect as well. But it's a combination of everything really that's driven the design. That said, well, we don't put modern designs and modern imagery out there on our website, persay, we absolutely could do more modern designs and we are doing more modern design, specifically in our psychic line, which is our smaller footprint line of homes that are geared towards accessory dwelling or secondary camps for that style of home. So while we do, you're absolutely right, our website largely features, yeah, largely shows that vernacular, that sort of farmhouse style with some contemporary elements, we're very open to doing more contemporary components as well.

BrightBuilt Home

Well, let's dive into the ADU part. So, again, our company we help people do projects across the country. But I mean, basically hope we're not biasing ourselves too much, two of our three biggest markets are the Bay Area and Los Angeles. And California as a whole has a lot of legislation that kind of, I would say, makes it easier to get permits for accessory dwellings. So we do do a lot of them on the West Coast. Are ADUs an increasingly popular thing in this sort of footprint that you all serve? Which I assume that's the basically the Northeast, right?

BrightBuilt Home

Yeah, we're primarily in the Northeast. We basically work from Maine to Virginia currently. We are looking to expand that in the coming years. But yes, the buzz around ADUs, I would say it's getting louder every year, it seems. There's a lot of interest in it, certainly from the standpoint of housing density and potential for short term rental income and those sorts of things. There's a lot of interest in it.

Prefab Review

And multi-generational living is what we see a lot too.

BrightBuilt Home

Absolutely. I will say it does seem to be a little bit different from the West Coast in terms of how readily embraced it's been. And what we found, so we launched our ADU line, the psychic line, a few years ago in response to that market interest and the notion of ADUs, most of the buyers of the ADUs have actually been people who are putting the homes on on their own lots. They are not necessary dwellings to an existing home.

Prefab Review

So this is really more of a small home movement than accessory unit.

BrightBuilt Home

I know, we were pretty surprised to find that that's really the bulk of the people who are at least getting to the finish line in terms of making the purchase and moving forward with the project. It is a generally freestanding home. It's either folks who want to downsize substantially or in some cases it's a it's a second home, it's a vacation home or a remote dwelling.

Prefab Review

It's kind of consistent with the idea of small homes on your little plot in Maine or whatever. That's cool. So just sort of moving back towards, like kind of what you do at your core, do you own your own factory or are you mostly contracting with others for the actual modular construction?

BrightBuilt Home

Yeah, we partner with other factories, so we are an architectural firm. We were launched by an architecture firm and we are at our core, design. And so our mission has been very design driven and very systems driven. So we also wanted to have the ability to be fassl within the marketplace and not be limited to a restricted geographic area. So by structuring things in the way that we did, whereby we develop relationships and partnerships with various manufacturers, we're able to expand the geographic range in which we work. And so, yes, we don't own a factory of our own. We have currently three factories with which we're working, along the northeast eastern seaboard. And again, we're hoping to continue to build on that.

Prefab Review

That's awesome, you can pass if you don't want to, can you talk about which factories you work with?

BrightBuilt Home

Yeah, currently we're working with Simplex Homes in Pennsylvania, New England Homes/ Preferred Building Systems, that's  two jointly owned companies under the same roof,  in Vermont and New Hampshire and KBS builders.

Prefab Review

And so we talk to people with all different models. And that's great, by the way, because that means maybe we'll get some homes from you guys on the West Coast sooner or later. But so when you're doing diligence on a factory, like, will they be a good partner for us? And I know that one of the things that, some particularly now and I think there's a lot of demand for housing that I've heard from other firms like yours is, hey, it's actually hard to find a firm like on the West Coast, There’s some that build like, seven bespoke houses a year, that scale doesn't register. What are you looking for in the relationship with the factory?

BrightBuilt Home

It's a great question and every factory is so different in how they're set up and how they work, their history, how they were formed, where they are now. I think philosophically, we tend to gravitate toward the factories that are sort of based at least, or foundationally based in mom and pop thinking, and it's, I guess, pun intended, factories that are willing to think outside the box. So open mindedness and a willingness to be innovative with their processes. And some factories simply say flat out, it's not what we do. We don't want to bring in a specialty installation.

Prefab Review

Like a Champion Homes factory is probably not the place for you.

BrightBuilt Home

Right. If they're going to be doing mass production work, it probably isn't going to fit. So mom and pop style, family owned factories or factories that have been established for many years and aren't part of a larger mass-manufacturing consortium tend to be good fits for us because they have the flexibility in how they're set up to try and do new things. They're accustomed to doing custom work and custom builds. They're not doing mass production multiunit churn-outs on a recurring basis in order to to make their business model work.

Prefab Review

How do you, and this is a question I don't have the answer to, how do you assess quality? It's sort of an internal joke that every time we get a press release, someone says they build to a new, smaller quantity of precision, like we build to one sixty fourth of an inch, but we consider that to be sort of a vanity thing. But just in terms of saying like the quality that these people build too, we think it'll work, how do you assess that?

BrightBuilt Home

Well, we definitely try to visit the factory. We have conversations with the different builders and the different departments involved to get a sense of exactly how integrated they are as a unit. So finding companies that have in-house engineering, that have in-house drafting, that have in-house quality control and a follow up punch list, things like that, those are good indicators to us that it's a collective group that is invested in the final product. And certainly visiting the factory, walking the line, visually, inspecting the work that they're doing prior to when they're going to be producing one of our homes, the degree of openness they have to some of the specificity of our specifications. That's an important factor. If they push back on various elements of what we're asking to do with assembly and our detailing, that's usually a little bit of a flag to suggest, OK, if we're seeing pushback on the conceptual end, you're probably going to find difficulties in the follow through. So yeah, I mean, there are a number of factors that contribute to when we feel good about moving forward with a relationship.

Prefab Review

 And then if I'm just a customer and I want to build your home, do I end up just doing a design contract with you and a production contract with the factory, or do I do both of those with you?

BrightBuilt Home

Essentially the former except that the contract for the production contract actually is a construction agreement with a site builder. So, you know, as you're probably well familiar, in most instances with prefab and particularly modular, the module manufacturer is separate from the site builder, the person who does the foundation and the stitch and all that stuff. So that entity, that builder, the local builder, the local boots on the ground, is the person who oversees the project from the foundation and all the site stage, all the way through to the arrival of the modules and finish out of the house after the fact. And it is through that person that the modules are ordered from the factory.

Prefab Review

So that person has a GC relationship over the whole process, over the construction.

BrightBuilt Home

Yes. So it's in some ways a traditional architecture relationship where the client contracts with us for the design and then a contract with the builder for the construction. 

Prefab Review

So does that mean then in terms of talking about costs, does that mean that your business model, in terms of just kind of looking like an architect, you end up getting like 10 to 15 percent of the final figure?

BrightBuilt Home

What you said but not 10 to 15 percent? But yes. Yeah, it does. It does essentially look like that set up, that arrangement. Yeah, modern day. I will say that because this is what BrightBuilt has done, it has set up this entire process. As the project coordinator, an architectural designer who works directly with the client through the process is with the process all the way through. There isn't a point at which we say, OK, we're done here. We're sort of involved all the way through. There is a milestone or an event in which we we feel, what's the word I'm looking for, not philosophically, but figuratively pass the baton on to construction so that the client has a clear delineation of to whom they address their questions or they are running point with

Prefab Review

When you were laughing at costs, was that because you end up taking a higher or lower percentage of 10 to 15 percent?

BrightBuilt Home

At least on the East Coast, 10 to 15 percent would be very unusual and a high percentage, well, not extremely unusual for custom architectural work. Right. You can get 10 to 15 percent. 

Prefab Review

So where do you end up? Do you end up being in the five percent range? What is more accurate?

BrightBuilt Home

So that's another value add, I think, with BrightBuilt is that you get effectively either a customized or semi-custom, you can even do a custom design with us for substantially lower architectural fees than you would find in any other architecture firm.

Prefab Review

Is that just because you have a lot of experience doing this? So you're kind of working off sort of that boilerplate negative, but sort of using somewhat set stuff. Or just try to understand, why are you able to drive better value?

BrightBuilt Home

It's because of the process that we put in place. So it is in part because we're starting in some cases from a known design. If someone's choosing a design from within our portfolio to start from, but then we have designed over a hundred and sixty homes in six years and no two of them have been alike. So while people may start from a common point, they invariably deviate from that. And we do some pretty significant modifications to the design to make it a home for the client, the home specific to the client and the client’s site.

Prefab Review

That makes sense. So one of the things that really varies based on the company is, there's a few companies we work with that are basically like if you want to change almost anything on the home outside of, like sort of cosmetic fixtures, they’re like, that doesn't work. And there are a bunch of companies that are basically the sort of designs we list on our website are more or less kind of advertisements and inspiration, but no one ever builds those. It sounds like you're a little closer to the latter in terms of your relationship with customers.

BrightBuilt Home

Those representative models are placeholders to serve as a starting point, but not necessarily what we have an exact facsimile of that, mostly just homes you've built in the past.

Prefab Review

So you sort of already have plans in at least engineering specific to those sites.

BrightBuilt Home

Well, the plans themselves were developed as a collective portfolio to launch BrightBuilt. So some of the plans initially were only renderings. They were just conceptual plans. So since, we've launched and planned homes derived from those plans.

Prefab Review

That makes sense, I was just looking at the website and some of them are actual photos.

BrightBuilt Home

We actually have built every single one of the designs currently shown in the portfolio. There are a few that are newer builds and so we don't have finished photography up yet. But all of those designs have now been built. With some variation.

Prefab Review

So if I'm building one of your homes, in let's say, I don't know, pick a wealthy suburb of Boston just because we tend to try to normalize our prices around expensive areas. So whatever, Lexington, Massachusetts or something. And I understand that there is a ton of variability, but let's assume a flat lot and let's assume a two thousand square foot house or something like that. Would you try to help me kind of break down, what the sort of costs might look like? And it sounds like there’s sort of like a module cost, a local building cost, design costs. Something might be a little separate. Whether it's on a per square foot basis or however, what might that end up looking like to customers? 

BrightBuilt Home

Yeah, this is something obviously that we're pretty reticent to put out there as you know.

Prefab Review

And I totally understand why.

BrightBuilt Home

It is totally variable and even a flat site in Lexington does look very different from a flat site Maine.

Prefab Review

And I mean, the key difference, right, is local labor cost would be considerably more expensive. Right?

BrightBuilt Home

Yeah. And the other factor, too, is that one the one thing that I think has to be always understood, any time any pricing is explored by any client is what exactly that number includes. So I know that there are many different entities out there and many of them in some ways wisely,

Prefab Review

Slap a price for modules and it's not a true cost to build or something like that.

BrightBuilt Home

Sorry, I didn't catch that.

Prefab Review

I said we're you going to say slap a price on the cost for modules. But that isn't representative of

BrightBuilt Home

What I was going to say is just speak to the cost of the house itself and exclude site cost.

Prefab Review

Exactly, right.

BrightBuilt Home

But we have never done that. We have always talked about all numbers, all in turn-key, right.

Prefab Review

Which is totally the right way to do it in terms of like what most customers actually care about.

BrightBuilt Home

But that what that means then, is the cost per square foot numbers that I'm putting out there represent that turn-key number. They include the site. They include.

Prefab Review

Oh, yeah,we do the same thing. Yeah.

BrightBuilt Home

So what we're seeing right now and right now, as you are probably well aware of the numbers, lumber is expensive, wildly,  just in almost a weekly to a monthly basis.

Prefab Review

We're speaking on March 3rd, 2021 everyone. 

BrightBuilt Home

Yes. So right now, at this point in time, lumber costs have even doubled or tripled in just the last three months. So what we are seeing in current day pricing ranges from about $250 - $325 per square foot, I would say for fairly, but nothing that has marble entire interior. Where the variables are fairly known and fairly the middle in terms of selection. So basic but not blowing the roof off again. And that's about the price point. Now, of course, it can go up to $350 - $375 as those variables increase as site costs become more expensive.

Prefab Review

And you're saying those are generally the ranges. So you're saying so if we were talking about like an expensive Boston suburb, like the one I mentioned, you would be in the kind of $300+ per square foot probably.

BrightBuilt Home

I would say we would be starting at $300 - $320 per square foot in the really high end markets. But that said, that is another advantage that we offer, particularly in those really high end markets,

Prefab Review

Because you have cost arbitrage on some of the process.

BrightBuilt Home

Right. Yeah. I mean, you're not doing everything from start to finish with the local labor pool and with the local labor costs. And so you're offsetting a substantial portion and up to 70 percent of the build out of the home is being done elsewhere, where labor rates are typically lower than your local region. And so you're able to offset and that's not to disparage. I mean, that's its own philosophical question, I guess, right there. But that said, as far as the consumer goes, if you are in a high end market. Taking advantage of off site, taking advantage of prefab can make a ton of sense to be far more competitive as a possible .

Prefab Review

We've also found that it's just less annoying from a logistical standpoint of trying to get all your subs lined up in these areas that have a pretty high demand as well. So, yeah, we're obviously a believer in that as an advantage. And there's a reason that I think many of our kind of popular markets are areas that are either very expensive, very seasonal: meaning like a ski area where there's a short building window, like have a fire, right. Like all these areas that kind of have like sort of peaking demand. It seems like it's a good way of offsetting that. Yeah, absolutely. So how do most customers find you?

BrightBuilt Home

Really through organic searches on Google search words? We do have a strong we have a very strong readership of our newsletter. But of course, that's after they found us. So before Covid, we would have a lot of events and we would go to some local shows and various places where we would be able to get word out to people who were looking for homes and could be exposed to us that way. But yeah, I would say the vast majority of people find us through just organic searches, looking for net zero homes, modular High-Performance, various typical search words.

Prefab Review

That make sense. When we're talking about kind of the emphasis on high performance homes with you all, how far down, we've had people go very far down that rabbit hole and in a good way, but are you looking for certain rates of insulation or is it mostly just like we want to offset the amount of energy in the home with whatever PV solar panels. Yeah. What are sort of the extent of that detail that you emphasize? And does that depend on a customer basis or is that just a general standard?

BrightBuilt Home

We definitely have a very preordained standard for performance. We are striving to design and build homes that have good amounts of insulation in the walls, good amounts of insulation in the roof, the foundation. High-Performance window packages, so the envelope, the building shell is very important to us and we've developed our specific specifications around that. And that then means that the overall heating and cooling requirements of the home are substantially reduced and therefore it takes a lot less of a solar array or input of energy to run the home. So getting to net zero is much more achievable. And in terms of, yes, there are some initial upfront capital costs in doing that. But what that also means is that from day one, you're out-of-pocket costs are less than they would have been if you had built a code standard home. So the cost of utilities, cost of heating and cooling, a home that isn't high performance means that literally from day one, you're saving money. Well, if you go for the high performance, then offset that with solar and go for net zero. So, yes, the building performance is a key element to our principles and our philosophy as a company.

Prefab Review

That's awesome. OK, so it's been awesome learning a bit about your company. I want to move on, because we have an expert like you on the call, to our fire around. These are like a handful of questions of one minute or less, and they're mostly questions we get from our audience. So it's great to have people like you, so pass on anything you don't know about or want to pass on. But your input is great. So one of the questions being a company from Maine is we occasionally get requests asking about modular for islands. And I know there are a number of islands off the coast of Maine. Do you have experience shipping modules to islands or looking into that?

BrightBuilt Home

We do. We have done it. And we have a couple of our projects that are islands. There are more than just a few islands off the coast of Maine. We have thousands and many of them are occupied and built on its I guess because of that we have some infrastructure in place in the state of Maine and there are various transportation barge companies that can bring heavy equipment out to islands. And you don't even necessarily need a bona fide ferry for offloading those. In fact, oftentimes the big equipment gets offloaded onto beaches or specific boat ramps because it's easier to transfer from a barge to those surfaces.

Prefab Review

 Do you end up having to bring cranes out as well for that stuff?

BrightBuilt Home

You always have to bring crane .

Prefab Review

And just curious, what does that add in cost? I mean, we've done a little bit this is a crazy extension of going West Coast to Hawaii. I think that adds about 50 dollars a square foot, which I assume is probably more than this adds. But just curious.

BrightBuilt Home

Well, that actually sounds less because what we usually see is about a 25 to 30 percent island up charge.

Prefab Review

Oh, really? OK, so maybe we're getting good value there. I guess usually the things they come on are a little bit they're probably a little more industrial in terms of the ship size.

BrightBuilt Home

Yeah, I guess it's not even a comparative. They're used to shipping things there.

Prefab Review

Exactly. Yeah. Interesting. OK, so what are the things to look for as a consumer when understanding and feasibility? We get this question a lot like, hey, this piece of land looks good and we actually obviously have a checklist we send to people. But what are the things you tell customers to look for?

BrightBuilt Home

For land, well, up here we tell people to look out for any. for any signs of ledge, because that can mean a very expensive excavation if you have to blast, we also recommend that the building site is as close to the road or the utilities connections as possible, because if you make a longer driveway and or go deeper into property, it adds substantial cost. For our homes where we are looking to do net zero and we're taking advantage of solar and radiant heat. We advise that the quote unquote backyard or private side of the home be facing south. We're going to have with biggest windows possible and really just have it wide open to the sun. And so ideally, that's not also the road facing side of the house, if possible. So, yeah, those are the main factors, I'd say distance from the road or just to utilities. To some degree how much clearing is required. We happen to live in Maine, in the state that is the most forested in the entire country. And so clearing trees has sort of a different mentality than it does elsewhere. But ideally, we're not clearing trees if possible.

Prefab Review

That makes sense. ne thing that we have people flag, I feel like there's usually a way around this, but is power lines. How much of an issue is that like being kind of in the way of where crane would be? Or do you usually find a way around that?

BrightBuilt Home

We usually find a way around it pretty easily in very tight urban infill sites it might be an issue. It's not generally an insurmountable issue. There are circumstances in which we have to take lines down for the day, the day that the crane is setting the modules. So that's an inconvenience, obviously, to the neighbor. But I would say that's extremely rare. So usually it's something you can work around pretty easily.

Prefab Review

Last one, if I'm doing a modular project, and maybe you all do this, when should I start working with a landscape designer and an interior designer? Because that's sort of contributing to design parts of home.

BrightBuilt Home

I think in any case, any time you have an integrated team or an integrated design team, the sooner the better, really. So that everybody is involved in the dialog from the get go and understands the evolution of the process. That said. I would say that in terms of sequencing. You would want to start with at least the initial conceptual ideas of the architectural plans first, and once you have the concept taking shape, bringing the interior designer in at that point would make sense. And as things further take shape and you have a house that's clearly situated in a site, that's when it's good for the landscape architect to become involved.

Prefab Review

Especially in areas that have design review end up, definitely feels like bringing the landscape designer in pretty early.

BrightBuilt Home

We live in no man's land up here where some places like in Vermont and in some towns in Maine, there is no code, there is no review. And so it's very different from the West Coast where things are very meticulously reviewed. So it depends on where you are. Landscape architects may have much more of a pivotal role in its early stages.

Prefab Review

Yeah, cool. Well, it's been awesome learning a bunch more about your company. It sounds like you all are doing really cool work. Final question before we get you out of here, what are you most excited about for your company or for the industry for the near future?

BrightBuilt Home

I'm most excited about how excited the marketplace is getting about prefab. It really to me has always made so much sense. And the analogy that is commonly used in the industry you're probably very familiar with, is the idea of you wouldn't build a car, you wouldn't order a car and have them come and bring all the loose parts to your driveway and assemble the car for you. And yet that's still how we build houses, which just seems to me to be preposterous, especially when you see it in that context. So I'm just really excited that there seems to be a groundswell of interest and excitement about prefab and construction and and locked in with that, the opportunity to build high performance, better performing homes is a tremendous gain for us as a country and as a marketplace and just as the residential building sector in general. I think there's a lot of potential. There's a lot of excitement in what lies ahead. And I think prefab is the perfect fit for what's coming down the pike.

Prefab Review

So we're certainly biased, but very much agree with you on all that. Thanks again. For more information for everyone about Parlin and BrightBuilt Home, you can visit their website, www.brightbuilthome.com. And as always, you can visit us at prefabreview.com. Thanks again.

BrightBuilt Home

Thank you so much.

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Episode 18 - Patrick Quinton, Dweller

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

Hi, my name is Michael Frank, and this is The Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Patrick Quinton, the founder and CEO of Dweller, out of, I think, Portland, Oregon. Welcome, Patrick.

Dweller

Thanks, Michael. It's good to be here.

Prefab Review

So definitely excited to learn about your company, but first I wanted to learn a little bit more about you and how did you get into this business?

Dweller

Yeah, no, happy to share the story. So, yeah, we are based in Portland, Oregon. And prior to founding Dweller, I served as the executive director of what's now known as Prosper Portland. But it is the development authority for the city of Portland. So an arm of city government. And I have a career that's been primarily in government, a little bit on the commercial finance side, but I really spent the time prior to starting Dweller in city government, working on a whole range of of issues, but really on this intersection between business development, commercial real estate development and housing, and I left there mid 2016, looking to take on new adventures. I did not think I was going to be working in the ADU industry, but I actually have a co-founder, business partner, who approached me about this idea. And then yeah, in 2017 we took the leap to see if we could, you know, help get more ADUs built both here and around the country.

Prefab Review

Cool. Can you just go through a little bit of like what exactly Dweller does. We cover a lot of ADU companies on our site and also even within the ADU companies, it's always kind of interesting what parts companies decide to do themselves versus rely on other partners.

Dweller

Yeah. I think there's some similarities and some differences with what we do and some other companies do. But we started off to try and address what we see as the primary challenges for homeowners in acquiring an ADU. And we felt like those were three things; price, just overall kind of hassle factor, and financing. And on the first two, we really felt like the best way to address that was to embrace prefab construction and offer a turnkey service, meaning you buy an ADU like you buy some other major consumer product. And I think that can have different connotations. We think it's a good thing. We think that homeowners should have options and shouldn't have to learn what goes on under the hood to get an ADU. We think they should be able to pick a solution. And if they choose not to have to roll their sleeves up, we do the full process from beginning to end. And we work with a third party builder. So we don't operate a factory. We're more of a developer, kind of solutions provider. And then we source our prefab ADUs from a third party builder. So in that respect, I think there's other folks doing that, like you said, there's companies that do different parts of the full solution. But I do think that increasingly we're seeing more and more companies that are stepping up to say, "we sell a new solution" and homeowners should be looking at different options rather than trying to learn how to build an ADU themselves. And then the other thing that we did, which we can get into in a minute, but just quickly I'll say is that we wanted to address the financing issue. We wanted to be able to serve homeowners who didn't have immediate access to financing, which is primarily home equity financing. And so we've developed a portfolio of ADUs under a ground lease model, like I said, we'll talk about in a second. But we build it for them and we own it. So in that respect, when we're doing that, there are very few companies anywhere in the US that are doing that. And so that's certainly a unique offering of ours and one that we hope to do more of.

Prefab Review

That makes sense are you actually offering? You talked about having like a limited number of options?  Are you like a one SKU company where it's like, OK, everyone gets the same thing? Do you have a few options? How does that work?

Dweller

Yeah, we started off with the one ADU model. But we now offer six different floor plans from our builder. And it's mostly one bedroom units, but we also offer two bedroom units. And so yeah, we've embraced the standardization as part of our business model in order to bring costs down, make costs more predictable for the homeowner and for us.  We wanted to take away as much kind of customization as possible. All these terms are loaded when I say that, but we don't think it's a bad thing. We think it's like buying a car. Right. You don't get to add another window, but you can change the color of the upholstery. Right. So we think of it that way. So we have six different different floor plans. And in the markets, out here in the West Coast, you can have bigger ADUs legally than we sell. You can have two story ADUs, obviously you can do all sorts of things. And so we've intentionally chosen not to be operating in those parts of the market. Once again, just because we think the way we do business is best. If we keep our options to a narrow range of single story ADUs of a certain dimension, it makes installation predictable and affordable once again.

Prefab Review

That makes a lot of sense, I forget how many customers we helped last month, but yeah, there's a heterogeneous set of customers, as you said. Right. Some want to work with a custom architect and design everything from scratch. And a lot say, like, how quickly can you get this box on my lawn?

Dweller

And those decisions also have price tradeoffs. And so not that everybody would love to have fully customized, but once again, I think people get this, that if they're on a budget and they have a very kind of you know,

Prefab Review

We see a lot of people who are just like, this is not something I want to spend a lot of time considering which faucet is better. I want someone who's thoughtful to have made these decisions for me and for them to get done. So, yeah, I think that makes sense. So are you one hundred percent in Portland right now?

Dweller

We're a hundred percent in Portland, yes.

Prefab Review

And I think at some point, correct me if I'm wrong,  I think we covered you, were  you using champion homes or using a different one?

Dweller

Yes, we were. We've been working almost exclusively with what's now called Skyline Champion,

Prefab Review

It's just like the entity that's like private companies doing mergers and stuff, right?

Dweller

Yeah they have like 30 plus factories across the country. And we work out of their factory in western Idaho.

Prefab Review

Cool. And tell me a little bit about that because like in terms of the let's just call it the partner process, sort of figuring out what company or set of companies do you want to partner with? Who handles the sort of manufacturing of the home? How did you choose them and what was that process like?

Dweller

Yeah, I mean, some of it was trying to look for a certain type of builder, but some of it's just the fit in the relationships. So we wanted to actually be more local than  with Champion's Idaho Factory , we wanted to be somewhere in Oregon. And we had a relationship with a local builder. But, you know, prefab, as you know, probably more than anyone else, it covers a wide range of things. And you have a lot of custom prefab buildings. And so we were working with a very reputable builder, but he wasn't getting into the standardization piece. And so we were increasingly realizing that we weren't going to be able to offer the kind of solution we wanted. And so we went looking for other solutions. And just a relationship that my business partner, Brian, had with somebody in the lumber industry put us in touch with the plant manager at this  Champion factory and presented it to us. And we were the first, to my knowledge, were the first company to work with Champion on  building ADUs. Champion is a manufactured housing builder. They've focused primarily on single family houses and they now have an ADU offering and they now work with a number of ADU builders. But we brought the concept to them and it was a fit, obviously, capacity wise, they had more than enough capacity for us, but they also fit the desire we had, which was they already had a standardized process for building them. So they were like, sure, we could build  ten, fifteen, one hundred of yours in the same exact way. And so immediately we were like, this works. And I have to say, they didn't have to work with us. We're a tiny little and they're a big, massive company. But they're good people at this Idaho plant who  were really curious about this market. And so they kind of went along with us. And it's been a great relationship. I don't know that we will exclusively sell from Champion going forward just because there's other builders now. And so we would like to be able to offer different designs. But so far it's been a good relationship.

Prefab Review

That's great.

Prefab Review

So obviously that's one part of the process. How are you going about figuring out the local builder part? Right. Because Champion is only the factory.

Dweller

I mean, that's been part of the challenge, I think it's certainly probably the hardest part of the overall process for companies like ours is to have some consistency on what I call the last mile, but what happens on every individual property, and so we partnered with a variety of contractors and our goal all along has been to work with the same exact contractors every time so that we do once again have the same process and that the learnings from one project carry over to the next and so on. And so we've done that for some of our contractors. But we don't control what happens in their business. And so we've had one of our main contractors decide that they no longer wanted to be in the business. And so we've had to find others. So, you know, you're always juggling different contractors. But, you know, we view that as our job. That's partly what we're taking away from the homeowner, is you don't have to go find contractors in markets like ours where there is high demand for having a group of contractors that you're hired.

Prefab Review

They're also very hard to evaluate.

Dweller

And so what we sell is, "look, we have relationships with folks that may not otherwise be available to you or another builder." So,  but every backyard is unique. So I really think that one of the hurdles to overcome in the ADU market is how do you scale this, and build thousands of units knowing that every single backyard is going to present a particular challenge and do that in a predictable, cost effective way.

Prefab Review

That makes sense. And then to the extent that you can share this, what scale are you at right now? However, you can quantify that.

Dweller

Yeah. So we've built 15 units and we build a couple of units a month. Now that's really kind of the pace we're on. But that fluctuates based on, you know, once again, financing and homeowner financing. Part of what we're going to talk about is this ground lease product which is meant to be a new portfolio of ADUs. So if we ever finance that, then we'll do that. We'll do 8 ADUs all at one time.

Dweller

So our volume is based in part on our ability to finance this ground lease product.

Prefab Review

So what you're saying though is the premise behind that, is that you have demand from homeowners who essentially can't afford the upfront cost of this but want to do this. That's that's the assumption, right?

Dweller

We probably get 30 to 40 inquiries from homeowners every month. We probably end up with, I don't know, 10 of those who have both real interest and properties that work for our product. And  then most of them get hung up on the financing challenge. So that's really where I think most of the ADU industry is, is that every builder is dealing with, you know, it's a black box. Somebody else is over there making decisions about how much money they can lend to a homeowner. And in most cases, it comes back short of what homeowners need. And also because we sell a standardized product that's meant to be affordable for homeowners  our target market are people who aren't sitting on a ton of money.

Prefab Review

What's your price point for the actual

Dweller

Our units range between on a small unit $115,000 fully installed to our two bedroom units can go, it can be over $160,000.

Prefab Review

That's for what? Like a thousand square feet?

Dweller

No, the smallest one is just under 400 square feet. The largest is 660 square feet.

Prefab Review

So it's like $160. OK, and that includes installation?

Dweller

Yeah. That's everything. So we always quote prices that way, meaning we don't leave a chunk of work for the homeowner.

Prefab Review

That's pretty good. $250 per square foot is pretty competitive. OK, so let's dive into this. So for everyone listening, who is just interested in the prefab part of this and doesn't care about the investment part, maybe you'll like this, maybe you won't. But I started as a real estate investor and I recognize that what Patrick, and there's a couple other companies, United Dwelling in LA is one and there are a couple of other people who are taking on some version of this, which is addressing this affordability issue. What Patrick's doing, which I don't know very much about so we can all learn together, is they're doing this through, what was it, 506-C? They're doing it through a general solicitation, which means retail investors can put money into this, which is super cool. also an interesting decision that I'm interested in why you decided to go that way. But it means that, like, basically investors can potentially help get a return by helping Patrick's company build these things and helping homeowners afford these things. And I guess ideally, this is a good thing for the world, because, as Patrick said, there are people who want to do this but don't necessarily have the best financing solution to figure this out.

Dweller

And provide more affordable housing as well.

Prefab Review

All right. So anyway, so that's about all I know about this. So it'd be great to understand exactly what your offering is.  Like sort of this has to be a win-win for the homeowner, for you and for me or whoever the investor is. So can you sort of just run us through the basics?

Dweller

Yeah. Let me go back real quick again and just kind of talk about how we end up developing ADUs that we own, because that's what we're asking people to invest in. So once again, as I just described, many homeowners end up not having the financing to buy an ADU. And so if you're not in a position to make them alone and there's a whole another discussion about why it's so hard to to finance ADUs, then you kind of have to pursue a different route. And so what we've chosen to do is, is to basically build the ADU ourselves with our own capital one someone's property. And then we own the ADU. So we own it, we manage it, we rent it out. And then we share a percentage of the rent back to the homeowner. And then the homeowner can buy us out at some point in the future. And in legal terms, what we're doing is we're leasing a part of their property. It's called ground-lease. So we're basically saying we're going to lease the back third of your property that you're not using. And then by doing so, we then have the ability to do this ADU. And every month you're going to get a check from us. That's three, four hundred dollars. And that's based on how much rent we collect. But it's really our lease payment to you. And then when you're ready, three, five, whatever, 10 years from now, when the financing works for you, you can buy the ADU from us and then you own it and then we go away. So, very different kind of concept. But it basically ends up solving this problem for homeowners in that they can't finance it now, but they can probably finance it later. We get a bill, they begin to make money on it and then can solve it later. Obviously, for us, that then means that we need to finance it on our end because we're the ones who are paying to build it. And so we've done that with a part of our portfolio here in Portland. And we now want to do another round of these units. And so we're raising money through what people generally think of as a crowdfunding campaign. But as you mention regulated offerings, so the federal government agency that regulates these things has put forth in the past few years regulations that allow for everyday people to be investors in these kinds of things. Before that, it was only allowed for accredited investors. They called high net worth folks. So  now you have a series of regulations that allow companies like ours to put out an offering and anyone over the age of 18 can invest. And so we're utilizing this mechanism to raise money to develop eight more ADUs that will be built here in Portland, will provide affordable rental housing for people here and provide income to homeowners. And the reason why we've gone this route, which is what you asked, is we think this is a fairly straightforward type of development deal. We think that it makes sense. ADUs have value. They rent out all the stuff. But when you go to traditional lenders or you go to traditional investors and say, hey, here's what we're doing, it just it looks different and then what they're used to seeing, whether it be in a bank or whether it be a kind of real estate investors who invest in apartment buildings or office buildings. And so we've had a hard time convincing traditional lenders to do this. But we know that there's strong support for this from all different corners. And we've had actually a fair number of people reach out to us over the past few years saying, "hey, how do we invest in this? This is a great idea. I really like the concept of ADUs." So, we just said, hey, this is probably the right time to make use of this new tool. And we're working with an established crowdfunding platform that focuses on impact real estate deals. It's called small change.

Prefab Review

For those at home, this meant to be interesting for people who are interested. What's the URL to check your stuff out?

Dweller

It's smallchange.co. If you go to the small change website, they have a projects tab and you can find it, the name of our project is affordable ADUs. So you can see there. But you can also see kind of generally what they do. They have a whole portfolio projects that they support and anyone who goes to that website can go and click on our project. They can read all about our project and then they can download what's called a disclosure packet. But it really is this document that the federal government requires for you to pay for these things to say here's what we're offering and all the different economics there. But it also outlines all the risks and anything, like any other investment offering would do, so that it is treated in a way that people can fully understand the risks and rewards of that. We think it's powerful. We think that that for every high net worth individual out there who people go after, there are hundreds of thousands of regular people who have smaller amounts of money to invest that share the same values or maybe even have values that are more aligned with their communities. And up until now, they haven't been able to put their money to work in these kind of projects. And now they can. And we really do think that's one of the main appeals to this is it's a project with financial return. But it's absolutely something that is tangible and visible in your community. And obviously on the West Coast, here ADUs are a big deal. It's hard to talk to anybody who doesn't know somebody who has an ADU or sees one on their block. And so we really do feel like it's it's that classic thing. Invest in what you know or what you care about. And I think this is,

Prefab Review

Yeah, it makes a lot of sense. I think it's very cool. So I want to get into this a bit and get a little deeper. So structure wise, I'm gonna ask questions, please interrupt me when I'm wrong. But like, I'm like whatever you want to call it, limited partner in a couple of real estate funds. And it looks like the structure of your offering is very similar, like a preferred return. You get X percent back per year before management, quote unquote gets anything. And then right. There's some kind of split of the excess proceeds.  That seemed like very similar to these other investments that are pretty common, what I sort of had a question of is, if we wanted to walk through like an individual property, and I think it said twenty five percent of proceeds go to the homeowner, so let's say we put one of these boxes on, you can name the price, on someone's lawn in Portland. Do you think you can kind of walk us through like what happens from there? Like how much revenue you expect to collect, sort of what goes to property management and then kind of the waterfall, if that is the right word, but then how those distributions end up getting split up.

Dweller

So there's certain things you can and can't do. And part of being a regulated offering is you can't, I can't sit here now and talk about the returns on a project, so people can go and download the disclosure packet and they can see all that. Some of this is to make sure that I don't sit here and selectively share information whether it's intentional or unintentional. So the disclosure package is meant to be all encompassing. So somebody who sees the returns projected on that sees all the other risks. But I can walk you through the economics of a unit so I can do that, because that has nothing to do with the offering. So when we put a unit in the ground and let's set aside the cost of it, but once again we aim for a predictable cost on these.  We are targeting rents and we achieve these rents here in Portland. We're targeting rents that are affordable for households at 80 percent of average median income. It's a definition of affordable housing, but it basically means that it's not deeply affordable. But it's affordable for somebody who makes less than the average income. And here in Portland, for a one bedroom unit, that's thirteen hundred dollars a month. So, we put a unit in the ground and it's a relatively strong rental market. So at $1,300 a month, there's a good chance that this will get rented at that. And that's like I said, it's meant to be an affordable rent. And so when we share, so we get $1,300 dollars a month, that money comes in and we do share twenty five percent of that with the homeowner. So in that case that's$325. So, that homeowner gets that check every month from us. And then in addition, if we have shared utilities, things like that, we could spend a long time talking about that topic. But sometimes you can have separately metered utilities, sometimes you're sharing utilities with the house, but we'll reimburse them for any cost associated with that. And then the rest of that money flows back to us. So that's a little under a thousand dollars. And then, yeah, we pay a property manager, typically property managers between eight and 10 percent is a pretty standard number. We have to pay for our own maintenance repairs. Anybody who's owned any kind of rental housing, there's a certain formula around it. You're setting aside reserves for long term repairs, you have expenses whenever a unit turns over, people who don't pay rent, all that kind of stuff. And then the last thing is we pay property taxes as well. So another interesting feature of this is that we break out the property tax bill on the property because we own this unit. And so if we own it and we assume the property tax liability associated with that improvement, the rest of the property, that bill goes to the homeowner. So we pay that as well. And so in most cases, we end up with about fifty five percent of the overall rent dropping to us to the bottom line, and that's how we then have money to pay back any debt or whatever, that's the pot of money that's available for how we finance any one of our deals. So that's basic economics. And so you can imagine that the the more rent you earn, the more money there is, the less rent in there is

Prefab Review

In this offering is essentially what's happening, that you have some kind of terms or whatever from your manufacturer or you're just loaning money to yourself from your balance sheet and you're essentially paying that back with the money from the investors. Is that how the structure works or?

Dweller

The way it's set up is that investment dollars are coming in and creating equity and paying for the units.

Prefab Review

OK so the units don't get started until.

Dweller

No, no, there's no debt on this. And then, as you mentioned, there is a preferred return paid and then there's a distribution of the excess after that.

Prefab Review

So that makes sense. I've actually seen, I'll try to be helpful on this. I've seen a few companies like yours starting to raise debt capital to do similar types of things. I would call them alternative or specialized lenders. I'm sure I had conversations with some of those, I do see, I think, the cost of capital being kind of high, right? I'd probably say like 10 to 13, 10, 15 percent range, meaning that's the sort of annualized return that the investors are getting on this. So I think a lot of those deals are happening in California, where you might get a little bit more rent from the building, which might enable that. I'm not positive if you could afford to do that just based on Portland having slightly lower rents than like San Jose, you might get three thousand dollars for a similar kind of unit in the Bay Area. Part of the question is, is the reason that you primarily, and I'm sure all the stuff is sort of on the roadmap, did this now just because this made more sense for your market.

Dweller

I think anybody who's trying to do this groundless or some similar structure is trying to find their way in the finance world. And so I think everybody's trying something to see if it works. I would hesitate to say that anyone's figured out a solution for the financing side. But you're exactly right. So if you're sitting in California and for the same unit and maybe the cost of building the unit is a little higher, it's coming from the same factory just for the simplicity of conversation. Right. You can have the same same unit earning different amounts. You have a different kind of return to play with. I think that when we looked at our portfolio that we had developed here in Portland, we saw how they were performing and we saw, most importantly, the rents that we were naturally achieving, which ended up being affordable, for us, we said, you know, actually what we're doing here is we're creating a portfolio of affordable housing. So it's the kind of thing where if there were investors out there looking for this double digit return, then that may not be the best fit for where we are. And looking at the flip side, as we said, we think there probably are a lot of people who are interested. And once again, without getting into specifics on the returns and the offering, but it's kind of in a range where we're having an impact. We're building affordable housing. Like this is really contributing to the solution here. But at the same time, it's not a charity. Right. So I think that's the balance we're striking. But it all starts from, as you said, we were creating a portfolio like this anyway. So let's take that and use it as a way to try to attract the best investment from folks who care about this.

Prefab Review

So I want to get into one more part of this and then I'll stop getting so dorky. But I find this really interesting. So one of the things that I think is different about this and very similar to other real estate deals, but potentially different to a lot of other alternative stuff, assuming this is actually valid. Right. Is this is essentially a secured investment, meaning theoretically if the person on the property dies or the person who owns the whole thing dies, theoretically, you you own this box on their property. But that's actually the area where when I've talked to other investors, they've had the most legal wariness about this, I'm sure you've had a lot more conversations about this than I have. So can you just walk me through the sort of catastrophic scenario where the homeowner of the piece of land that's getting leased to you for whatever reason, I mean, I think death is obviously a very realistic one in terms of like, oh, wow, now what do we do? But or goes bankrupt or whatever. And all of a sudden they have a bank who is potentially foreclosing on their property. How does that work with your interest?

Dweller

Yeah we don't think about it in such dramatic terms,

Prefab Review

Apologies for the morbidity, but through some financial stress event.

Dweller

Yeah, so a certain percentage of homeowners will default on their mortgages and things can go into different stages. Some of them get worked out, some of them go into foreclosure. Right. So that's the scenario that you need to account for. And in that situation, we are like other second mortgage holders. We don't have a second mortgage on the property. But the first mortgage holder drives the train on that. So if a homeowner defaults, what we're really saying is that they're defaulting on the first mortgage, the mortgage holder then is going to exercise their rights and try to collect. And they can do that in a variety of ways. We will go along with whatever that process is and what we say to homeowners in particular, is, look, you know, without this ADU on your property and without the income that we're providing, whatever trouble you're in, it's worse because you don't have this extra income. And if we're in a situation in which this homeowner needs extra income to help get current or to correct some kind of deficiency, we've got rental income to work with here. So we say we're part of the solution in these situations. And so, we see those scenarios being more like those of us with a little bit of a lending background, workouts rather than defaults or foreclosures. Our situation is somewhat similar to the solar industry. I'm not sure if you've ever gotten into this topic, but the solar industry grew primarily because the solar companies figured out that they could install panels on people's properties without selling them the panels, that they would actually own the panels and they would have a kind of a power sharing arrangement. But essentially, the homeowner was sharing revenue from the power that was generated there. And that's how the solar companies pay themselves back. Those companies had to defend the rights to their collateral if a homeowner went to foreclosure and they successfully did that. So that's where we would be in a worst case scenario, is we would have to go in and say, look, we own this ADU and we understand the property has to be sold or whatever. And we're willing to work through that. But the ADU is still ours. And we're going to work with you and the next homeowner to keep this going. Or so if you sell the property, you can buy us out and then the whole property is free.

Prefab Review

So does that mean you have some kind of financial underwriting of the borrower. Because I totally understand if they're even if they're at an LTV that a bank might not love. Right. Let's say they're like a loan to value meaning for all of us at home, like the value of the mortgage on their home is close to a hundred percent. I understand that, like, theoretically, you're adding equity to their home. Your income is a positive thing and potentially having this arrangement is a positive thing because you're driving income to the property, right? If someone is at like a 120 percent, which I guess we'll see what happens in this sort of current cycle, but I'm sure there are areas that are going to be negatively affected. I have no idea if Portland or wherever is going to be one of them. If someone for whatever reason is at like LTV that's greater than one hundred percent or greater than 90 percent, will you still work with that person or is there some kind of like underwriting on the properties?

Dweller

We don't underwrite homeowners the way that a bank would. We actually don't want to do that, that's part of why we're offering this is to get homeowners out of that process. But we do want to make sure we're not entering into or installing into a foreclosure situation. So we look for delinquencies and delinquent property taxes, things like that, and we do some kind of credit history check. But it's not meant to be like you have to have a minimum score. It's more about do we see any warning signs on there that would predict some kind of foreclosure or default scenario in which we're immediately working in that kind of environment? You know, we understand that homeowners, you know, if you hear the stories that homeowners have about getting home equity loans for ADUs, the gauntlet that they have to run is significant. And so  part of the reason why we're not seeing more ADUs built is because this window is so tight. And so we're trying to expand that window on very solid properties with great income potential and just kind of your average homeowners. Most cases, the issues that we have with homeowners that we work with, they're financing challenges that they're not one hundred twenty percent, but they're at 85 or 90 percent LTV, which is a typical kind of first time or early homebuyer who didn't have a lot to put down. And they're kind of working their way. Typically our profile there, it's not somebody who's massively over.

Prefab Review

Because banks will typically, from my understanding, give you home equity up to like 70 percent of the cost of the property, maybe a little higher.

Dweller

Some banks, some creditors will lend you one hundred percent. But the problem is that the ADU, unless you are sitting on a lot of equity, the ADU still costs more than that. So. Right. So the big challenge and just to quickly dive in, the big challenge with home equity lending for ADUs is that lenders should be giving the homeowner full credit for at least the cost of the ADU, building when they make them a loan and they don't. And it's not the lenders. Appraisers can't do it. There's a whole chain of things that are preventing the lender from doing that. But essentially a homeowner who's trying to put a $150,000 ADU on their property might be getting half credit for that. And so unless they're sitting on a big chunk of equity to start, they're just not going to get there. And so, aggressive home equity lenders are going to say, look, we're making you a very attractive home equity loan and it's only $100,000. So the lender thinks they're doing their job, but it just doesn't get the homeowner to the finish line on the ADU. And so they're stuck. And so this is a homeowner who's got equity in their property to qualify for the loan, but they just can't get to the dollar amount they need to get an ADU project done. That makes sense.

Prefab Review

That's interesting. It almost makes me feel like and I guess there's a need for financing. I honestly haven't thought about this solution before. If you can get part way there but not all the way.

Dweller

It is a form of messy financing. I mean, and I don't want to scare people away from this. I think it's a very conservative form of messy finance in that somebody's putting money into an asset that generates income. Right. So we do think ADU financing in general has a lot of really solid kinds of risk characteristics to it. It just structurally doesn't match the way that other lenders have done business. And so I think that's why we're not seeing the type of products that we need. I mean, we'll get there, I'm convinced the market's too big and and like I said, the economics are there.

Prefab Review

It seems like legally there's a bunch of stuff brewing that also will enable this. Yeah. I mean, at least we've done some stuff in California where you can kind of hack it with, like tenancy in common arrangements that basically sort of subdivide without technically subdividing, which I guess kind of you guys are doing. Yeah, you can create a condominium on a property, there are other ways to get around it. At the end of the day a homeowner should be able to get an ADU loan based on the characteristics of the property and the ADU project and the rental income. And that should be the driving force. OK, so we usually do a fire round, but I think we're going to skip that because we've gone so deep on this one. One other question sort of related to this, which is, we had a Portland expert on the podcast recently, named Kol Peterson, I think. And he was talking about Portland's new ADU laws that will hopefully be passing soon, which sound really interesting, which it sounds like include the ability to build bigger units. So I guess when we're sort of thinking through right, like what is your objective as a company. It sounds like you know, it creates affordable housing opportunities, but also enables returns for a bunch of other sorts of different parts of this ecosystem, like the capital side of the ecosystem.To enable these alternative financing mechanisms. Does that move the needle for you on this? And is that something you're exploring?

Dweller

Yeah, I mean, I think it's all good. I, I think creates more of a continuum of different housing types that can be added and so more properties come into play. So when we would go to a property originally, we would look for a number of things to make it eligible and so if I went to a property that was already a duplex, then we couldn't do it. Or if I went to a property where they had the basement as an apartment, you couldn't do anything. And so you just bring in more properties into play and then with the ability to do one to four units on a property, it just creates more combinations that can work. We're still going to be doing the same ADU projects that we do. So it'll add incrementally for us. It won't fundamentally change what we do, but I do believe that it creates a whole set of market opportunities for builders. I mean, I just think about the single family homes and duplexes. The economics are just going to be there. But we have all these single family homes in neighborhoods in Portland and even on my own land I think, can I make this a duplex. So I think you're going to see that. I think you're just going to be the infill housing market going to be far more robust. And I think you're going to see both more builders come into it. And I think you're going to probably see more standardized solutions. I'm not sure what that looks like, but not every job should be a custom job. How do you have standardized solutions for homeowners who want to add an extra unit on their property without it being like a detached ADU? So it's all obviously very positive, I think, for us. You know, instead of thinking about how much more deeply we can go in the Portland market, we really want to be able to offer our ground lease product in other markets. So I'd like to see us offering this product in Seattle or parts of California or other other markets. We get inquiries all the time for that kind of a solution. And so that's really where we see ourselves going, as other markets will always be able to take us to have demand here in Portland. But the demand in some respects is greater, is greater elsewhere. And that's why you and I mentioned working with other builders. We could easily work with other builders, other markets, and really just be bringing the ground solution to those markets.

Prefab Review

That makes total sense. Well, Patrick, thank you so much for being on the podcast. Thanks for indulging in my my dumb questions. I think what you're doing is really cool and yeah, I'm with you that the more ways we can make it for people to afford these types of projects, the better. So for everyone, if you want to learn more Dweller.com is a good place to learn more, smallchange.co is another good place to learn more. And you can always visit us at PrefabReview.com.

Dweller

Thank you, Michael.

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Episode 17 - Lauren Tucker and Or Michaelo, Orbit Homes

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

Hi, my name is Michael Frank, and this is the Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab housing industry. Today, we're speaking with Lauren Tucker and Or Michaelo, the founders of Orbit Homes, a modular housing company located in Malibu, Los Angeles. Welcome, Lauren and Or. Thank you for being here. 

Orbit Homes

Great to be here.

Prefab Review

Thanks for joining us. So I'm excited to learn about your company. But first, I was hoping to learn a bit more about each of you. How did you both get into this business? 

Orbit Homes

I'm coming from the stick build background, and I was always fascinated with the idea of like just creating a home that you know, was already pre-made, pre-inspected, and didn’t need to deal with all the, you know, the steps in order to do a stick built from, the planning to permitting to inspections to all of these long processes that can actually be done all in a factory. That was back like 15, 20 years ago. And then the world of prefab was starting to get more accepted. And through the passion about the idea of creating plug and play homes that can go anywhere that can be inspected in the factory it was growing. The passion has grown over the years. 

Prefab Review

What about you Lauren? 

Orbit Homes

Yeah, so I come from a very different background, I co-founded a nonprofit called Kiss the Ground and I have spent the last 10 years learning, teaching and working in the field of regenerative agriculture. And so my passion for prefab actually comes from the perspective of, "how do we get more people living on land and how do we get people closer to the land that they live on?" So I'm really excited about setting up communities and pieces of land where you can be regenerating soils, growing healthy food and then living there and moving a little more out of the city. 

Prefab Review

And how did Orbit start and when did you all start this? 

Orbit Homes

We'll say it started around 10 to 15 years ago. It started as a container home project and got involved to prefab. And then when we realized that you have to deal with all the ins and outs of all the different building codes in different areas, then going forward, it was like, "ok, what will be the one umbrella that will be recognized nationwide and will accept all the codes together?" And then we'll learn all the codes of what are the most strict codes for earthquakes and fire? And then this is what we did. We basically created a home that's kind of like calculating all of that into the structure and that will be able to go anywhere on a temporary foundation, permanent foundation, and can be an immediate response for four people that lost their homes in the fires. And then it's gotten more and more involved in contemporary design. And this is where we are now. Yes, the kind of journey of Orbit Homes started with me many years ago. And then this iteration of it really happened after the Woolsey fire. So we met with residents and witnessed a lot of our friends losing properties and losing homes they've had in their family for generations. And we saw an opportunity to help people rebuild in a way that was quicker and more affordable. And so this showroom that we have in Malibu has been open since December of last year. 

Prefab Review

So it sounds like the things that make you different are affordability and seeing your designs are quite contemporary and basically you have like five or six, or you can tell me, how many sort of standard homes do you have or do you do custom stuff as well? 

Orbit Homes

At this point, we have about 11 models, starting from 450 all the way to 3,000, and we're always looking to bring new designs. So we were trying to get to the point that it's pre-approved, you know, in the factory and can go anywhere. So it's much easier to define a floor plan and then work all the fire codes and the earthquake codes when you're trying to be too wide and offer too many models, you just have to calculate all this stuff into the homes all the time. And this is where we are right now. We are, I think, at number 11, 12. Yeah. So again, we're not super custom in that you can come to us and say we want this and that and this, but all of our models are flexible. So you're going to pick all of your finishes. It is possible to move some things around if you really need to move windows or sliders or things like that. But, yeah, one of our intentions is that it's much easier to build a home in the regular construction stick build world where you're many years to get a home on land. And I just want to make it easier for people to pick a home that they like and move in, 

Prefab Review

I'm on your website, OrbitHomes.us, looking at your homes right now, are there sort of specific design tenants that you kind of keep uniform throughout your homes? 

Orbit Homes

I would like to think that we have a certain aesthetic, an eye for beauty and simplicity, but I guess that that's up to everyone else to decide. And the one thing that we wanted to do is give the clients the options to choose the finishes, the exterior, like you can go with smooth stucco or any kind of textures and and cement siding because we're trying to be up to the fire code. So we have on the website, you will see, we kind of went with cement siding that looks like wood and we can do different colors of that. And you have like a ranch contemporary look out of it and it. In the interior, some people want more like cabin style and the finishes and some people are going more modern. So there are some customizations to that. But, you know, we're trying to stay in the floor plans that we created in order to make life easier for everybody.

Prefab Review

 one of you architects or do you have an in-house architect or how did you design the homes?

Orbit Homes

Yeah, we have in-house architects and engineers and we basically have a full team.

Prefab Review

Do you have your own factory or do you use third party factories. And where is it? 

Orbit Homes

We are in Riverside and we don't own the factory. We basically have a line of  contemporary houses that we came up with that we're basically working with that factory to make and and redefine all the time, trying to make it nicer. We will have our own factory. 

Prefab Review

So I know you do a lot in the Southern California area, is that the primary area you're serving right now? 

Orbit Homes

Yeah, we primarily serve Southern California. We are able to ship nationwide. So if you want to take on the installation with local contractors, we actually can ship almost anywhere. But the majority of our current clients are local to southern California right now. To be clear, it's like much more into Malibu because we respond to all the fire victims around here and people need to get back to their land. So we kind of prioritized for people the people that needed the most and are close to us? And then with all these responses and an interest from many other people after, we started to open up ourselves more and more, opening the radius. But we also have this idea about creating a house that will go to Hawaii. So we worked on one model. Now it's the second model that we're working on that will be approved to go to Hawaii like wind loads and termite treatments and everything else that needs to be considered. It also has to be solar ready with all the wires and everything ready to be plug and play to the solar system.

Prefab Review

We've done a few projects where, both in Hawaii and I think in Maine as well, where we had to ship them. I'd be interested in what you guys found, I think we thought it added about $50 a square foot or so, which wasn't insignificant, but for what the person wanted to build, ended up making sense compared to the local options. But it was definitely some investigation involved.

Orbit Homes

But it's definitely like all the shipping, you know, it makes more sense to have, you know, more than one house to be delivered on a barge then just sending a single home.

Prefab Review

It was big. It was like a four thousand square foot modular home.

Orbit Homes

This is going to be very expensive.

Prefab Review

OK, so for this sort of contractor site, work foundation, all that stuff, stitch everything. Is that something you do in-house or do you work with a network of contractors? How does that work?

Orbit Homes

Right now we have a project manager that is running and doing everything and coming from a family to doing it for about 30 years. But yeah, we have a network and there is a limit of projects you can take with that person. 

Prefab Review

So you're saying you primarily have a general contractor who sort of does the project management and finds the subs?

Orbit Homes

From a customer perspective, we take care of everything. So as a customer, you're not running around and finding all your subcontractors and doing all the communication. That's our role. If you're around California. But if you're getting out of California, we are serving from San Diego to the bay.

Prefab Review

 So are customers signing a single contract with you, or do they sign a contract with you for manufacturing and then a separate one with a local builder?

Orbit Homes

It's one. Basically we're taking care of everything. And the only thing that's different is the signing outside of us is the expediters. Then for each area we have the expediters that will deal with local authorities and we'll help to get it together.

Prefab Review

That's great. I mean, I know there are some people who do that, but they're definitely assuming that sort of costs work out. I find it's nice to sort of, like the bad projects I've seen happen, the local builder blames the manufacturer and the manufacturer blames local builders. That's good that there's sort of accountability across the board for real, trying to make it easy for people.

Orbit Homes

We're managing that whole process. And the only thing that you might sub yourself but we're introducing you to, are the expediters, because that's before we even know if you can get a permit. We are helping to manage the whole thing, like from the soil test, you know,  and finding out if it's septic what they need, what type of septic system, dense water, whether it's just an on-site water treatment system. You still need to do the infrastructure according to the place where people want to live and the whole goal is to get to the point that it's like much more plug and play and making the life of the customers much easier. Most people don't know much and are afraid of construction and you're trying to get the whole experience like you're picking the floor plan, the exterior finishes, the interior finishes, and we're taking care of the rest, you know, and you'll enjoy yourself.

Prefab Review

And from a structural standpoint, are you building to the HUD code like the manufactured code? Are you building to like the state modular code? How does that work? I wasn't totally clear on that.

Orbit Homes

You know, we can do both ways. We prefer to go with the federal codes because they have one umbrella. They have the most strict codes for earthquakes or wind load or fire codes.

Prefab Review

 Or that's the HUD code that you're talking about?

Orbit Homes

Yeah, the federal one. And this is making life for everybody much easier. Because the city doesn't need to look at the structure itself, the moment it's being approved by the federal, they just want to see what type of foundation and how you're connecting to the infrastructure. So in most cases, we over-engineer  the house to meet all these codes, the most restrictive codes that they have, and most times we'll even over-engineer that a bit more. Really making thick walls and very solid floors and kind of over-engineer everything and doing it solar-ready.  This is why most times I recommend, let's go with the federal, because if it's for zoning and now we go to the point that we have nationwide, we're following the most strict codes for everywhere. And I find it much easier from the expeditor's point of view, they're very happy with just not dealing with every detail.

Prefab Review

And does that affect the ability to finance the homes? Have you found that to be true? 

Orbit Homes

No, not like that. The cool thing about federal you know, it's been I think since the 1950s or 60s and it's being changed according to different lessons and mistakes of people or natural disasters that look more severe. More severe codes over time. And it's being accepted in real estate at the moment that it's attached to permanent foundation. It's real estate. So you can basically compare yourself to whatever comps in that area. When you're walking around the house, it's pretty cool to see the response from the architects or expediters of being impressed that it's being done and over-engineering for that. And we have a network of lenders that we've been working with and so far with all of our clients, we haven't had any problems with financing.

Prefab Review

That's great. I'm just always curious, right? In California, we see a lot of our clients using Umpqua or US Bank or there's a handful of people. you don't mind me asking which are the types of lenders that you find are good for you.

Orbit Homes

So we're basically serving Malibu right now. So First Bank of Malibu was the first one that came in and was like, I want to serve my community. And they are the ones that came in.

Prefab Review

 And are those construction loans or temp to perm loans? What's that product like?

Orbit Homes

So keep in mind that we're serving right now, 99% of our business right now is for fire rebuilds of the main residence. OK, it's people that lost their homes in the fire. So they just have land and some of them had insurance money. Some of them were not insured. So they got loans based on their land value, knowing what the final value will be after we attach the house on the permanent foundation.

Prefab Review

Is it a construction loan that then turns into like kind of fixed 30 year loans. Do you know the structure? I'm just curious.

Orbit Homes

So I didn't really go into that. We have a financing officer who is responsible for the whole part. But from the conversation that I was taking part in, most people were just  building with whatever they had from the insurance money. And some people didn't have much from insurance or people that were really under insured were using the land as the down payment. Yeah, It's definitely not the question to ask us, but we have an amazing financing person that we've been working with. And we haven't had any issues with finding loans for our clients.

Prefab Review

That's great. And then lets go through the pricing a little bit. It's probably the one question we ask, and you all are commendable you basically have the price of the modules, is that right? Is that what you list on your site?

Orbit Homes

Yeah, because we're shipping outside of California and we have some people that would like the models for Hawaii and all the models can go anywhere basically. And people ask all the time, what will be the price for the house without delivery, without installation and listed on the website. And so when getting to the point of installing a home, we kind of estimate that if the ground is pretty much level, anywhere from $250 - 275. But even when you're looking at prefab, you still need to go through what your site allows.

Prefab Review

And so when you're saying $250 - $275, 

Orbit Homes

When you're going to 2,300 square feet, we even go to the point of $230. So I will say as you go bigger it's getting a bit cheaper.

Prefab Review

So are you talking about dollars per square foot?

Orbit Homes

Yes. 

Prefab Review

OK, so you're saying, so just to be clear, you're saying that total cost is going to be in the $250 - $270 range?

Orbit Homes

Yeah, so if you look at our website, we have the price of the home itself. I said that estimate is what it's going to cost you all in. That's when we are talking about these numbers.

Prefab Review

OK, so when I'm looking at your website right now and I'm not the best at math, but it looks like typical homes are probably like $160 to $180 per square foot range, coming out of the factory in a module. And you're saying that then take that and add like $100 for a foundation, site and stitch and all the transportation of all that stuff. Am I getting that right?

Orbit Homes

It varies a lot. And that's on average what it costs customers. If you're building an ADU and you just want to get it there, we're only going to charge you transportation if we're doing it on a hill in Malibu where we have to do grading and fire access and you want a garage, it's different. 

Prefab Review

And I assume when you're talking about those numbers, you're talking about for a permanent foundation. 

Orbit Homes

Correct.

Prefab Review

 So when you're doing the manufacturing, you also do the temporary foundation just to save costs or whatever.

Orbit Homes

In some places if the zoning allows it and they need a temporary solution and then you just do skirting or something to make it look OK. 

Prefab Review

And in those situations what's the cost end up being? Is it similar or does it end up being, I would assume the foundation costs are lower? 

Orbit Homes

Yeah, lower. I would say, like you're about anywhere between 20 to 30 percent lower. And also, you will have all the utilities already done in some places where you're sending it to a temporary foundation. So we calculate including connecting to the septic or connecting to the sewer and running all the utilities to the house. Right. So side by side we will define and start from, you know, what is the route to deliver and what is the soil test. And that's basically the definition of what will go there and what will be the final cost, because the house doesn't change the cost. It's really like the preparations to get the house. 

Prefab Review

And we've actually had that, particularly in Malibu, we've had a few people who we've tried to help post the fires there, where, as you said, the site access to get a crane up there, we unfortunately just had to say, like, this isn't viable. So I'm sure that's part of your diligence. What's the timing like? Probably one of the great things for you, is I bet you the fire rebuild communities are very motivated. Right? You probably don't have people, you know, changing fixtures and decisions for 18 months. What does it end up being from beginning to end? Because a lot of times you get expedited permitting on this stuff as well. Right. With the fire rebuilds, what is it? And are you exempt from the solar laws? I believe you are on some of the fire rebuilds as well, right?

Orbit Homes

Yeah, but we still do that anyway. So part of our motto of the company is like we're trying to project what are the most severe codes, and then to comply with that too. So every house is leaving our factory on our contemporary design solar ready. So people can just call the local installers and they will come in and just attach the racks and the solar panels and all the wiring already installed in the roof to connect to the main. So it's part of what we do because we just like to over-engineer everything, then it's easier.

Prefab Review

From a timing perspective. I realize you don't have to use this year as a total example, but we've had the same issue of California stuff. There was sort of a 30 day period where I think most factories sort of stayed open, but half as many people went in the factory or whatever. 

Orbit Homes

But the most challenging thing that happened, you know, we started really working on all the fire rebuilds right in the beginning of this year and we're just starting the whole thing and took time for everybody to adjust and to move on. And the permitting process slowed. So we don't really have an indication, but it should be, you know, I would say less than three months for the period. And then after getting the permits done for us to make a house in the factory, it depends on that.  With how backed up the factory is now with all the fires, of course, it will be much more. Like two to three months to get a house done. And then on location, you have only about a week to two weeks and you're handling the key. 

Prefab Review

You're talking about post the set to like move-in time.

Orbit Homes

So, yeah, I mean, in an ideal situation, it's under six months, six months in a long permitting situation and in times of Covid, it could be a year. But also the authorities are getting much smarter, like I can tell you that dealing with this city of Malibu has been amazing when it comes to adjusting to the situation and they prioritize all the fire rebuilds first. really worked hard to make things happen in the time of Covid. We were really amazed by the response time and the guidance and in every way they're really serving the community so differently. I definitely miss counter hours, but it's possible that we're all going to learn an easier way of doing business. Emailing and learning how to actually make the process much faster because they don't need to go through  every small detail relating to how this house is built and all the materials are being chosen, and it's all basically done in the factory. And after the first few houses, this will be much faster understanding how to get people back on their land faster. It's really, the first definition is the soil check. And after that, it's kind of like a fast track to get the house on their land. 

Prefab Review

Got it, cool. And then how many houses did you say you've built or are working on at the moment? Like in total? 

Orbit Homes

About eight. And then the factory we work with has been in business for over 50 years. So, you know, again, we have a newer line that we design with them. But as far as reputation and ability to turn out an amazing house, we have a great partner for the fire rebuild right now, eight in Malibu and about another 16 people that we are looking into how to get it on their land. And we definitely learned a lot through covid on how to fast track everything.

Prefab Review

And I don't think you're going to have a lack of people needing to rebuild stuff in California any time soon, unfortunately.

Orbit Homes

That makes me very sad. It's actually scary, like the amount of people that go to us in the last three weeks is insane. And people are doing a lot of research for their family members. They're in shock time that they don't even know how to respond to what happened to them.

Prefab Review

So, yeah, especially Malibu has a big older population, like we've had a lot of that in the area.

Orbit Homes

But we also are looking at the ADU market and some smaller models that we've built I think are really cool. So, our main focus right now, because we live here and we're here right after the fires is fire rebuilds, but I don't think that that's where the business, hopefully we're not going to rebuild forever.

Prefab Review

Yeah, I really like L.A.. It has such a dynamic ADU market compared to most other parts of the country so that makes sense.

Orbit Homes

When you're trying to be an all around solution. Like it started from finding a solution for all the main residences, getting the contemporary ranch design. And then we kind of grew with different models, addressing different challenges that were happening along with requests from different clients. That was like turning out to be too many people who were asking about different sizes for ADUs and ADUs that can be on a temporary foundation and then can we convert to a permanent foundation. So we had to figure that out. And  it's a long journey  adjusting to the changes that are happening in the world of prefab.

Prefab Review

Yeah, we get thousands of weird requests every month. 

Orbit Homes

I mean, every once in a while it pops a good creation. Like we're doing the site assessments in Malibu and sometimes you get into a place and you're looking at a client and are like, "OK, where do you think that you're going to put the house?" He's like "there". And it's a hill. It's a very steep hill, you know. A lot of times people imagine that if it's a prefab it can be dropped anywhere. And it's pretty cool to see, you know, all these people coming up with, like, the idea. And then you have to bring the common sense about it cannot be placed here. The only way to get it here to bring a helicopter to get it to the location. 

Prefab Review

Yeah. I mean, we're helping a project right now where the cost of the foundation is going to be the same price as the cost of the whole house, which is crazy, but that can happen. And it's in the Oakland Hills. So it's a very steep place. All right. This has been awesome. Learning a bit about your company. I want to quickly transition to our fire round. These are quick questions. One minute or less, we won't come down too hard on you if you take more than a minute. But just questions we get all the time or random questions I have. So question number one, have you had people look into orbit homes as an investment? And what do you think about the investment opportunity with modular homes? 

Orbit Homes

I will answer that. I think it's a no brainer when it comes to the point of doing that, you can easily calculate your expenses and the moment you know what the foundation costs you can really know what you're facing ahead of time. So from the investor point of view, it's a no brainer. And again, as I was sharing, my background is regenerative agriculture and getting people closer to land.And I think there's a huge opportunity, especially in what's happening this year with our health crisis and economic crisis, to get people living more community style in rural areas. And prefabs are such an amazing way to get a bunch of people on a farm or a piece of land. 

Prefab Review

Great question number two, so I saw on your website you have a partnership with a smart solar flower. Can you explain what that is and how that works and how that came about?

Orbit Homes

It's really a flower. It's open in the morning. 

Prefab Review

By the way, everyone should Google this on the Orbit site because it looks very cool. I just hadn't seen it before.

Orbit Homes

It's basically made for a lot of places where they have houses under a tree that they don't want to cut or the house doesn't face the right direction to get the most solar as possible. Or the house is very small and they want to be completely solar. So then they're just getting that. And it can be dropped about a few hundred feet away from the house and still generate the amount of energy you need. And you have the battery storage that's installed as part of the smart flower. So you can buy some with battery storage and some without, and then they will communicate between themselves and communicate with the solar you have on the roof. So it's a really smart flower because it's open in the morning and tracks the sun during the day and closes at night and cleans itself. And when it's windy it will go completely horizontal and when it's too windy it will close himself. And when the wind goes down, it will open itself and continue tracking the sun. So it's really taking care of itself.

Prefab Review

Have you actually had any clients opt for that? It's very cool looking. 

Orbit Homes

A lot of people coming over are impressed by looking at it, yeah, I like to think of it as solar in sculpture form. But it's a very advanced technology. I love it.  Every time that I see it open and tracking the sun during the day, I just love watching it.

Prefab Review

And last question. So one of the biggest questions we get is, is my site appropriate for prefab or modular? Is there like a quick checklist you have or that you can explain on how to think about site feasibility, at least in sort of a common sense standpoint? 

Orbit Homes

Site feasibility? 

Prefab Review

So basically like. Is this site appropriate for an Orbit home? How do you evaluate that? 

Orbit Homes

First of all, we check the access to the site, what is the route. Second, I would say it's f we need to crane the house or can just drive it in. So this is the first step that we're doing, and then if we need to crane it, if we have, any electric wires that the house needs to go above, you have to lower down. So it's all these steps that we take. And then what's the type of soil and what is the type of foundation that will be relating to the site. So the best way to look at it is to go through the first steps that we just described and see that it makes sense to to look into prefab and at some places and clients I say it's a beautiful location and a prefab will not fit there. So these are really the basic steps to consider when you're looking into site assessments.

Prefab Review

Thank you guys so much for being on the podcast. The final question that we ask everyone, I guess each of you can answer that would be great is, what are you most excited about for the company or for the industry in the near future?

Orbit Homes

 The most exciting thing is to innovate all the time and create houses that will comply with every area and to create houses that will be the most ecologically friendly and over-engineer to meet any project. This is, I think, where we wish to go. I think I'm most excited about the environmental materials. We have friends who are making drywall out of recycled yogurt containers and just looking at all the amazing materials that we can come up with and just live in a way that's a little lighter on the planet, and all of our designs are oriented to the outside and outdoor living and getting people to appreciate the trees and the ocean and whatever's in their neighborhood. So, yeah, I think sustainability and how do we define a new way of living? 

Prefab Review

Awesome. Well, it was really great talking to both of you and learning more about your company for everyone at home, for more information about Orbit Holmes, visit orbithomes.us. And as always, you can always learn more about the industry as a whole at prefabreview.com. Thanks again to both of you. 

Orbit Homes

Thank you very much, Michael. It's really been a pleasure. Take care.

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Episode 16 - Kol Peterson, Understand the ADU Build Process

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

Hi, my name is Michael Frank, and this is the prefab pod presented by Prefab Review where we interview leading people and companies in the prefab housing industry. Today, we're actually taking a little break from interviewing prefab manufacturers to interview Kol Peterson, who is an expert in ADUs. To give a quick, probably insufficient biography of him, Kol is an expert in all things ADU. He writes for a lot of accessory dwelling related sites. I believe he's the owner of a tiny house hotel in Portland. He wrote Back-Door Revolution, a book all about accessory dwellings, and he has a course called The ADU Hour. Anyway, welcome, Kol. 

Kol Peterson

Thanks. Thanks for having me, Michael.

Prefab Review

Kol I think from a lot of perspectives, I'd say progress, particularly regulatory process that's enabling more accessory dwellings just to be built is among the most exciting things we see on a day to day basis in sort of our little part of the world, which is really kind of just factory built housing, sort of full stop. With that being said, how did you get into this whole world of accessory dwellings?

Kol Peterson

Building one myself and, you know, realizing that it was incredibly challenging, difficult, and there was almost no information about how to do it. And so in the course of Building one in 2010, I documented the process on a blog, and that just kind of snowballed into a bunch of different things because there's so much stuff to do on a personal level to develop an ADU. But then on a policy level and then getting beyond policy and regulations, it gets way deeper. Still, the financing and appraisals and assessments and best practices for marketing and all the other stuff that gets into the weeds of every facet of humanity and social science and economics that you can imagine, just like any topic that you study deeply enough. So anyway, that's how it kind of started for me, I started by doing it myself, writing a blog about it, and then I started to teach a class for homeowners about it. And I've been teaching that class for like ten years now or so. And that just like snowballed into a lot of different things. And now all I do is ADU related education, advocacy, consulting, work full time. And I'm based out of Portland, Oregon.

Prefab Review

That's awesome. So your first accessory dwelling was that in your own personal house? That was in your backyard in Portland, I assume? 

Kol Peterson

Yeah, that's right. Yeah. So that one was a detached ADU and I lived in it for like seven years and then I built my second ADU, which is like a basement conversion attached basement conversion. I'm living in that now and I'm about to build a third one, which is going to be a detached construction, kind of a high end ADU that I'll probably move into. I'm going to keep on pushing my own envelope in terms of you know, just to get experience with all the different facets of the stuff. So this next one, I'm going to try to ideally finance entirely, not pay any money out of pocket and try to do one where I use a design-build process. So I'm not involved with the construction at all just to see what it's like to play that role, which is more akin to the prefab space, I guess. Yeah, but the other two I've been very heavily involved in the design and the build portion of it and essentially playing a homeowner GC role.

Prefab Review

So in each of these I assume there's like a single family home and it sounds like the second one, you said, was it a junior ADU?

Kol Peterson

It's akin to a junior ADU but it's not. So junior ADU is a phenomenon that is really just parochial terminology. It's used within the state of California and that's not used anywhere else. So this is just an internal conversion ADU of a basement. So it's the ground floor of a 1973 split-Level house. And so it's a daylight basement conversion. So it's actually above grade, but it's on a slope. So one half is above grade, the other half is like quasi subterranean. And in the front portion of the house is where the kitchen/living room is. The back portion is where the bedrooms are. And yeah it's, it's a really cool unit. And you know, it's very similar to a duplex, but it's classified as an ADU for various reasons. And it was previously a garage, two car garage with one utility room and a little dinky bathroom. And they ripped everything out and started from the studs and did a gut rehab renovation of the lower level to turn it into a bona fide ADU.

Prefab Review

So before getting too deep into your projects, do you think you can just give like a quick minute or two on what defines ADU and how those definitions vary. Maybe I use the term junior ADU, which, as you said, is very California centric, but sort of how this stuff varies and varies based on geography?

Kol Peterson

Yeah, it does vary. And increasingly, as the ADU movement kind of picks up steam and with California legislation and now other legislation occurring in different states and jurisdictions, that the tried and true definition of an ADU is being put to the test because all of the kind of progressive stuff that's happening within ADU regulations is breaking out of the mold of what the quintessential definition of an ADU is. With that caveat aside, the definition that I use is an ADU is a secondary housing unit on a single family lot, which is kind of the conventional, traditional concept of the idea. But now you can no longer say it's just a secondary housing unit because in fact, in the entire state of California, you can have two ADUs. One as a Junior ADU, one as a standalone detached ADU. And that's also true in Seattle. That's also true in Vancouver, BC. That's also going to be true in Portland as of next summer. 

Prefab Review

Minneapolis maybe? I'm not positive.

Kol Peterson

 Minneapolis doesn't allow two ADUs. But then it's also not just on single family lots. You can also do it on commercially zoned lots if there's a single primary residential dwelling on it. So if you had a commercial piece of property with a residential house, you could build an ADU there. The reality is that would happen very rarely because most commercial lots won't have a primary residential home on it. But nonetheless, it could be theoretically developed there. So the definition is just that it's a diminutive, architecturally subservient dwelling-housing unit to the primary dwelling or housing unit, and that the structural forms in which the ADU functionality can be housed can vary quite a bit. From internal ADUs to detached, to new construction, to conversions of pre existing structures such as garages or whatever studios or workshops, to attic conversion ADUs, to bump out attached ADUs. So the reality is most ADUs out there, probably half I'd say to 60% of them are detached new construction, roughly a quarter are carve out ADUs of existing permitted structures. And then a quarter of them are like iterations of garages, ADUs above garages, or ADUs that are converted out of a pre-existing garage.

Prefab Review

Do they need to all have a kitchen and a bathroom and a shower, or does that vary?

Kol Peterson

What differentiates an ADU from any other permitted, habitable living space is the kitchen. And really what differentiates a kitchen from when you get down into a building code details is really just the sink and oven itself. So you can have a countertop space that has a 110 outlet. You could plug in a  hot plate, convection oven, a fridge. And it's not an ADU because it's not a kitchen, because it doesn't have a kitchen sink and an oven. So, you know, this is where I kind of like to push the envelope a little bit with these conversations regarding accessory dwellings in general, which is most people that have what look and quack like an ADU are not in fact permitted to use. And I'm OK with that. I think from my vantage, whether or not it's classified as an ADU in terms of the local jurisdictional code. Nonetheless, it's filling the same kind of social, environmental, economic goals that a permanent ADU can fill. 

Prefab Review

And what is the size range of these. I know in California, I think I think it's technically still 1,200 sqft. But the way that we've seen the sort of regulations go it sort of becomes de facto a thousand square feet. What is the range you're seeing? 

Kol Peterson

I mean, typically ADUs are limited to, they're almost always smaller than the primary house, although there's even exceptions to that. But yeah, in California, which is kind of the biggest market now in the country for sure, for ADUs and specifically, Los Angeles, I'd say, is the biggest among them is 1,200 square feet is the limit. I couldn't actually tell you what the average statistical size of an ADU in California would be, because the data on ADUs sucks. And that's among the many, many, many, many kinds of policy things that I'm interested in is collecting, forcing jurisdictions to create better reporting about specific aspects of development so that we can start to understand how big are these things that people are actually building when they're said and done. So in the Portland market, we limit ADUs to 800 square feet. The average size of ADUs that are built in the Portland market is something like 620 square feet, statistical average. But if you looked across the I the median, but the mean would be like 750 square feet. So a lot of people are building, basically maxing out their entitlement. Now if the limit of an ADU were say 1,200 square feet in Portland, people would probably try to  build them bigger than seven hundred square feet. But there comes a point at which the sites constrain themselves, the ability for people to build up to what they're allowed to build via entitlements.

Prefab Review

 And on the new Portland stuff, is it going to be similar to California where it's basically one thing within the house and one detached structure outside of the house? Or will there be a different regulatory framework? 

Kol Peterson

It's going to be different and better. And I'm really proud to say it's the code that's coming forward in Portland in one year, the residential infill project coming into effect in August. 2021 it's going to be the best code that's ever come forward in the United States for residential development, period. And so ADUs in particular, you can build two detached ADUs, you can build two ADUs within a single detached accessory structure. You can do one internal ADU, one detached ADU. It's much more liberal than any other code that allows for two ADUs, including Vancouver, B.C., which is always kind of the godfather.

Prefab Review

Do you think they can both be detached? So they can both basically have new space? 

Kol Peterson

Yeah

Prefab Review

So let me run through a bunch of questions. These are the things that we see that are kind of interesting decisions from time to time. So I'm very uninformed on the Portland one, partly because it doesn't exist yet. So we're sort of interested in your thoughts, one of their height limits, because like we see in San Jose, for example, that you can effectively build two stories where I think in California, otherwise, I want to say it's a 16 feet maximum, which sort of basically makes it so like putting stuff over garages and stuff like that is much more do-able. What is the height regulation?

Kol Peterson

Yes, you can build to 20 feet at the midpoint of the gable, which is a weird way to frame basically being able to do a two storey dwelling. So you can do what would be equivalent in California, be building, building up to twenty five feet. So you look at California's code, California's code, it is incredibly good, but it's incredibly bad in that one regard because by limiting structures to 16 feet, you're forcing 

Prefab Review

California's code is a minimum. Right. So like San Jose's gone beyond that, for example. But I don't think most areas have.

Kol Peterson

Right, like Los Angeles has and San Jose downtown has. But other parts of San Jose have not. And pretty much the vast majority of California is stuck with that 16 foot height limit, which is driving a one storey dwelling, which, you know, if you don't know any better, you'd say, oh, that's great. We allow one storey dwellings. But the reality is vantage, that's killing at least one third of the ADU market overall. So I'd say, that's not only just bad, it's a poison pill. California doesn't know it yet. And as an advocate, I would say that's the next big thing for California at state levels, raise that minimum from sixteen to twenty five. That opens up the door for a variety of really specific reasons which you can go into to enable a lot more ADU development. The biggest one is that most lots where we want to see ADUs built are urban infill lots i.e. small plots. And so if you're forcing people to make a trade off between, say, an eight hundred square foot ADU, that's one story, it's going to eat up most of their backyard or build a smaller area in order to preserve their backyard. Well, it's a tough call and you might end up building a smaller ADU, but that also means you're building like a zero bedroom or one bedroom ADU, which doesn't pencil nearly as well as a two bedroom would. And you can easily do a two bedroom in a 500 square foot footprint. If you go up two stories it can feel huge. If you can do one story, it's 500 square feet, and then a loft and bedroom on one side. It has this gorgeous, huge, voluminous, lovely spatial feeling that you cannot achieve with a one story ADU. And yet it's not taking up any more square footage of the plot. There's no reason why jurisdictions should require it to be only one story that's old school policy. And if you want to actually make ADUs pencil, make them take off in a bigger way. You want to at least allow for people to be able to develop something that's going to pencil on their lot. In Portland we allow detached ADUs and definitely fewer than half of them are one story. That's a big portion of the market that doesn't make sense. 

Prefab Review

The way we've been hacking that a little bit internally, which is definitely not as good as just having a two story ADU. But for that situation we've been doing a lot of these like four foot sleeping lofts. So you get like a little bit more height on the room and then you at least. You can basically do, like a bedroom, sort of living room, dining room area with a sleeping loft in that.  

Kol Peterson

And you could totally hack it in different ways. You could also do a subterranean portion of the first story. And the other thing I should say, since we're on this particular podcast, is two story ADUs, probably wouldn't in this context, it wouldn't work as well in the prefab space, but nonetheless, from  an ADU vantage going up two stories is pretty critical.

Prefab Review

Two stories work fine. We've done them honestly.Typically when we're seeing prefabs, you're really specifically talking about volumetric modular housing. Right. The things that sort of look like containers that you see on the highway. Those I think typically can go up to 13 feet high. So typically we've just done one on top of another. 

Kol Peterson

OK, so, yeah, so I guess it can be done, right? 

Prefab Review

Yeah, it's just like a normal house.

Kol Peterson

To go back to the Portland market just to go back to the rip conversation. Yeah, you can do a two story detached. But the biggest innovation, the sleeper innovation, which I think is amazing, is you can do two ADUs within a single building, so basically a duplex backyard duplex that's going to pencil really well. Right.

Prefab Review

So then you start getting to like a real sort of small, multi family, it gets closer to that. 

Kol Peterson

Yeah, exactly. It's kind of bridging into a new structural form, which I anticipate will be expensive, but it'll pencil really well. So I think that's going to drive a lot of innovation on the kind of more sophisticated developer side of things. And the amateur homeowner might not be able to figure out how to fund a $350,000 ADU. But a small scale real estate investor will be like, oh yeah, I'm definitely going to do that. I don't want to do a single at this point.

Prefab Review

I've got a couple of questions about that, but I totally like it when I see real estate opportunities. And partly this is just because in California they're really easy to permit. And I want to get to a segment on that. I do think there's a bunch of really interesting investment opportunities related to this stuff. So that's totally cool. Another question on the portfolio. And so one of the things I think San Diego is doing this, but again, you're the expert on different types of foundations. So  what does the Portland law entail in terms of foundation? Like what kind of flexibility is there on that? 

Kol Peterson

Yes, and this is definitely up my alley. I'm very intrigued by the merging of mobile dwellings and ADUs. I think that's where there is huge potential to actually drive down costs for development. So there's five major jurisdictions in California that allow for movable, tiny homes MTH to be classified as forms of ADUs. 

Kol Peterson

What are those?

Kol Peterson

Los Angeles is a big one, the second biggest city in the country. So you can do it now. So that's huge. Los Angeles is a really, really amazing market for ADUs for a few reasons, but that's one of them. Fresno, California. Ojai, California. Placer County, California. San Luis Obispo. 

Prefab Review

Really, Placer County? I'm a big skier. I'm doing a personal thing  near Squaw Valley. So that's cool. That's awesome. I didn't know that. That's great. 

Kol Peterson

Yes, Portland then doesn't allow for it, besides those places, there's no other place in the country that allows for tiny homes to be classified as ADUs. There's very few places that really even allow for tiny houses to be lived in on residential lots in general. And this is a whole kind of side, an interest of mine that I really want to see progress on this because I think we're just at the very baby steps of where that is. That aspect of things is going to go. But I think what California is doing is OK in these five jurisdictions. But they require that the movable tiny homes meet park model RV standards, which is in and of itself a pretty expensive form of mobile dwelling. So let's say that those will cost minimum $50,000, probably more like $100,000 for a normal one, which is great. But what about travel trailers that cost $10,000? If we're actually trying to solve for affordable housing, why are we making it so damn expensive to build it? And in Portland,

Prefab Review

 Sorry to interrupt. What would the counterargument be? Are there specific, like structural necessities that the park model stuff have that the travel trailers don't?

Kol Peterson

Well, I mean, I think park model RVs are intended for, I guess they're all kind of  classified as forms of RVs which are intended for temporary habitation. But people do live in RVs and park model RVs and different forms of mobile dwellings vans, tiny house on wheels for years and years and years. So I think that these standards that people are ostensibly putting up barriers to living in mobile dwellings are a little bit fabricated and not based in actual fact, they're based in bureaucratic legacy, outdated, outmoded ways of conceiving of this stuff. I mean, and the bottom line is, by compelling people to have foundations or driving up traditional conventional foundations, we're driving up the cost of construction, which is causing an affordable housing crisis, which is causing people to live in the streets, in tents, under bridges. And so I think what I would like to see is a lot more creativity around this question of enabling mobile dwellings, whether they be park rental RVs or Tiny House on Wheels or RVs or travel trailers or anything, and just allowing for those to be used on residential lots and coming up with standards that are reasonable. I think it's reasonable to say, you know, we are going to require that these mobile dwellings have legally permitted sewer connections. And so you have to have a conventional toilet that you can plug into that sewer connection. But to compel that, the structural form must be wood clad and must be built to park model RV standards to me is arbitrary. I'd really like to question the rationale of that, because I think as an interim step, I get that it's a step forward in the right direction because it allows for mobile dwellings. But I think it's causing the prices of those mobile to be roughly eight times what they would be. If you go on Craigslist right now in your jurisdiction, type in “travel trailer”, you will find one hundred travel trailers for sale that you can live in right now for less than ten thousand dollars. So I just think, I think the pushback might be aesthetic NIMBY stuff about how we don't want the town to become trailer trash. But I'm very skeptical of that kind of B.S. because the stuff that comes up with prefab the same stuff that comes up with ADUs in general. 

Prefab Review

So I interrupted you. I think you were continuing to let us know about the Portland regulations. Were there any other things that we should know about that specifically?

Kol Peterson

Oh God. Yeah, it's incredible. It means you can do up to four units on every lot, so you can do a duplex, triplex, fourplex. They're eliminating all off street parking requirements altogether.

Prefab Review

So how does that work? Because you said you could add like a triplex or I think you were saying you could only do two. Do you have two outside the single family home and one within the envelope?

Kol Peterson

 You can do two ADUs. So if you do an ADU, you don't have to pay residential impact fees. But they're limited to eight hundred square feet. And if you're doing two ADUs those are allowed as a detached accessory structure. If you do a duplex, triplex, or fourplex, the way Portland isPortland  defining that is that they have to be sharing a conditioned wall. So the structures have to be attached basically. 

Prefab Review

So you could basically take a single family home, add a triplex and share a wall and it'd be cool?

Kol Peterson

 Yeah.

Prefab Review

OK.

Kol Peterson

You can add a triplex. Yep, totally. And then they're going to allow cottage clusters by right. Pretty much everywhere. So that's like four or more detached accessory structures on a lot retaining the single family house or not. So that's going to be allowable structural form. So those are the big changes. It's complicated stuff, but ultimately it's just enabling the type of freedom that allows for the free market to operate as it should without the artificial constraints that have been put in over the decades by, you know, zoning regulations that were informed part by racist ideologies.

Prefab Review

So should me and you go into business together tomorrow and raise a fund and just start buying like single family homes with backyards in parts of Portland? I'm joking, but like, are people starting to do that? Six months or a year isn't that far from now. 

Kol Peterson

No, it's not. Yeah, I mean and and everybody well I shouldn't say everybody, but a lot of people have already built an ADU and now, they're just like, yep, I am ready to start playing my process here of building a second ADU. I mean, I'm one of those people I'm going to start my own pretty soon.

Prefab Review

So you couldn't do a three story per-say? You couldn't do a three story triplex? 

Kol Peterson

No, you can. Yeah. But if it's a detached structure its limited to 20 feet at the midpoint of the gable. If it's a primary dwelling or a duplex, triplex, or fourplex, you up to 30 feet at the midpoint of the gable. 

Prefab Review

When you say fourplex, does that count the primary residence or are you saying there could be five units on the property?

Kol Peterson

 Four is the limit. So it gets deeper still. So if you meet what are called deep affordability requirements, which are like half the units are rented out at a certain price point, then you can build six on a property. That'll be a code that's utilized by affordable housing groups to own single family housing stock more than enter homeowner developers or developers in general. 

Prefab Review

I don't typically have any sort of mixed feelings about these kinds of laws subsidizing certain groups. Oftentimes I feel like it's being a little counterproductive, but that's cool. But I at least understand the ideology is right, that you are making it more palatable to build affordable housing, right? 

Kol Peterson

Yeah, exactly. It just happens to pencil for affordable housing developers to do it if they do it this way, whereas I think the math, the kind of the performances that were worked out showed that it would be difficult for the math to pencil out for affordable housing developers to build fourplexes. But the deeper affordability bonus facilitated a kind of pro forma that would allow for sixplex development. I don't know how much it'll be used.

Prefab Review

We've gone way deeper on this Portland regulation. Is there a bill name or law name on this specifically? 

Kol Peterson

So, yes, it has the unfortunate acronym of RIP, R-I-P, and that stands for the residential infill project. Incidentally, since we're talking about this in depth, I'll just mention that on October 14th, I'm going to be teaching a one hour class about the residential infill project and Portland House Bill 2001 through an organization called Earth Advantage that I partner with. And I would invite anybody who's interested in this, it's going to be targeting my presentation for the homeowner, developer, realtor, developer types. And I'm going to be teaching that workshop. And then there's going to be two guest speakers are the authors of the two regulations in Oregon House Bill 2001. We haven't touched on it yet, but it's essentially taking RIP and expanding it statewide. So every single city is going to have a regulation that's equivalent to RIP.

Prefab Review

That's awesome. That's really cool. OK, so a couple of things on this. Financing. I think that's one of the most challenging things. But before that, short term rentals. Are people actually using these new units for short term rentals, because it seems like a lot of the areas in the country have basically said, hey, we want you to do this, but you can't make money on short term rentals using this. You can only do X, Y, Z on these things, which, again, I think depending on the area, can also make it more challenging. What kind of limitations are there on that, if any, for the Portland rule?

Kol Peterson

Yeah, and this is like the most controversial question amongst jurisdictions that are considering ADUs that come up everywhere. So basically what Portland does is we allow for it to be used as short term rentals. You can rent up to two bedrooms on your property as a short term rental, whether it's in the primary dwelling or the ADU, it doesn't matter. But if you choose to do that, if you choose to build an ADU and have a short term rental on the property, then you have to pay the residential impact fee, which is $25,000.

Prefab Review

 Per Unit or total?

Kol Peterson

For the ADU. Yeah, and primary residential dwelling would be like thirty, thirty five. It's a pretty big disincentive given how expensive development is. People can't afford the extra thirty or twenty five thousand bucks. So people typically won't do it. And as a result fewer ADUs are built. But the city is like why would we want to subsidize you to add a hotel room? Like that's not meeting any of our policy objectives. Right. I fully support the city's approach because I don't see how they could rationalize subsidizing a hotel room. However, as you know, that does undermine the interest of a lot of people. So it's a complicated conversation. But California has just simply, I think, simply outright banned short term rentals in ADUs under the 2019 legislation. And I think it's a trade off to getting good legislation, I think that's a fine approach. I've come around, I used to think, you know, free market libertarian, but I've kind of come around to saying, you know what, a lot of these ADUs are being used as short term rentals. And as an advocate for ADUs, I don't have any passion for that problem. Why are we doing it?

Prefab Review

So let's talk about the financing of ADUs. I'm definitely interested. We see people finance them constantly and luckily a lot of the people in the country who own single family homes, who want to build ADUs  have some  equity in their home and they can use some form of home equity for this. I haven't seen many examples of alternative financing based on the cash flows of a property like in some other business type expenses. But, you know, I think dwellers. I don't know if they're still doing it, near you guys, are experimenting with this. There have been a bunch of these sort of like, "hey, we build something on your property and split the profits for a little while," which I think is an OK, not perfect model also, what are the interesting things that you're seeing from a financing perspective? 

Kol Peterson

Yeah, I think I think that's an interesting set of experiments that are going on, I really like that. I really like to see private development models that cut out conventional banks and kind of come up with some innovation. And they're all kind of spinning off the same concept that dweller is, which is to say we will build an ADU and we will somehow come up with private equity to finance it, and then we'll take the majority of the rent. And there's five things I know that are doing that now. No, California primarily.

Prefab Review

There's United Dwellings. Right. There's Rent My Backyard. Who are the other ones? I'm just curious. 

Kol Peterson

Those are two, there's one, there's dweller, there's homestead, and then there's one other one thinking, 

Prefab Review

I was just curious how to finance this stuff.

Kol Peterson

I mean there's a lot of innovation occurring in the finance space. The thing that I'm most excited about is that Fannie Mae and Freddie Mac conventional portfolio or conventional renovation financing standards are getting better and better incrementally. And so on this next project I'm going to be using hopefully just a conventional FHA 203-K1 financing option.

Prefab Review

Those don't provide cash, though, for the remodel, right? You can tell me, when I've looked into those before, aren't they fairly limited in terms of the amount of money they give you towards the repair?

Kol Peterson

No, they're pretty good. I mean, you have to find the right lender to work with. But like my case, because I'm going to be building a second ADU our goal is to finance it as though it's a triplex from a financial perspective. So that brings up the loan limit from $524,000 to s$789,000. So that's enough to be able to build not just an ADU, but like a really high end, large scale ADU in the Portland market. This stuff is getting really interesting as we get into things like bridging the gap between single family homes and middle housing, which is two, three, four units, then the financing is going to become all the more interesting, complicated and critical to being able to develop the stuff. And it's not really the government's, it's not really the local government's job to figure that out, but lenders should. And in any case I'm really interested in those kinds of incremental changes that are happening within Fannie and Freddie to enable renovation, loan financing, using home style renovation, loan financing. There's mission driven philanthropic lenders that are lending quite a bit of money, upwards of two hundred fifty thousand dollars to build an ADU with pretty reasonable interest rates under some conditional applications like the ADU has to be rented out to Section 8 for a separate  set number of years or whatever. That stuff is all fledgeling. I wish I could say this is taking off. It's not really taking off. But there's a lot of pilot efforts going on from that.

Prefab Review

We've talked to a few people in San Jose, in Portland doing that stuff. Yeah. Yeah. The ones we've talked to have had awesome deals. Like no money up front, like five percent interest rates, six percent interest rates. And that actually seemed like they were having a hard time getting enough people. It was really surprising. 

Kol Peterson

The market is interesting because like I was mentioning how we no longer allow for short term rentals, pay the residential impact fees. When that change occurred in twenty eighteen, that dropped the number of ADUs being permitted quite a bit. So now the demand for ADU development has gone down quite a bit because it's been around for a longer. So it's not like it's not like a mad rush like there is in California right now. So it's hard to know whether the lack of interest in those kinds of mission driven lending options is just a result of the lack of overall demand for ADU development or what. But, yeah, I concur that they've had a surprising little amount of interest. Maybe they've just done a poor job marketing. I don't know. But most people, as you mentioned, are not using these innovative ways of financing. They're using HELOCs, cash, family loans and stuff. And so, like, that's still kind of the main way that people are doing this stuff. But there there's several other approaches that people are experimenting with, things like equity sharing, financing equity models or shared equity model financing. So there's a couple other small experimental things that are going on here and they're hard money lending. But I'd say that ninety five percent are using some kind of traditional HELOC, cash savings, family loan, financing options. And then what I see on the horizon is really just like renovation loan financing getting better and better and better. And I hope that it does, because that's what we need to happen and really to scale up new development.

Prefab Review

The thing that we're trying to push more people who come into our concierge service to do, because I think it's interesting, that honestly seems better on paper than just the number of people who've done it in practice,  and this is potentially more of a California concept. Have you seen many people trying to do different kinds of arrangements, particularly from an owner occupiers. So TIC is sort of a hack in California. I think it started in the San Francisco area that people did to get around the inability to condo-ize places. So you basically do an equity share, typically called tenancy in common like a multi unit building. And then you assign occupancy rights.You're essentially creating separate units and there are a couple banks, because these are like a mature product. There's a couple of banks like Sterling Bank. I think it's probably the best known one, they have TIC loan products and they underwrite them similar to condos. So things like that seem to make it easier if I owned a single family home and someone wants to have a friend who wants to build an apartment on my property. I haven't seen those used a lot.

Kol Peterson

A lot of the innovation on this stuff is and will continue to occur out of the San Francisco Bay Market for a few reasons. But I think that type of like code ownership financing model, it's a financing by necessity type of option in the San Francisco market. And so hopefully that will kind of percolate into other areas in the United States.

Prefab Review

OK, this has been one of our longest running sessions, probably because I think we're both passionate about these issues, but we want to get into a sort of a quicker than normal fire around, ask you quick questions, try to do one minute answers, but we won't come down too hard on you if you don't. So first, quickfire. What do you think are the one or two most interesting investment opportunities created by ADUs these days?

Kol Peterson

It's a great question. I mean, if I was a real estate investor, which I'm not, I would probably be looking at, you know, just doing a good analysis of properties in California where you can have a junior ADU and a primary ADU. I mean, there's nothing too innovative about it, but I think that's looking like what kind of housing stock can do that? Where is the market ripe? Where does it pencil and just do that, I think that's a totally reasonable thing. I think that's in and of itself a little bit controversial because I think there is some hesitancy about this and concern about investors scooping up residential property and turning into a rental stock. But I guess my interest is in just seeing more small housing units overall. So I'm pretty happy when it comes to this stuff. Like more housing.

Prefab Review

OK, next question. What are your favorite ADU designs? I mean, we see this a lot because of what we do. Are there specific designs or specific ideas that you think are really beautiful or really cool?

Kol Peterson

I like two-story ADUs with a lofted bedroom on one half and a great room below. And that's the bomb design. It always looks good. It's pretty simple. You can see a lot of creativity within that envelope and it's just the way to go. It's like it's perfect. It makes a space feel huge. It gets you everything you want. 

Prefab Review

So build firms or I mean, or whether they're prefab or modular or just stick built or architects that you think do a really good job with that.

Kol Peterson

I mean,  like I said in Portland, I couldn't point out, like a particular designer. I just go to AccessoryDwellings.org and look at all the designers there that are listed. And because that's what most ideas are in Portland, you'll see a lot of those. And so it's kind of just the natural way that you would design an ADU.

Prefab Review

We tend to be pretty domestically focused, a little bit of expertise in Canada and I think they're called laneway houses or something similar to that in Canada. Are there international examples of the accessory dwelling trend that you think are really interesting? 

Kol Peterson

Yeah, I mean, Vancouver is, like I said, kind of the godfather of ADUs with allowing for ADUs, among other things, laneway homes and secondary suites is what they're called there. And that's really the best market in terms of concentrated ADUs. New South Wales in Australia is another big area for ADUs. And I'd say the sheer number of ADUs is probably more in New South Wales and there is anywhere else. But it's dispersed over a greater state of New South Wales. So it's a pretty broad area. But I think that's Sydney, if I'm not mistaken, or Melbourne, I don't even know. Outside of that, those two locations and in the United States like ADUs are not really a phenomenon. There's some legacy ADU type stuff in England that I've never seen in person, but they're called new houses and they're on like alleys. But yeah, that's it.

Prefab Review

And then the final question, we'll exclude Portland for the sake of this. And you can even exclude California if you want, because we've talked about both of those states at length. What do you think the best legislatures or the best cities or states are in terms of regulation these days for looking for interesting examples?

Kol Peterson

Oregon House bill 2001. And it's not very well known yet, but you'll be hearing about it. It's a big deal. It's just it's just taking RIP and putting that same mentality into the code statewide. And as a result of it being statewide, that means it's essentially a universal model that could be utilized anywhere. So I am excited to see if that gets picked up. So we're seeing Connecticut and Virginia now look at allowing for middle housing based on  House bill 2001. And so I think we're going to ultimately see that crack open up in more places. And hopefully hopefully so, because the entire East Coast is abysmal and needs to leapfrog out of their antiquated zoning regulations and go well beyond where they are now. So I hope that they do leapfrog and they can look to Oregon House Bill 2001 to do so. But I think it's yet to be determined how all this stuff will actually pencil whether people build middle housing or not. It's not like California where the numbers will obviously make sense. It's Oregon's not it's not as expensive. So even with the best code in the world, we're not going to see tons of the stuff being built.

Prefab Review

Well Kol, thank you. Thank you so much for being on the Prefab Pod.Prefab  Everyone, if you want to learn more about Kol, again, search, accessorydwellingstrategies.com is probably one of the best places to find him. Google  backdoor revolutions, Google the ADU hour is another. To find out more about some of the stuff I talked about as it relates to accessory dwellings and prefab and modular housing. Prefabreview.Com is always a good place to check things out. Kol, Thanks very much. Really appreciate the time. 

Kol Peterson

Yeah, it's been great. Thanks, Michael.

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Episode 15 - Prefab Pod Live Chat - Toby Long, Clever Homes

The Prefab Pod

 

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Transcript

Prefab Review

Toby, are you there?

Toby Long

I'm here. Can you hear me? 

Prefab Review

We can. Everyone, meet Toby Long who's coming to you, are you in Oakland or Berkeley? I always forget. 

Toby Long

I'm in Oakland. I'm up in the hills.

Prefab Review

Who's coming to you from Northern California, though he also does some work in Southern California and Northern California as well. Give me one second to share your visuals. So, first of all, Toby is an architect who I have had a bunch of experience with in different ways. He's been a really great resource for learning about the industry. And unlike Proto, where they own a factory, and Toby, please correct me if I'm wrong, Toby works with a variety of factories, but is, primarily sort of architect project management, stuff like that. And I probably undersold you on that. All right. Let me pull up your slides quickly. All right, cool. All right, so Toby, like with the Proto presentation, what we'll try to do is we'll just spend a few minutes learning about you and your practice and then we can potentially go through one or a couple of your projects, I have the Oakland one up right now. You can see my screen, right? OK, so we can walk through that one or one of the other presentations or one of the other projects you sent along. But to start, it would be great, to, I mean, by the way, Toby's already done a podcast on Prefab Review, so you have an opportunity to definitely learn even more about him via that. If you want to listen to that, it's on The Prefab Pod which is on our website. But to start, can you just give a minute or two, sort of brief on your practice, the kind of work you do and how you got into this? 

Toby Long

Yeah, totally. Thanks, Michael, it's great to sort of see everybody. I hope everyone is safe and well and hunkered down, I guess. This is my home studio. I've got a lower part of my office here in my house that we practice out of. And then I've got another physical office I'm using a little bit less these days. So, yeah, it's great to be here. Thanks. I'm a licensed architect. I hold licenses in a few states and it drives from early, I don't know, maybe obsession, maybe just interest in design and architecture. That kind of emerged for me as a kid. I grew up on the East Coast and had early exposure to design and construction actually through a pretty unique program in a public school kind of pining for this these days in other areas and kind of stayed with it. After graduating from the Rhode Island School of Design where I did my undergraduate, I moved to California and kind of started a practice right away. I ended up kind of with a good exposure to two sides of the industry, doing some design work and architecture work as a teenager and then working in construction as a summer job taught me a lot about the execution of building projects and getting from paper to the dirt. And so I kind of carried with me, I don't know, maybe a little bit of an ego at the moment. I think I've lost that a bit. But I started a practice right away when I moved to California. This was in the mid-nineties and I did a few years of traditional kinds of building projects and maybe was never satisfied. So fortuitously, around the kind of dot-com movement, I rubbed up against some entrepreneur types that wanted to get into a business model that involved Prefabricated construction and kind of hooked up my effort as the design arm of what we were building as Clever Homes. And so, you know, over the last 20 years, I've been in this industry working kind of from both sides of the table, doing a little bit of what the Proto guys have done and trying to systemize and bring together kind of a platform and an opportunity for material acquisition and kind of building a business around that to our current carnation, which is much more about design and project management execution. I've been working specifically in Prefab for 20 years and have had exposure to a great number of the systems and technologies that are more prolific across the country. We've done a lot of panelized stuff similar to what the Proto guys have done and have found some really great opportunities there. We've done some steel buildings. Of course, some of the folks that you've been interviewing, Michael, are getting into that space. We've done some ICF concrete style construction projects and then we started getting into modular building, volumetric modular construction, probably around 2007 - 2008. That's really what sort of persisted for me over the last 10, 12 years has been working almost specifically in the volumetric modular space. And we work on all kinds of projects. Most of the work we do is residential in nature. We've had great opportunities to work with clients, building fairly modest homes, in fact, doing some affordable housing projects. We've now gotten into some much, much larger mixed use multi-tenant projects. Our bread and butter of the practice, if you will, is still primarily single family home construction. And really what ties together everything in my practice is off-site construction methods. So it's always been great to meet Michael and the great program that Prefab Review has put together. We're certainly evangelized and contributing to it in any way we can. It's been exciting for my team and I. So really most of the work I do with clients, as I mentioned, is a volumetric modular and kind of wanders all over the place in terms of scale and scope. But we also bring a certain attitude towards our projects, which is a real bias for architecture and a design process. I learned to be a professional architect here in the Bay Area. We don't have any flat lots. There's no easy jurisdiction. There's nothing simple about a lot of the work that I've been exposed to. And so I think my attitude towards Prefab has kind of resonated with solutions that seek to look at these challenging sites. This Oakland project in particular was on a very steep hill, and I kind of sent it to Michael just as an example of doing modular projects in places where we've got tight conditions. You can kind of see the power lines in one of those photos of steep sites where we did a lot of site work, a lot of excavation work and very narrow constraints while still really trying to put an emphasis on architecture and design in an industry that I think often tries to move the design process into books and catalogs. It's really great to be here with the Proto guys because I think we share a similar sentiment about the importance of design and flexibility in building construction, particularly here in California, particularly in our urban areas where we just don't have a lot of easy sites where the repeatability of design is a certain process. So in my practice, we've built more of a template-like experience while trying to balance out the best of the repeatable experiences of modular building and tooling where we can from structures to interiors, but also recognizing that it's important that architecture responds contextually. And that's given us a great opportunity to work on a lot of challenging sites, all kinds of locations, HOAs and other tonier groups that try to get involved in this stuff, too. So that's a little bit of kind of how I got started and what it looks like for the future of the practice.

Prefab Review

Cool. All right. So everyone, I know you have questions, and so please send them as you get them. Toby, f it's all right, I'll fire like five to ten minutes worth of questions at you that are a combination of stuff from people here and what I would say are like greatest hits from our site. 

Toby Long

Sure. 

Prefab Review

And whatever, answer them or pass, and then we'll get to know one or two of your projects. All right. So just to start, Toby, correct me if I'm wrong, but like the stuff that Toby does mostly and not that he does not do this, but I would qualify it as like high end custom homes, a lot of which are in the Bay Area, some of which are in other places like wine country, Southern California, and as you said, some multi-family. But so for projects like that, what are we looking at on a typical time line assuming the client you're working with is not holding you back, right, is not spending six months being finicky on floor plans, but is pretty responsive. What does the timeline look like for a project from start to finish?

Toby Long

So you know, just reflecting on experiences, particularly those over the last five years, covid included, I don't think I had a major change on this. In fact, there's probably been some improvements in a few different categories. But generally, Michael, what I would tell people is that projects we work on take somewhere between a year to two years from concept to move in. I tend to see that mostly split down the middle between the amount of time we spend in design, engineering, permitting and team building, and then about a similar amount of time on the site. And I think there's some reciprocation there. And if it takes longer to permit and the more townier groups get involved in the design process, generally it's some reflection on the complexity of the Construction stage or vice versa, so most projects we work on probably have about six to nine months of an overall planning and permitting period. What I call, act one and then more or less, probably about six to nine months for the majority of the construction stage. And final utility connections being the one that drives everybody crazy these days. But more or less, that's a pretty fair time frame.

Prefab Review

So if we had to break that down into, you can decide the best ways to break that down. I think of it as sort of design just to get to plans that are well designed and engineered, then permitting, then foundation and whatever fabrication, which can theoretically happen at the same time. And then the setting of the modules and finishing. Do you think you can break down kind of a range of time frames on some of those different areas? And also, if I missed any, I think about it pretty simply.

Toby Long

So the very first thing we do with clients is a conceptual study. We usually design a building. We look at the economics. We understand the regulatory issues. We start to build a little bit of a basis for specification and we produce some schedules that drives our process. That's about a month or so. Then we launch from there into the project. If it looks feasible and we're progressing, we would expect probably about a month to maybe two of design and visualization modeling. We do a lot of walkthroughs and renderings and this kind of thing we would expect probably about a month to maybe a little bit longer in the technical stage of doing engineering. Most permitting in our area takes about three months, similar to as the Proto guys explained, in L.A., we're seeing about two to three months, but I think it's closer to three. Most jurisdictions are taking about 30 days, at least in California, of their obligatory just review period. And I don't see people moving a lot faster than that. And then usually by the time we're through that final permit moment, usually the state has already issued the permit, of course and understanding the volumetric modular construction across the US is regulated at the state level and we'll often put the modules into fabrication, sometimes even before we have local permits issued, this gives us a little bit of a jump on the overall timeline. So maybe a month of conceptual, about two months of design, probably about two months engineering and then two to three months of permit work. It's really in that six to nine month window. Different urgencies will drive us. We came all into a code crash at the end of last year that got things moving a little faster. And then we're seeing planning commissions and stuff taking longer. We have to go through design review processes.

Prefab Review

Are you doing many ADUs on the back of finished homes?

Toby Long

 We've done ADUs in combination with larger building projects. I find the ADU market to be tough, particularly sort of in the work that we do. I love the ADU market. A little bit more prescribed, a little bit more specialized. Steve Vallejos, for example, being a great guy you recently interviewed who's just really built a solid book of business, specifically with the specialty of backyard structures. So I'm not seeing a lot of that right now as individual projects, but as part of our larger efforts, we do this.

Prefab Review

From a timeline, we've seen this move a little faster. It sounds like you're not really doing.

Toby Long

Oh, yeah, no, definitely. Most of the jurisdictions around us have opened up the opportunities for us to be a very streamlined experience. And you don't get into the same kind of regulatory complexity that we do in a lot of our projects.

Prefab Review

Got it. Going on. Cost comes up a lot. We've already had like two or three questions about it. Do you think you can break down similarly, modular costs, site costs, and soft costs. And if you want, we can even do it in the context of like a project or some of these projects that have crazier sites just so people can understand that.

Toby Long

Yeah. I mean, so most of the work that we're doing is pretty consistent economically. Now, I do think that the categorization of those investments shifts, obviously, if you've got to build big retaining walls, maybe you don't have a hot tub or something because you've got to figure out how to balance out budgets. A lot of the projects we work on are pretty consistent economically. What I'm seeing in the market, a little bit of a mention that as an aside, what we do in our work is we try to help our clients access the larger prefab industry. I work for my client side of the table. We love to go out into the larger market to talk to several factories. I do believe that the construction transactions historically have involved a little competition. We like to try to have a bit of that competition in our work so that we're able to talk to a number of different resources to evaluate cost. That becomes a key ingredient for partnership. Nonetheless, the specifications we're using and just the nature of the work that we seem to be engaged in is pretty consistent. What we're seeing right now in the marketplace on the modular modular side, with basically completed structures, on the interior, you kind of get a little glimpse down there in the corner of what it looks like on the outside. They're mostly weather wrapped. We do all the siding on site. That's stucco, there's a good image of the last module being set for that project at the end of the day. So those modules we're seeing right now, right around $200 - $225 a square foot for modules and then on total project budgets, which is really how I prefer to look at a lot of this stuff, sort of top to bottom investments, we're seeing project budgets right now that are somewhere in a for $400 - $500 a square foot range, kind of on average for most single family homes. Some of these are getting a little higher. We're getting a little higher specification on some of the projects these days. The way I see that breaking out in the work I'm doing is about 50-50 in the construction stage. About 50 percent of the investment being made towards the prefabricated modules. About a similar investment being made in things I would associate with hard construction on site. And then we would dose that with the soft costs, which do range from jurisdiction to jurisdiction. Just as an example for people out of the Bay Area, this might sound a little shocking, but the water meter for that house right there was probably about $70,000. And so unfortunately, that's unaffected by prefabrication. That's just buying into the East Bay water grid. But all said, we're trying to balance out budgets in those zones.

Prefab Review

And in terms of when you're talking about the greater prefab market, are you mostly just talking about shopping around the different factories or are you talking about other parts of the industry? Are you mainly talking about the kind of manufacturing or are you talking about other parts of the industry as well?

Toby Long

No, I think more specifically, fabricators, right. These shops and companies that build off-site construction. My rough rule of thumb for most clients is probably around a thousand to maybe fifteen hundred miles. We start to hit the bleeding edge where transportation really gets too expensive. So obviously our projects range, if we're in SoCal that looks a little different group than if we're working up in the north. The Bay Area here, obviously, Colorado's got a slightly different set of conditions and then East Coast projects, it's a whole different set. So it's really the factories that are around the sites that we're working with and trying to align the vision of the project at our end with what the fabricators do. You know, we work in a process that is very much about contextual design. These buildings are constructed once. We wouldn't build this house anywhere else, wouldn't fit on the hill anywhere else. And so really, that's a sort of subset of fabricators that do one off fabrication.

Prefab Review

Right. We've interviewed a ton of these people. Right. Like the map of the plant prefabs in the world.

Toby Long

They're all our favorites. We love everybody on your site. Yeah. 

Prefab Review

So what I want to ask is like one of the things I have a hard time with, and by the way, everyone, we're sort of starting these events out of our home. And that's just because of the world we live in. But the hope in terms of where these events go long term, is that we start doing like factory tours and sort of using our platform to give you more kind of one-on-one experience with the stuff. I've done a lot of them at this point. How do you, and I'm sure you've done 20 times as many as I have, how do you, when you're trying to figure out diligence for these people, who do you want to work with beyond them? What are the criteria you're looking for? Because, I mean, that continues to be beyond people's personal experience, and is sort of challenging to understand. Like there's some technologies that it seems like people or some of the factors are starting to adopt to stay more organized. But beyond that, I'm still sort of curious about the best way to kind of figure out who's good and who's not good. 

Toby Long

It's a tough question, Michael, especially as we all maintain some hope, optimism and expectation that there's going to be new entities coming into the space. I mean, the world is busy in the prefab sector. And I think there's a lot of entrepreneurial opportunities and a lot of entrepreneurial types that find this market potentially a home for innovation. So I think it's a really good question. I mean, I tend to be pretty simple with it. I hate to say, but I think personality goes a really long way. You've got. Obviously, that doesn't get you across the finish line, but I do think that the cast of characters that's associated with a company and certainly someone as intimate as your fabricator or builder, we've really got to like who we're working with. I think that's a first step. I do think you can look at availability. Not everybody is going to have a spot. And I don't think people wait six months to save six months. And so I think that there's a certain time issue. Obviously, economics become an important part of this. Part of the reason I like to go out and to solicit initial feedback from a variety of factories is because I do think having worked with homeowners for 20 years, people do better after they've seen a few bids. They feel like they've done their homework and have discovered the economics of a few companies. We definitely encourage factory tours, which are easy to do, and are fun for some folks and not for others. And we'll even get into deeper conversations about company capitalization, whether or not there's been money raised, knowing what's on the pipeline, that kind of thing. For better or for worse that's the industry that I'm part of, the industry I'm in. You know, there's not a ton of fabricators that do these kinds of projects. And so there is some reliability in that small community. But I do think that the ambition to bring on new folks is going to continue to make this a pretty significant question for people.

Prefab Review

Yeah. Last question on this and then we can cover your projects. And this is sort of a funny one. I've interviewed 30 different fabricators and almost everyone says some version of "well, other people don't build like we build." And they like to say how few millimeters their cuts are and like our values and stuff like that. And many of these manufacturers are pretty high quality and do have different LEED rated projects and stuff. To what extent is that marketing spiel and to what extent are there good ways of trying to tell the difference? Because, I mean, again, that's challenging for me to understand.

Toby Long

I think not so dissimilar to how Proto operates mostly. I've come at this expecting that our kit of parts are more or less a conventional kit parts. That bringing in a new this or a new that I think exacerbates this question you're asking, "how do I know that this new technology is as good as you say it is going to be?" I think that's a different issue than building a set of standards and expectations, not only from our end. I think our work reflects our expectation of how factories and builders perform. But we also author fairly tight specifications in our projects that do control for a lot of this. There's everything from the contractual expectations to just simply the process in which we're engaged with the factory partners. There's oversight we're providing vis a vis our factory tours client's factory tours, people watching things happen in motion. The inspection process is rigorous. A lot of the companies that we're working with are all also providing a weekly quality review, where it's at least in covid land, it's been a lot of face time and videos that have allowed people a chance to see things. So, you know, on the hype side, I don't know. I mean, I think I can be critical of the prefab space at large that we get people pretty revved up about things that may or may not be true. I think there's different motivations for different companies and how people engage their marketing platforms definitely wanders all over the place in the prefab world. I tend to try to see it a little bit more as a straight building project with some very somewhat conventional expectations around the delivery of a quality product and then applying a more or less somewhat expected follow through from inspections to photography to getting our clients to go to the factory, usually several times at least to perform kind of their own review process. So I guess I'm not so sold on the emerging technologies, but I do believe that the prefab world does have some really great folks that are committed to building quality homes and with a more or less conventional palette of materials. I don't know if that answers your question. 

Prefab Review

That's helpful. So let's let's walk through one of your projects. We can do the Oakland or the Palo Alto one. So you can maybe sort of walk us through some of the design work you do, sort of things to look at, how it came about. And then we'll do some listener questions.

Toby Long

Yeah, that sounds great. I mean, all of these are on my website. People can spend a little bit more time as they want, but mostly I just wanted to kind of pull out three of them that I thought photographed well, but that also kind of represented a little diversity in terms of things that I often get asked or sometimes mythology about the prefab space. I think that there's an expectation that design is too old and engineering is too old and that this is some sort of system where we're taking A and a B and adding it together. And I get a lot of questions along these lines. Can you build on hills? Can you work in snow country? Can you do these other things? I think I sort of pulled these projects out. If you want to open up any of them, I'll just share a couple of thoughts about what was something interesting to look at. For these kinds of projects or the Oakland house, you know, very personalized. This is a savvy client. They had a lot of design input. They kind of knew a lot about what they wanted when they saw it. So there was an opportunity to really capture a lot of that personalization in the design. I think more importantly for this one, it kind of reflects on just difficult topography and a difficult site. This also uses, and you can just kind of spin through these, this also uses I mean, it's sort of a nice palette of materials it uses. So this was a custom built staircase by a local metalsmith. It actually worked out being very, very affordable. It's a twenty eight thousand dollars staircase. Could have been a lot more, but it happened through a local fabricator. So this was just a little shot of something that does show up in all of our projects, which was built on site.

Prefab Review

I was trying to figure out how to do that in pieces. It would have been interesting.

Toby Long

Yeah, it's a combination. It was actually brought to the site in three pieces, so it was difficult to get in the door. But that low door you see down there on the lower left is actually into the garage. So that's actually a site built section which exists below the modules that's effectively below grade at the rear of the building, the upper section or the upper two sections are modules which had this volume built in the modules. And so as they were set, the temporary framing was removed that created the double height space. And then after the bulk of the sheetrock was finished, the stair fabricator brought in the staircase that they were fabricating on the side. And so that was just kind of a nice example of a way of integrating a site built element. This wasn't something that we wanted to try to force into modules. It was too important of a moment in this house living on the hill. The staircase is such an important part of your life. These clients were pretty dedicated to that. So you can flip to the next one. So just a kind of representation of diversity of kitchens. You know, this is sort of a fun moment. We had a lot of views out of these windows across the bay. And so we thought the kitchen needed this sort of window set up. And so this is just a very personalized kitchen, high quality cabinetry produced basically by the factory, really open ended specifications to that degree. We also manage a kind of canned solution on the interior so we can serve up the bathroom if we need to. But I do find these are places that people really enjoy investing themselves. I kind of think the design is sort of the fun part of this experience of building sort of something to celebrate.

Prefab Review

Because your projects are custom in nature, does that mean you're spending a significant portion of time with clients figuring out materials, fixtures, appliances, stuff like that?

Toby Long

Some, yes. I mean, this was a spot where the client basically wanted to really invest themselves. I think we probably had some bathrooms in this that were just off the shelf. We've got a million bathrooms at this point. So it's pretty easy for me to say, here's the tile, here's the faucet, here's the tap, here's the toilet. But we also try to work with our clients and not to belabor it, but to have the experience of finding the inspiration from photography from all of our great websites in the world and aggregating them into things that really reflect on their personal experiences. I work with developers too, Michael and they don't want to deal with any of this garbage. They just want it done,  so it sort of depends upon what our clients are looking for. We've really tried to tune our process so that if people are interested in geeking out on the kitchen, there's every opportunity to do that. And if people would rather have it go off the shelf and snap your fingers, we can do that, too. So usually it's somewhere in between and it is a collaboration. You know, we came up with some parts of the design, but the cabinet makers are pretty deep into this stuff to really help outline the bells and whistles of all the cabinetry. So go ahead and flip it. And then there's a few site photos. So here's like a nice pocket door that all folds into that wall where that painting is. So that all goes away. You can kind of see some of those retaining walls that are on a steep hillside. Again, sort of a bathroom image sort of tuned to those folks. Here is setting it on the site. Go to the next one. This one, I think is a little bit telling. So this is hauling in amongst power lines. Power lines are one of the biggest sorts of challenges in modular construction. And so this project just threads the needle, with those lines.Where that truck is coming in and they go back across the street right in front of this house, and so we had a small window where we were able to do this, but you can work in and around power lines. So it's not out of the question to be able to accommodate challenging sites.

Prefab Review

We've done a few projects where people actually ended up rolling stuff on...

Toby Long

Yeah, it works well for a single story. It's really tough for multi-story buildings. We've tried to do some shoring systems, but at the end of the day, projects pivot on economics and the more expensive you make the stuff, the less likely it is to happen. So just the last slide of the day so we can bounce off these other two pretty quick. If you want to just go back to those. I know we're going to be pressed on time.

Prefab Review

Let's do one more and then and then we'll cover any questions.

Toby Long

So why don't you just go to the Truckee House. So that's just kind of a cool moment. Or if you go back to that, I'm just going to show something sort of interesting. So look at that PA4 image, which is kind of a cool one. We could be inventive with this stuff. You know, modular building isn't just a stodgy old thing. This is an exciting experience of collaboration and design and working within the framework of a predictable and affordable building process. So this is actually two mods that join but without a corner. And so we were able to open up the whole thing. It involves some steel. There was some complexity there, but it gets a really great result for that indoor outdoor relationship that people are always looking for. People can see the rest of it somewhere else. And then I think the Truckee House is just a great indication that we can build in tough zones. I mean, as you know, Michael, from your experiences, you can still do this stuff up in Snow Country. This was a project that shows well, it's in a Tony community up in Truckee. But this is Martis camp. And this is a module project that has a lot of site-bilt elements as well. This sort of larger form you see in the center as you flip through these photos, I think there's one that shows even in the construction photographs that 

Prefab Review

Martis camp, sorry to interrupt, is a fancy community next to North Star just just for 

Toby Long

It's a high end resort community, I think a pretty successful one. And it spun off a lot of expectation in the area for kind of a mountain modernism. And we work with clients that are building houses that are a lot less appointed at much lower budgets. But I think people find inspiration in a lot of what Martis camp has been able to demonstrate using a mountain modern language. But if you just jump through that for a second, you can see especially one of the construction photos I just put in because it's a nice representation of some elements. So this whole section here, you know, this was built on site. This is a very open span, clear, volume with a lot of glass and some steel and a big giant door that folds away. And we also look at this process very pragmatically and places where I think we have design challenges that we can't solve using modular construction. We use panelized systems or site build. This was a prefabricated steel frame that was basically infilled with glass.

Prefab Review

Very pretty.

Toby Long

And it's good space makes for a nice room. Just kind of quick there, there's a bunch of these in here. You know, this was in the module looking kind of adjacent. This is like the kitchen in the mod. You can kind of see those spaces. So this building, if you jump to sort of some of the images towards the end, you can see some of these construction photos. This is at a distance. Go one more. This is one of the mods being placed adjacent to what you see, whether wrapped in white. So here's a good image. So you can see thats the field built section and white. That was weather wrapped while it was waiting for the mods to show up. And then we set them adjacent to the modules. And if you go one more, you can see just kind of a nice image of the site built sections which are in steel, which were prefabricated and installed ahead of time. And then the sections, which are the mods, which sort of sit in and around that building. And then there's just a few photos, I think, from the year after this was built where they had 10 feet of snow, I'd say. So they're robust. You can design them to fit in any climate or environment.

Prefab Review

When it comes to designing for heavy snow loads, how much is that adding from a cost standpoint, typically?

Toby Long

Well I think if you took the same house that was on the coast and you brought it to Truckee, you'd probably add, I don't know, 20 percent in your overall structural cost, if not more. The work that I'm doing, my sort of pitch to clients is that I don't know that your budget has to change persay. It's just that we may have to spend more on steel or framing or weatherization and winterization. And so it may mean that we have to find other places where we're going to offset costs. It's really an experience of balancing out the amount of work on the site, which, as I said, is about half the effort with the stuff that we do off site. In the projects we work on, there's always an equal investment of time and energy, and I don't believe you can buy a prefab house until you know how much your driveway costs. It just goes together. So, yeah, I mean, I'm not sure it's easy to relate that. Obviously, there's also the rising expectation challenge. Right. So you go into some of these communities and house values increase and you've got to add things that really measure up to those investments.

Prefab Review

Last question for me and then maybe one or two more. What do you typically see from people who do not go all-cash as sort of a financing plan? 

Toby Long

Yeah, it's a tough one. I mean, I love the strategy of saying that if there's an easy path through financing, it definitely opens up a lot of gates. We found that there's a few lenders that we've been able to work with that like the modular space and have some programs for modular construction financing. At the end of the process, per state law, it is a permanent building. It doesn't have any legal distinctions. Whether or not, again, it's part of a sales process or not, but at the end of the day, under California law, it's the same structure. That said, as you mentioned, Michael, the draw schedule on the factory side tends to be a little bit wonky because the factories are working ahead of the site installation. So we've got a few lenders. So that's one issue. We've also found a couple of options where we've connected bridge financing, where essentially it allowed for the factory to be funded through another financing source, and that is because the building was on the foundation. Going down into the construction loan is a little bit more accessible. That works well for Wells Fargo, Bank of America, the other folks that are doing more conventional financing. So, yeah, I think that's just a question. We've also found maybe at the end of it all, and regardless of the solution, factories have strong motivations to figure this out, too. They want to make the sale. So we've been able to get the factories involved and they've been able to connect the dots on a couple of different project opportunities. But there's a few ways that we've seen this come together. It's definitely a little different experience than just going and getting straight construction financing for a conventional project.

Prefab Review

You can look at our website, we have some guidance on some of the lenders, a lot of the high end manufacturers tend to like Umpqua, US bank, tends to play in some of these places, like there's a handful of them, at least in California that we see a lot. A it's somewhat regional. So some of these people, if you want to build a house in the Hamptons, will work with you. And a lot of the time it's like a different set of lenders based on region. OK, so what's the highest performing building you've built, this from the audience, in terms of, I guess what they're most interested in is net-zero and passive housing? I assume almost everything you're building in California is net zero these days. I think you're going to say the same thing. It doesn't necessarily connote high performance as much as just having an expensive solar panel system. But it'd be good to hear about what you think about high performance buildings.

Toby Long

Yeah, I mean, it's a great question because you know, it's sort of a different question now than it was, gosh, 15 years ago when I first started in this industry or even 20 years ago and just getting out of the gates, green building had a very different sort of place in our process collectively than it does now being baked into Cal Green as of 2010. And so from our end, we've built several LEED Platinum projects as a sort of rating system goes. We have two living building challenge projects that we're working on. We built a lot of firsts. One of the first that we did with some pride was we built the very first off the grid building in downtown San Francisco, which was great, which is completely off the grid except for its water line, which was required by the fire department. So that's kind of the way I see it as a volume knob. We can add in the specifications and standards to our clients goals and motivations. Obviously, code compliance is your baseline, but from there these things can go pretty far, as you say, just beyond solar panels into thinking about sustainability and all of its requisite categories. There's no limitation on how much performance can be built into one of these projects. And we've gone pretty far down that road. I find it to be very related to cost and investment.

Prefab Review

Yeah. So if I want to do that and by the way you're very ahead of your time with the San Francisco off the grid system with the blackouts in the last few weeks, unfortunately. But what's the best way to get expertise? Is that something you as an architect end up advising on. Do you end up bringing in outside people who are experts in this stuff? 

Toby Long

So we'll do a lot of the single family stuff in-house. Several architects that work for us, we have a team, about 15 architects. Several of them are quite well versed in sustainability practices, LEED standards, rating systems, et cetera. For some of the larger mixed use, multi-tenant projects we're working on, we have a big four hundred unit project we're working on down in the Palm Desert. We've brought in some outside assistance to help us with certification and sustainability standards, sort of our green building consultant, which gets a little deeper if the technologies are more complex. But most of the stuff that we're working on, that's at least just a conventional high standard we'll try to do in-house. But we've been able to aggregate a pretty progressive team of folks that advise us when I hit the wall in my knowledge base. 

Prefab Review

And then I guess the final question, unless someone asks another one is what are the expectations around warranties on these types of builds?

Toby Long

So warranties follow state law. The state law for construction is that the fabricators are licensed builders under state law, as are, of course, the site contractors. They're beholden to state contractor law, which requires a 12 month performance guarantee. So essentially anything in the building which has issues for the first 12 months is covered under the contract with the builder and the factory. They all maintain 10 year structural defect liability. And then, of course, all of the products built into the house, none of which are novel or unique, all carry individual warranty. So whether or not that's roofing products or appliances, they're easy to source. So sometimes it does influence a little bit with the conversation about financing, how the contract works so that our clients will contract directly with factories, which is a different warranty claim than if you contract directly with a general contractor who essentially acts as prime GC and brings in the factory underneath them. That's a different chain. But there's no uniqueness to the warranty outside of the state laws and or just the requirements or opportunities that a factory would provide for the system that they're building.

Prefab Review

Got it. I think we got through all the questions, Toby. Thank you so much

Viewer 1

 Can I ask a question? I'm wondering how over an existing single story structure, how far can you crane a module back? 

Toby Long

So it depends on how big of a crane you rent, mostly rule of thumb is one hundred feet is going to really start to push the limit on a more or less conventional rig. So we try to stay at that hundred feet. As you go out, it's straight physics. So as the crane gets further and further horizontally

Viewer 1

I understand that. Can I get farther than a hundred feet. Is that possible?

Toby Long

 100 feet can do it. More than a hundred feet? You have to check the crane diagrams. It depends on what you're lifting. And I mean, I, I would call Maxim Crane. We put a lot of people to Maxim. They're a huge company. They've got equipment all over the place and they could probably answer that question pretty quickly. 

Prefab Review

Any other questions, Sharon, you got around my meeting of the audience. All right, thanks everyone else. This has been awesome. First of all, Toby, thank you for the time. And, yeah, expect another announcement about an event in the next couple of weeks. So thanks again, everyone, and have a good night.

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Episode 14 - Frank Vafaee and Zach Toering, Proto Homes

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

OK, hey, everyone, my name is Michael Frank, and welcome to the first live prefab meet-up. Thanks for hanging with us and the fact that our team here screwed up the link invite and hopefully that's the only thing we mess up tonight. But we're really glad you joined us. We have two amazing speakers tonight. We have the people from Proto Homes and the people from Clever Homes both here to tell you a bit about their company and answer questions you all have. My name is Michael Frank. I'm the founder of a company called Prefab Review. Some of you may be very experienced at the prefab and modular building thing. A few years ago, I had some experience as a real estate investor, but none with this space. And it's been a very educational ride. But I think there are some really amazing things about the industry, particularly if you happen to live in an area that is as expensive as the Bay Area or Southern California. So we're really excited you joined us. The way this is going to work is we're going to do a quick Q&A with the founders from Proto here, I'm going to kind of do my best to represent you all and the hundreds of thousands of people I sort of interact with on a monthly basis via our website, PrefabReview.Com. And then we're going to get a small quick presentation from Proto Homes, where they're going to run us through the process of actually what it's like to work with them. And then we're going to hopefully have like ten minutes for you to ask all your questions. And don't worry about any questions being too dumb or not dumb enough. I mean not smart enough because that's sort of part of this. And again, I've done a lot of these projects at this point, and I learn new things every day about permitting and HOAs and all sorts of silly stuff. So with that being said, I want to introduce the guys from Proto. So we have two people here. I don't know them very well, so I hopefully won't butcher their names. We have Frank Vafaee, who is the CEO and chairman of Proto and Zach Toering, who is the director of business development. How's it going, guys? 

Proto Homes

It's going well. Thanks for having us.

Prefab Review

So you're in southern California?

Proto Homes

We're in downtown Los Angeles, if you know the downtown area, we are right next to the convention center.

Prefab Review

Great.

Proto Homes

And I guess I got someone, I got to get a cheer.

Prefab Review

Once again, as you have questions that come up, ask them in the chat, but we'll ask them towards the end. So hopefully that'll work. All right. With that being said, can you guys start by just telling me a little bit about what makes you, you? There's obviously, as you can see on our site, hundreds and hundreds of companies that do some variation of sort of not 100 percent site built construction and design. Where did you sort of see an opportunity in the market or a place to do things better?

Proto Homes

So I'll start. I'll let Frank chime in as well. But we're pretty unique in the space in that we aren't technically modular. We fall into the prefab umbrella but our system and what we call system built is really component driven. And so we do panelization for framing. We do systems for the foundation. We also do components for your infrastructure, for your electrical, plumbing systems, everything like that. So our technology is pretty unique. And it's not just the physical components that go to the job site, but there's an interconnected network of databases. We have a Proto app, which I can go through a little bit that ties the builders that we work with to our systems so they can directly communicate with us and bring up issues. And it gives the homeowner the final product insight into how the home is being built along the way, as well as access to the permitting and designs. And with that, there's really a comprehensive system that is foundation all the way to the exterior cladding and finish of the home while still allowing flexibility. So we end up in this hybrid space where we have some of the flexibility to the traditional home builders, or a custom home builder that will do whatever you want, total flexibility. But really, it's kind of a chaotic environment. And then we take some predictability from the modular and factory mentality and mix that in so you get predictability and flexibility. 

Prefab Review

Got it. And yeah, so what's your background? How did you see this opportunity?

Proto Homes

Well, my background in architecture and construction, and so I started Proto Homes about almost 10 years ago, and this is right right after the, you know, the big crash. And before that, I used to develop, you know, big fancy homes on the west side in Griffith Park, Palisades and Riveros. And we used to build the biggest homes and we used to sell for anywhere between $7 - $10 million to about $15 - $20 million. And these are products that were sold and got our fiscal house back in time any day of the week. But at the same time, I used to do a small development on the side, crofter and also in Culver City, as you would never make money, it would make these 2,000 square foot homes and will spend almost the same amount of time, almost about a year or so. And at the end of the day, you make $40,000 or $20,000. But we made a killing on these bigger homes in the better neighborhood. And we could never figure out why it is that we make so much money on these bigger projects that we don't make money on the smaller projects. And it turns out that it's really the same exact construction technology actually used by the same set of subcontractors, same company, same two by fours. But the issue was that construction, the way it's practiced, is really calibrated for the high end of the market because it's very inefficient and only you can recover that inefficiency. You can't afford it only in the expensive neighborhoods, in neighborhoods that purchase the home. It's very emotional. It's not that there's no market driven service. So I started thinking, how can we calibrate the construction for the middle of the market or for the lower end of the market that it's feasible to build and to sell and get to build? It could make money. So that was the impetus to start the company back in 2010. And then we looked at various options. We are new to it. And thinking about the best methodology is compartmentalization, because the building industry, you know, has really gone on that trend. Basically, the natural trajectory of evolution and construction has been component innovation. If you look at it, we didn't have prefabricated fireplaces 30 years or 40 years ago. We didn't have windows not too long ago or prefabricated cabinets or pre-hung doors. So construction in general loves standardization, construction of these prefabricated components that we can pick up and just install however, most of the components to the local construction industry. They are what we call, you know, the generic component, the adaptive component, so they can fit many products in many markets. You don't get that much efficiency out of the components if it's adapted that once you make that component, you know, sort of specific or, you know, integrated, then you get efficiency. That's why cars, they use integrated components. So, you know, certain components from one manufacturer, wouldn't fit the other.

Prefab Review

So we see different versions of this componentization pretty regularly in Prefab. Right. We see some people who just make the shells, some people who are like prefabricated kits. What are the parts that are sort of integral to you componentizing or sort of systematizing before you get to site? 

Proto Homes

We look at design all the way to delivery, all the way to post occupancy and we see that as one big continuum. So we do the design and we design everything algorithmically with the same components that we build. We don't design intuitively. So we have our own design in which we have the same components that we send to the site. And it starts with Zach and then goes all the way to post occupancy and delivery system and manufacturing. So there's a technology that runs through the whole entire process that will be totally integrated. So our delivery method is really completely useless for a typical construction because we categorize components and the construction process completely different than standards are, you know, 16, 20 division systems that, you know, everyone uses Are completely useless for somebody else. It's really meant to work with our framing. Our framing is completely useless for somebody else because it's meant to work with our foundations. Our rebars are completely useless for somebody else, because it's meant to work with our foundation system. All the way to the cladding system that we use all the way to the infrastructure and, you know, the way we take care of post occupancy. So when we say it's fully integrated and we call our technology integrated component base construction technology, it's because we integrate the entire process, all aspects of it, into one big continuum, basically.

Proto Homes

So I would say the one thing that Frank's touching on there is we're not a set of floor plans or kits that you call up and order plan C4 or whatever it is. Right. When you come to us, you're going to basically present your site and your wish list, what you're looking to build and what we can do in a completely original floor plan for that site. So that's one of the differences that we're the whole process from design to post occupancy is integrated. As far as physical components, we're sending foundational elements framing elements, infrastructure, exterior cladding. We allow the interior to be very flexible. So we're not limiting you to an interior package in any way. You're going to design that to your heart's content. 

Prefab Review

Why don't we? So this is really interesting. And it's cool that, as I said, we see all different forms of this. And it sounds particularly in an area like L.A. with very, varied terrain, you know, it sounds like you guys have a lot of flexibility within your system. And you just tell me next slide, maybe we can start to run through the process of building with Proto Home. Then I can sort of follow up with some questions, if that sounds OK. Everyone can see my screen?

Proto Homes

The only problem is this is not going to show the animations. There is an animation of one slide. We can either run through it with this or I can try to pull it up on my own.

Prefab Review

But let's let's see how it goes.

Proto Homes

So this first slide is kind of, we've already touched on this, is our building technology and where we kind of fit between traditional stick built meaning a custom home builder measuring, cutting on site, figuring out things as you go. And on the right you have what we call volumetrics modular, which would be sort of your shipping container size units you know, 90 percent finished at the factory. The only thing you're doing on site is putting a foundation. In fact, you make components being brought in. So traditional gives you total flexibility. Generally, people will complain about lack of predictability. Right. There's going to be change orders. You're kind of figuring things out on the go. You're wasting a lot of lumber because you're cutting things, you're making errors on site, but total flexibility. When you get with modular approaches, it's sort of the other end of this. You get total predictability where they'll say, yeah, we're going to build these floor plans in this many months and we'll deliver on this date. But you're probably selecting from a limited number of floor plans and you don't have total flexibility. They may say here's our standard interior package or our luxury interior package or something like that. So kind of two ends of the spectrum. And when the team was looking at where Proto can fit in, what's the benefit of going with the componentized approach is that you can have the flexibility of traditional construction with the predictability of a factory controlled environment like modular. So this animation that we can't play in the center, what this is, is available on our website, which is Protohomes.com, this is going to show you a sequence of components going to the site. Right. Just in time delivery. Foundational elements - we're sending rebar, we're sending concrete, we're sending formwork, things like that. Then we're going to send out panels for your walls, the structure of the home and framing and lumber is going out in four flat panels. It creates a structure. Then you're going to see the module for your infrastructure, electrical, plumbing, everything like that go out dropped into place. And then we're going to wrap that building and we're going to put a cladding on the outside, exterior lighting, everything like that. On the inside. It's what we call southern rough-in. And at that point, it's able to be finished out again however you want as far as fixtures, finishes, appliances and things like that. So, again, flexibility is traditional with the predictability of modular. The other benefit of our system with components is we go through the same permitting inspections as a traditional home. When you go to sell a Proto home, there's nothing on it. There's no sticker saying it's prefab. As far as financing is concerned. Title is concerned, insurance is concerned. It's a traditionally built home. So that's a big deal for homeowners. 

Prefab Review

So two questions about that and that's great. So does that mean that like when these get shipped, are they flat packed or do they look more like shipping containers going down? 

Proto Homes

Well, some of the infrastructural items are volumetric. And then, you know, the rest of the stuff is pretty flat. 

Prefab Review

And then one other question about the financing stuff. And by the way, I was going to say not to get too dorky about this, but the goal of this, by the way, everyone, is to get very dorky about this stuff. So one of the things that we see, which is interesting. And y interesting, I mean not that fun about the modular space is the draw schedules tend to be a bit different for modular providers. And for those who aren't aware, it's basically because they need more money before the wood hits the soil or whatever the correct way of saying that is. Does that mean when you were talking about traditional financing, does that mean that you are, are you still more like a modular company in that respect, in terms of schedules and stuff like that?Or would you be able to just use a standard like, Bank of America style loan? 

Proto Homes

Traditional. We have flexibility to decide on how we structure it, but we follow traditional draw schedule. So any construction loan, if you want to work with a different lender, we've worked with a few different lenders, but if the client has a financing already lined up, just put them in touch with us. Will explain our system how it's treated as traditional and we can follow that same construction draw schedule.

Prefab Review

Got it. I think that's actually really helpful because there's a sort of a smaller subset that can do the modular draw schedule. Do you want me to keep going here?

Proto Homes

Yeah. So I thought we'd just sort of walk through the general process, focus on one specific project that's been completed. So this is going to be what we call the Proto Alvord, which is a project in Redondo Beach and I'll sort of talk about this project specifically. But it's going to be how you work with Proto Homes in general. So let's jump into the next slide. I sort of touched on it when I was speaking earlier, but you get started with Proto, the way you get started, we call it a Proto pass, which is sort of the initial design phase. You come to us with a site and you come to us with a wish list. So this image here just kind of shows, you know, we do some zoning research on setbacks and buildable area. And then we'd have you complete a wish list, which is just what it sounds like. It's how many square feet, bedrooms, bathrooms, what kind of layout do you want? You want to do a home and an accessory dwelling unit, sort of exactly what you want. On the right here is another animation. It's not playing right now. But this is going to scroll through a bunch of our previous floor plans and we're actually setting this up so you can access some of this through our app as well. But this would cycle through dozens and dozens of plans you don't have to select any floor plan. But when we start with most plans right now, we start with a blank slate where we're really saying, what's the requirements and possibilities on the site? What are your must haves? What do you want to build? Right. And therefore, we're finding the overlap in that and create an original floor plan that meets those needs. If you go to the next slide, you'll see the floor plan that was created for the Alvord project. So this client came to us. This is what they came up with. This is level one on the left and level two on the right, two storey a little over three thousand square feet, not including the garage. One interesting design element is they have a detached, not quite ADU. It doesn't have a kitchenette, but basically a suite with a bedroom and bathroom in the courtyard area. So this is what we come up with at the end of that process, right. The floor plan, it's two dimensional. It's going to give you the layout, square footage. We're going to lay out the bathroom half-bath, three quarter, this is four bedrooms, three and a half baths. So we get that sort of mapped out right. And the client says, "I like this. I want to move forward." We then go under contract and go into what we call design development. And the way to think about that is we take you from a two dimensional element and we move it up into three dimensions and start figuring out all the details. And one of the things Proto is always trying to do is figure out things up front so there's no changes down the road. What we come up with in our design development is what our factory is going to produce, it's what the team on site is going to assemble. So we want to figure out all the details up front. Getting to this floor plan is about a two week process. And if you go to the next slide for me, Michael, the design development is usually about four weeks. So what that means is we're going into three dimensions, right? We're going to figure out what's the layout, the cores, and then we're going to do the exterior cladding. So this is the rendering of the home where we're showing the cladding materials in place. The client is going to pick different colors. And I'll show you some options at the end of this.

Prefab Review

Do you mind if I ask a couple follow up questions on a slide? 

Proto Homes

Absolutely. 

Prefab Review

Which looks beautiful. So, yes, a couple of things that I noticed here that I had questions. One of the things you see a lot with the volumetric companies, right, is you see a lot of things that are 14 and 15 feet wide. This looks comparably on almost every dimension, much wider than that. So does that mean that this would be panelized instead of one that was volumetric modular?

Proto Homes

Everything we do is a panelized approach. The most module-like aspect we have is our infrastructure units, the cores, because everything else is panelized and flexible, so we're doing multi-unit projects. We're a unit, maybe only 15 to 16 feet wide but we can rotate the house to be 60 feet and basically if the lot can handle it. 

Prefab Review

And then on the garage, so we've seen some panelized people who also say, like let the local builders do the garage side. Are you analyzing the garages as well?

Proto Homes

The garage is structure. It's part of the home. We can do attached or detached. A lot of time for space efficiency, attached is preferred, but it's part of our scope.

Prefab Review

Thanks for clearing that up. 

Proto Homes

So to finish that slide, so we're finishing out the details and then is you have the permit set so we're going to create those architectural pages, aside from hearing your title 24 calculations, and help put that permit set together to submit to the city again goes through the same permitting as any traditional built house. We expect that to be, you know, the design and development about four weeks and then we usually start about two to three months for permitting. It's going to go through their corrections and make corrections to our structure. No charge. They've all, every jurisdiction we work with has seen our system. We use the same technology every time, same approach, each time they're familiar with it. I will say with the current coronavirus issue, that time lines are maybe a little bit stretched because it's a little bit more difficult process. But we look to move through quickly, get corrections back and get those final steps back to them.

Prefab Review

But so just to be clear and our audience is doing a great job of asking questions. So we'll cover a lot of your questions, everyone. Do you guys are able to consistently do two to three month time period on permitting?

Proto Homes

This project was, I think, a week over three months. So that three months is pretty typical. We've come in on the low end, closer to two months, and then sometimes it can be a little longer. You know, again, we go through the process of standard building materials. One thing is we're process driven. We're not changing what the house is filled with. We're changing how it's built. So and not just built, designed, submitted to permitting. Everything is a whole integrative process. We do it over and over. So we're not trying to figure things out. We're just applying our system to your design and your site. 

Prefab Review

Right, Cool. And so that's really great, honestly, because we've experienced some projects that have gone that well at most that I've seen take a lot longer, which is great that you guys have this sort of more down to a science. In terms of the permitting, are you actually managing and taking care of that process with the local jurisdiction or who is managing that situation?

Proto Homes

So we cover projects throughout the state of California, in the Los Angeles area, we can provide more assistance and work with the clients on the building safety permit for homes or, you know, in a home and ADU. For bigger projects, where there's a little more complexity, we have outside architect partners that we'll bring in to work with us. And obviously, once you're outside the Los Angeles area, we don't consider ourselves experts. We've built in San Francisco and Santa Rosa. But when we're in a jurisdiction where we don't have dozens of projects completed, we'd always bring in an outside architect to assist with permitting. The only other scenario where we bring in an outside in Los Angeles is if you're in coastal commission or circle preservation overlay on HPOZ, then that's going to be a little bit of extra work and we'll typically bring in an outside partner. And anything that doesn't sort of fall under our umbrella, we always are, you know, we have a pretty solid network in our ecosystem that we can reach out to and help get over hurdles.

Prefab Review

Are you guys technically California architects or do you just work with outside ones. 

Proto Homes

California.

Prefab Review

I mean, I know that you're able to get to permit stuff through just being California engineers, but some of the tonier areas that we've done projects and we've seen, you know, they require architects to stamp stuff and stuff like that. Cool. Yeah. Let's let's keep moving. 

Proto Homes

So this next slide, this is giving you a little bit about what components are provided. So what's going to happen is there's going to be a partner contractor working on the project, whether it is in Los Angeles or up north out of our sort of backyard that's going to go in and prepare the site. So demolition of an existing home, grading, excavating, preparing for our components to be delivered. Once those are delivered, the first thing that's going to go out are the foundation and our standard foundation slab on grade. We're going to send those materials out to the site. And what you have there in the first picture on the left is a foundation being put into place where it's laying out the layout of the home as well as the sill plates, we're then going to send out panels for the structure of the home. So this shows you some panels stacked and ready to go out on a truck sort of flat shipping, as you mentioned, Michael. Everything's numbered, labeled. Our app has the instructions set built into it, which I'll touch on a moment. Everything's sort of dummy-proofed and connected. It's an image of a Core. So this is a Proto core in the sky. This is one of the few elements that, at least in the past, you need a little bit more equipment to put into place. These are large, two story, infrastructure units that have your utility connections HVAC, electrical, plumbing, all the systems of the home, water heater, everything like that in one location. Right. So that streamlines the process of building the home and that we can drop that in and do a lot of that skilled labor, electrical, plumbing at our factory rather than on site trying to coordinate things, finish in the factory, send it out and make the connections on site. From a homeowner or landlord perspective, it makes maintenance easier. It has an external door so you can access it without going through the tenant space, gets your water heater, gets your electrical panel items like that. We also keep most of the infrastructure and utility connections above the foundation, minimizing what we're running through that slab on grade so that if a pipe breaks, it's easier to address than having to dig up your foundation. And then on the right, you have an image of what I mentioned earlier, sort of studs and rough-in, the unfinished interior. And at that phase we move to the outside, which I'll talk about in a moment, and then your partner, general contractor, would come in and start working on the interior. And so I think the next slide is little snippets of the Proto Homes App. So the Proto Homes app, as we mention this is something that you get involved with from the beginning of the process, both as a builder, developer or the homeowner. So these are some shots of what kind of information you have. You have access to 3D models of the home and that model we can drill down to every individual component. Builders have the ability to schedule deliveries. You have a helpdesk. So either as a builder or as a homeowner later post occupancy, you have access to all these permit documents, all the steps that went through to assemble your home. And you can shoot Proto a message and say, hey, I have an issue with this or you're the builder,  I am a little confused on what unit this is, but as I mentioned, you say numbers on all the components. They also have QR codes. So the app has a built-In scanner where a builder can basically just scan a package that was delivered to them and it'll list items in the package where that goes, what phase of the project that's required. And so this is kind of like a project manager in your pocket. You have access to all the information for the home and the homeowner can watch as the process goes along, as photos are taken and notes are put in and builders can contact us and have all the access. The scenario that comes up a lot as the inspector shows up and you realize you left the pertinent documents which you're supposed to require to have on site. You left those at home or you left them at another site. No problem. Pull up the phone, pull it up on the iPad, show the permit documents. And he says, I need a copy of an email, a PDF. So this is more, again, more than just physical components. You can't think of it just as physical components, but you have to think about it as an integrated technology. Again, ICBC integrated component-based construction from the beginning of the process of a blank empty lot to a finished home. OK, so then part of that app is being used to coordinate phases of the project. And this is a key phase. This is going to the exterior cladding. So I showed you a picture of Alvord. These are more shots of the Alvord project. On the outside, we use three cladding materials, our primary materials of PVC, which here is white. We use sort of the gray flat, which we call accent cladding, which is typically aluminum and uses corrugated steel. So these are all multi decade warranty items. Easily replaced if they're damaged, they're basically a rain screen. So creating a gap between that cladding and the Tyvek wrap that we protect the home with is for weatherproofing and waterproofing and moisture barrier. Very long life, easy maintenance. Nothing here needs to be painted. It comes with the colors you select and you basically just power wash to rinse it off. So form and function, quick process to assemble, but also long lived quality.On the inside, as I mentioned, that contractor partner, while our team is working on the outside or your cladding  work on the outside, comes back and does the interior. So the next slide shows some of the interior. Again, you know, it's a platform personalization. You're not limited at all on what you do on the interior finishes of this home. You're going to give us the details of what you want to make sure there's enough wiring and boxes and everything, all the connection points to where they need to be. But how you finish it is completely up to you. It's not selecting an interior package. These are shots of the actual Alvord project.

Prefab Review

Are you prefabricating any of this offsite or is this all done onsite?

Proto Homes

The interior is primarily done as a standard finish. Right. So any general contractor or can contractor come in. You're going to do insulation, drywall fixtures and appliances just like they would in any other home. We do include some of the items. So we include an LED low voltage wiring, lighting system, recessed lighting, pancake lights that are really easy to place in different locations. That's included. But for the most part, the interior is left up to the client.

Prefab Review

In the chat, there's about 37 questions about price, but that means this part is probably going to be priced similar to a standard site built home?

Proto Homes

Yeah, your site work and your interior finishes are no different than a traditional built project, really on the cost range for the finishes is somewhere between $35 - $60 per square foot, depending on the type of finishes and, you know, the quality. But that's pretty much the range for inside finishes. That's insulation, drywall, paint, kitchen cabinets, you know, appliances. So then I'll jump back to Alvord but just before I just want to show the next slide has different looks for the home. So all the homes we do are a modern aesthetic, modern home, built in a modern way. But we do have different looks. So this slide shows some other completed projects, just to give you an idea of different looks you can do with the cladding, it's always going to be a flat roof. It's always going to be those right angles. Everything is done for a purpose. I can get into this whole spiel about the roof and waterproofing we used and how it's ready for solar and everything like that. But I won't get into it. There is a diversity of options in the approach you take. Right. And you can select different colors, different layouts. Again, original plan for your site and then the next slide again, all we're doing is kind of  that canvas for the interior. These are all different projects' interiors. So you have a lot of options on how you go. You'll see one of the things that comes up in a lot of our projects is double height spaces, what we will call hyperspace. So that's kind of like a balloon or hybrid balloon framing where you have big entryways or common living spaces with double height ceilings and you bring in a lot of light with these double height windows. So total flexibility on the interior. And I'm showing you an Alvord. But I wanted to let people know that there's a lot of options in which direction you can take the interior finish as well as the aesthetic on the outside. And I'll tell you, since you said there's thirty seven questions on pricing, I will just follow up on my last slide. I think here I said in the last is just another shot of the Alvord project. So this project was completed. The price per square foot, including all the nuts and bolts, financing, his site work, and I will tell you that this project ran into a little bit of difficulty because it's hard to make up in the shop, but there's some slope to this site. So you can actually kind of see the driveway has some slope. that ended up having a retaining wall in the back. So prepping the site became a little bit more complex than maybe what we would advise a standard client, but they built for under a total of $300 per square foot. Right. So our components typically and assembly of our components in the Los Angeles area as a comparison are usually about $170 per square foot. So that design services, that architectural phase, structural engineering, title 24, that's components on the site. And that's assembled on site for our phase. Foundation, framing, infrastructure, cladding.

Prefab Review

Sorry. So you're saying they were able to do the foundation and finish the home for $130 a square foot. 

Proto Homes

Yeah, exactly, yeah, so $170 for our scope and then doing the site work and the interior finishes about another $130, to end up around $300 per square foot. But this came in I think around $275 per square foot. But as we would usually give the guidance of around $300 a square foot and how that breaks out does shift a little, if you're say up in the Bay Area, we've done projects up there primarily we're still doing the design services, but we're also going to work with a local contractor for assembly and completing the project. 

Prefab Review

Where was it?

Proto Homes

This is in Redondo Beach. So this house actually sold in the last year for $1.85 million. And again, if you look at the listing, there was nothing, it talked about Proto and that had this awesome infrastructure core. And it's a green house and it's ready for this and that. But it didn't say prefab because as far as permitting inspections, financing, title is concerned it's a traditionally built home. 

Prefab Review

So it comped comparable to new construction or whatever?

Proto Homes

Exactly. Exactly.

Prefab Review

For perspective, three hundred dollars a square foot is definitely incredibly competitive of what we see for most, sort of middle to high end builders in your area of the world. So that's very good. I'm sure there's more to talk about. There's a lot of questions from our very engaged audience. So I'm going to throw a couple out here. Everyone, if we don't get to your question just because we have Toby coming up next, I have a feeling that if you're pretty interested in this, you can certainly email the people from Proto, and I'm sure they'll be happy to get back to you. Or send us an email at Prefab Review. And, you know, we can try to be helpful as well. All right. So I'm just looking at a couple of these. So we talked a little bit about costs already. It sounds like you think typically $170ish for your design and fabrication and on-site install and like, what do you say, $130ish, which again, is really, really good. Do you have a network of builders who you work with in at least Southern California already?

Proto Homes

 We have yeah, we have partners in the Los Angeles area and we also have partners in the Bay Area and we're expanding that network. Now, we have a couple in San Diego that are kind of in the early stages of projects down there. So, again, the thing with you know,  if there's general contractors, you know, watching today is we're using standard building materials. We offer training both through the app. The app is always there in your pocket ready to help. And we can also jump on calls or make a site visit if it comes down to it to give you more guidance and make sure you're on it step. But it's all standard building materials. The same story. General contractors, builders, developers come in and are skeptical, thinking we're using a 3-D printer or have some sort of weird glue we're putting houses together with. They walk the factory and they say, wait a minute, this is all the same material you would see on a standard job site. Brand name. We're changing the process. That's what we're changing, not the materials that go into so much.

Prefab Review

And then in terms of how you price the homes, when someone goes under contract with you, are you providing a price for the whole project or is it sort of for the stuff that you're doing and then?

Proto Homes

It would be on our scope. So what happens is that ProtoPass that comes up with a two dimensional floor plan that's going to set the contract for us. Right. That's going to determine how many square feet it is if they're doing any real big modifications or special requirements they have. And then that allows us to come up with a contract price. That contract price would just be for our scope. We're not a site general contractor. We're not going to do the interiors. So generally when we come up with that floor plan, then we can take the client to take that floor plan to the contractor and say, please give me a bid on this at this site and they can go visit the site and figure out those two other big components, the site cost and interior finishes.

Prefab Review

Looks like we have a few people who are interested in building outside of the Bay Area or L.A. So basically, how far does your geography stretch in terms of places you either have or are willing to do projects? 

Proto Homes

We have built in Los Angeles, the whole metro area - Burbank, Pasadena, down to Beach City, South Bay, we've done San Francisco proper, city of San Francisco and Santa Rosa. So wine country. Yeah. And we have so that we're willing to cover the whole state of California. In the Los Angeles area, usually we can include shipping there for shipping way up somewhere remote, we can do it, but that is going to be an additional cost for us to look at. We have very good access. We don't need special access equipment. Sometimes other prefab spaces will say, well, there's power lines or if it's a windy day or it's a windy road, we can't get to it. Generally, given the nature of our component's system, we can get it there. But in the past, it's mainly been in the Bay Area and the Los Angeles area.

Prefab Review

So two questions. I mean, site feasibility is something we get asked questions about a lot. So do you still need to get a crane to the sites to install or are there alternative methods for doing that? And yeah, what do you evaluate in terms of someone saying, I own a piece of land or, I'm thinking about owning a piece of land. What's the sort of quick checklist for site feasibility?

Proto Homes

The first thing we usually tell people is pretty flat. We get a lot of people looking to do hillsides. You see hillside land for sale cheap. And the issue is that the cost is hidden. To get that to be a buildable site is going to take some work. So again, our standard foundation is slab on grade. We can work with other foundation types and we're doing a project on the podium. But generally a flat site is the best starting point. They've probably already had a home on it or has one to be demolished, and you have maybe a better indication utilities are in place and it's a buildable site. Other than that, we have a lot of flexibility. So an oddly shaped lot or maybe a lot on the smaller size, you know, zoning issues to get through. But our system could be adapted to it. 

Prefab Review

That's awesome. Well, I want to be respectful of your time. Thank you so much, guys. It's been awesome learning a bit about Proto. And yeah, this has been great and hopefully we'll have a chance to learn more.

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Episode 13 - Alan Gibson, GO Logic

The Prefab Pod

 

Listen to the episode

 

TranscriptPrefab Review

Hi, my name is Michael Frank, and this is The Prefab Pod presented by Prefab Review, where we interview leading people and companies in the prefab industry. Today, we're speaking with Alan Gibson, the founder of GO Logic and GO Home. And Lily Keel, a project manager with GO logic. Welcome, Alan and Lily.

GO Logic

Hi there. Hi. 

Prefab Review

Apologies for the name slip up. We've had an army of people inquire about your company on our site all the time. I think they usually call it GO Logic. So I'm probably not the first person who's messed that up. Anyway, I'm very excited to learn more about your company. But first, I was hoping to learn a bit more about both of you. I guess maybe, Yeah, Alan you could start since you sort of founded the business. How did you get into this world and end up starting GO Logic?

GO Logic

Well, I have been a carpenter basically since I got out of college. I'm a history major, so I don't have any technical or architecture background. But I've been building houses for a long time and I was always interested in energy performance and being at the cutting edge of high performance buildings. And, you know, through the 90s and early 2000s, there wasn't a whole lot of call for that. But then in 2006, a colleague, friend and I saw a first presentation of Passive House, the German high performance energy standard, at a conference in Boston. And we were totally hooked. We were like, "this is it. This is what we're gonna do." And we founded Geologic a couple of years later with that sole purpose to design and build a single family, really nice looking, contemporary for the most part, homes and have them all be meeting the Passive House standard for energy performance. So that's how my former business partner, Matt OMalley, who's an architect and I got together to found the company. 

Prefab Review

Lily, how did you get involved with GO logic?

GO Logic

Well, see, I live in a GO Logic house in Belfast. And I was, I mean, I've known Alan and his wife, Sonna, for a bunch of years. And I actually was doing some portraiture and some photography for GO Logic. And they needed a project manager and I also have a background in project management. So I stepped in last September. 

Prefab Review

Terrific. OK, so can one of you explain to me a little bit about basically what's the core thing you do at GO Logic? And, you know, we get questions about GO Logic, but also the GO home. Sort of explain the different parts of your business and what you really sort of emphasize. 

GO Logic

Sure. The core of our business is a design and build company. So we focus on single family residential. Although we have done some multi-family projects and would love to do more of that. We've done some institutional work as well. But we have an office staff which is composed of designers, licensed architects, and the project managers. And then we have a field staff of about 15 builders who build primarily work that we design, although we also sometimes build work that others have designed. And that's where general contractors anywhere in the mid coast of Maine, south to Portland to up through, you know, to Bar Harbor, basically the coast of Maine. And we also developed along the way after we had done a few houses, we made some of them into pre-designed models. So they are what you see on the GO Home and the GO Home is one branch of GO Logic. We do a lot of different things, but the GO Home is sort of our bread and butter where we have these pre-designed models that you can see on our Website. And there are several of them to choose from. Basically anything from six hundred square feet to twenty five hundred square feet and about one hundred two hundred square foot increments. Single story and two story. And you can configure the homes to a large degree on the Web site. And then you contact us and we do a design process and we eventually have a complete set of drawings. Your house, which we will build from start to finish in our normal range. Outside of that range, we will prefabricate and deliver and assemble a shell package that basically consists of walls, floors and roof structure with windows and doors installed. And that makes it much easier for builders around the Northeast to get a High-Performance passive home shell delivered so they don't have to figure all of that out. And then the local GC will finish the rest of the house out. So that's in a nutshell, how the GO Home works. 

Prefab Review

That makes sense. So on the GO Home . A couple sort of follow questions. Initially, So outside of the sort of Maine area where you serve as the GC as well, do you end up having a builder network for that or for consumers? Is it really like finding your own builder? But then, you know, you provide whatever the shell or the envelope or whatever you want?

GO Logic

Yeah, I've been working toward creating a builder network and I am starting to do that in some areas like the Hudson Valley of New York and Northwestern Massachusetts. And we've worked with a couple of builders a couple of different times. And when we work with someone for the second time, it generally is a much smoother and easier process. So I'd love to develop a builder network. So it's our builders out there who are interested in this sort of collaboration, then I'm happy to talk with them. So that's something we're working on, too.

Prefab Review

And then one of the things that we see with other companies, I think it's sort of a joke, but it's sort of a truism for some companies in the industry is that when they have plans on their site, no one ever exactly builds the plans. And they're sort of, at least for some companies, they are kind of advertising. In terms of your experience with customers, do people end up actually building like the go homes as they appear on the site, or does it end up being that they just sort of end up being like inspiration points?

GO Logic

That's the interesting question. I mean, everybody wants to make changes to our pre-designed models. You know, everyone is an architect to some degree, and they want to customize things. And we try to encourage people not to do that because it affects the cost. And we're trying to do these at a reasonable cost and, you know, keep a lid on that. But, you know, it's somebody's dream home and. Yeah, the way we do things in America is you, well, for a certain segment of how people get homes, is they hire an architect and that means you have sort of full rein to design the house however you want. And we're offering something and trying to promote it as something that gives you this really nice, high quality home in the end, but without as much architect involvement and therefore less cost on that side of things. So we accommodate customizations and changes pretty routinely. And once we have that complete set of construction documents, people do build to those.

Prefab Review

Yeah, that makes sense. And then let's talk about the sort of construction/fabrication side. So do you own your own factory in Maine?

GO Logic

We have a facility. I don't call it a factory because it is not highly mechanized and it's rather small. But our demand has been so great that I am looking to build a larger, more state of the art facility in the next year or two. And yeah we produce really high quality panels, one at a time with basic tools and some tools that are specifically for panelization. And I'm super excited about it. I just love the quality and the process of doing the panelized system.

Prefab Review

So walk us through, I've never been to your factory. I've been to other factories. Walk us through what your factory looks like. Are we talking about essentially a huge warehouse where people like a team of, you know, sort of subs are building panels like they would on site? Or how might they be different? 

GO Logic

Well, yeah, it's interesting. Our space is not very big. And that's part of our challenge is we only have room for a couple of framing tables and some materials and some other tools. I guess the really interesting and different thing about prefabrication is that all of the decisions about how you build something have to happen before you make your first cut in the first two by six. So there's an extensive process where the architectural drawings are translated into sharp drawings. And that's a whole subject about how that's done. But basically, there is software that translates a wall that you see on an architectural drawing into a framing drawing that shows where every stick of wood is going to go, how long each one is. And any kind of structural detail about that. And that gets put on a piece of paper that goes out to the shop floor and there's a Cutlass and we have, we're getting in a semi automated saw that will make that cutting process quicker. The lumber goes to a table where a crew puts together the wall, as you know, similarly to how it would be done on site, except you're inside in a controlled environment with the material at a comfortable height and everything laid out for you and pre-cut. And our walls are complicated. They're there and our typical wall designed for cold climates like the Northeast is an R-50 wall.

Prefab Review

Do you use a SIP or do you use any kind of specific insulation? 

GO Logic

Yes. So our wall consists of a two by eight stud wall and that will be insulated with blown cellulose. And then working to the outside we put a layer of sheathing on that, which is a structural sheathing, which is also the airtight layer. So we're connecting all those sheathing pieces with tape to make them airtight. And then we've been using a product that we're importing from Europe, which is a rigid wood fiberboard insulation, and we get that in about a six inch thickness. And that goes on. It's the next layer. So that's our continuous exterior insulation to eliminate thermal bridging through the frame. And then we put a layer of wood strapping over that. And then the siding material goes on. 

Prefab Review

Well, that's great to kind of get some details on that. So that actually leads well into the next question. And I guess it'd be great to hear sort of on the technical side and sort of theoretical side from Alan on this and then also hear from Lily as sort of a consumer and an owner of a GO Home or GO Logic. So a passive house, these sort of, you know, increased insulation that you describe, I assume, is sort of out of achieving the Passive House standard. Can you explain a little bit more about what the passive standard is and why sort of you thought it was sort of crucial or important as sort of a part of your firm? 

GO Logic

Sure. Well, at its most basic level, it's pretty simple. The concept is just to build an enclosure that is extremely well insulated and made to be airtight and because it's airtight you have to put in a ventilation system so you can bring in fresh air. So there is a ventilation system with heat recovery. And that's pretty much it. You know, you have to utilize the best building science practices and how you construct walls with more insulation because that gets trickier and you need to use better windows and doors. We use triple glazed windows, for instance in the passive house. The whole idea is that you are reducing the heating and cooling load of the house by about 80 to 90 percent from standard construction. And what happens when you do that is a lot of amazing things living inside that house. It's like a completely different environment. Lily can speak to this. It's incredibly quiet. The air is still. The air is fresh because you're bringing in fresh air continuously. There's very little noise. There's virtually no mechanical system other than the ventilation machine, which is very quiet and usually up in an attic or something. You're gaining this huge amount of energy savings in terms of costs for heating and cooling, but also the comfort and the quality and the durability comes along with it. There are a lot of other things to say about it, but in a nutshell, that's kind of what Passive House is. It's not rocket science. The details of how you put it together can be confounding to people who believe they're not familiar with it. But it's something that, you know, should be the standard for all buildings. There's no question about it. And it doesn't really take a whole lot more, a whole lot more cost, time, effort to do it. It's just kind of a different approach. Then, Lily, it'd be great to hear about your experience.

Prefab Review

I know you're involved with the company as an employee, but also as a consumer. Why was it important to you and what your experience has been?

GO Logic

Yeah, so let's see. I've been in my house for about two years, and I have to say, once you live in one of these houses, you'll never want to live in another kind of house again. And it's funny because I was just remembering what I used to, you know, understand or what I thought when I first heard about passive houses a bunch of years ago. And I just thought, well, isn't it? You know, my mother Swedish and her mantra is, you know, fresh air, fresh air and exercise and sunshine. And I just thought, why would anybody want to live in a house that's, you know, sort of hermetically sealed? Right. Like that was what I understood. Is it like this totally enclosed thing?  And also, you know, there was a misunderstanding. I think there's still a misunderstanding about, like, you can't open your windows, which is completely untrue. But it's. Yeah, I mean, it's true what Alan said. It's like I live in this solid, totally snug house with gorgeous light and fresh air. I never lived in a beautiful house before I moved into this. But it was like this constant source of anxiety. And I never worry about it. Just don't worry about things falling apart because it's so beautifully built. And yeah, I, I have to say, there's like there's not a draft to be had. I, you know, I, I cook the same way that I always have. I don't have any kind of hood and yet I can cook whatever I want and there's no lingering you know, you can cook, I don't know say, sausages or something like that, in a normal house. And you, you know, you go away, come back, you can still smell it. It's just not the case with this because of that HRV constant air circulation. But I don't know. I mean, I'm just madly in love with living here. And my heating bill is like twenty five, twenty bucks a month, which is also pretty sweet because then the other house, it was like a thousand dollars every five weeks or something. I don't know. But yeah, I mean I can, I'd love it if, if there's anything you want to ask me in particular.

Prefab Review

I have some questions. Either you or Alan can touch this. So one of the things in terms of figuring out options, one of the questions we get a lot in the higher end homes is around like radiant heat versus more of a  typical kind of pump system. Is that something that's frequently integrated into passive homes or your passive house? Just because that seems kind of consistent in terms of the lower energy cost, less pushing of air. But, yeah. Are those two things frequently connected together?

GO Logic

No, not generally. And it's interesting because our typical foundation is a slab on grade foundation that's super insulated. And when I did my first one back in 2007, I put in radiant heat in the floor because that's just what you do with the slab. You have to heat it or it's going to be uncomfortable. But for, I don't know, at least five years, the owners never turned it on. They had a little woodstove and thought that was ample in Maine to keep the house warm. So it comes down to when you invest more in the building shell with the insulation, better windows and doors and air sealing and all of that, you pretty much eliminate the need for a conventional heating system. And if you put in like a radiant hydronic heating system, whether in slab or radiators is quite expensive. So there's no payback. 

Prefab Review

There's the same thing of applying for, So we help people across the country, but we do a lot of work in California where you're now required to basically have solar as of this year on new projects, or I think it's you have to be net zero in energy. So do that however you want, but typically ends up being solar or whatever some type of Similar system. Does that mean that solar also doesn't make as much sense with passive houses? Because again, your savings are just lower?

GO Logic

Well, to some degree, yeah. But the cool thing is a bunch of amazing things about integrating renewables with Passive House. One is that you bring your loads down so low that you don't need a giant system to make your house net zero. Right now, most of our house is like for, you know, four to six KW, which is a pretty reasonable price. It's the cheapest form of electricity you can get in most states in the country. And if you look at the payback, like on an annual or a monthly basis, you know, that's a whole other subject. Like, you spend more in a passive house. You spend more on solar panels. But every month, if you look at your total cost of ownership between the money you borrowed to buy those solar panels or do the passive house, you end up ahead every month. Right. So the affordability question just kind of goes out the window. And the other really cool thing is that when we look at our grid, putting renewables into our grid is great, but it has some real limitations based on the fact that it's only sunny during the day. And what happens at night and when you have houses that conventional houses with high standard loads, when the sun goes down, there's this thing called the duck curve, like the power plants have to ramp up to such a huge degree to cover the time when renewables stop. People come home from work and they need all this energy. And if you're in a passive house, you're going to reduce that curve to a huge degree because your heating system doesn't have to come on, your cooling system won't have to come on and it will even out that duck curve and make the grid perform much better. So a passive house is really the key to our non fossil fuel electricity grid future. 

Prefab Review

Makes sense. So let's, we were just talking about cost. Let's talk about costs. This is a question that we get constantly and I think partly because it's oftentimes hard to sort of get straight answers from manufacturers for very understandable reasons. Right. Because every site's different. So with all those caveats, though, we do try to be educational. So let's assume that you, your company in particular, is very liable for, it seems like, at least in the Maine area posting kind of estimated costs on your Web site. You know, with all the caveats you just mentioned around site and customization stuff, let's say I'm building a GO Home  let's say one of you're bigger ones, right. Like one of your two thousand square foot homes in the Boston area or, you know, like my parents live in Lexington. Right. So, you know, kind of a sort of higher-end suburb outside Boston. If I'm thinking, if I'm trying to understand costs and I understand you can only control some of this, do you think you can sort of help me break down costs in terms of, you know, I've already bought the land, I'm on a flat site that's accessible and doesn't have whatever crazy power lines in front of it? What are the costs? Let's say, let's say a two thousand square foot house. I don't care if you get these in total cost, or dollars per square foot or, you know, the shell and design costs that I might incur if I work with the GO Home or GO Logic, let's say, the GO Home. And then at least in the Boston area, I should probably do some work. What sort of finishing the home in terms of like the local builder foundation and whatever connecting utilities, stitch, finishing the inside,  just so people can get an understanding of this with again, the caveats that every home's different. 

GO Logic

Sure. That's a really great question. And it is hard to answer, but I'll give you my best shot. And I can say with some degree of certainty what the house would cost if GO Logic did the whole thing as the general contractor and the prices on our Web site, you know, we're looking at Oh, yeah. Two thousand square foot home is going to be. I think I can build that for 250 dollars a square foot if I'm in control of everything and people don't go crazy with finishes.

Prefab Review

Well, you GC all the way down to Boston or it sounds like?

GO Logic

 You know, we won't just because it gets too expensive to send

Prefab Review

Totally understandable, right?

GO Logic

 Yeah. So we try to part and that's where it gets tricky because I will provide the shell package, which is the walls, windows and doors, triple glazed windows and doors from Germany, installed, air sealed. The whole structure is watertight and airtight, ready for siding and roofing. That's what we provide. And we can do that for one twenty five square foot. So then the question is what

Prefab Review

 So in this case we're talking about, you see one hundred twenty five dollars a square foot.

GO Logic

So yeah. Right. For that shell package, I guess. So then it's a question that's, you know, roughly half of the finished house cost, not including site work. No prices you ever see from builders will include site work, you don't know what you're getting, right, with any given site. And that can range, you know, totally flat site with utilities in the street. You can probably get away with maybe twenty five grand for getting all that hooked up. But on a rural site with a quarter mile driveway and, you know, underground power for a thousand feet. Yeah. That can cost one hundred grand. So there's a wide range of site costs. So that gives you a sense of it. And then our design fee is typically for our produce line model, about five percent of construction cost. So if it's a five hundred thousand dollar house, we're gonna charge twenty five thousand for the design process, which is developing a site plan, going through all permitting and code research, a complete plan set with some degree of customizations and all of the finishes and all the schedules. It's a construction document that is more detailed than you typically get for residential. We do engineering for that as well. 

Prefab Review

Is that something the builder will do?

GO Logic

No. We do full engineering. Yep. If we have to do something civil, we can do that. But we always involve our structural engineer in every project. So it's all code ready and standing by an engineer.

Prefab Review

And then I have a feeling I know the answer to this because most interests are somewhat similar. Let's say I say, OK, I love your stuff. I want to build a custom home with you on the GO Logic side. I assume that's also probably a percent of the construction costs. But just curious about what I'd be looking at there, how the construction costs change. I'm sorry if I want to build a custom home with you, like sort of from the ground up. Yeah. Like oftentimes we see architecture in like 15 to 20 percent range. Something like that. Is that? Yeah. That's also true for you?

GO Logic

 Yeah. We wouldn't generally go that high. It would probably be more, you know. Twelve. Twelve percent is usually a pretty nice fee.

Prefab Review

That's awesome. Yeah. And then perfect. And then let's see. OK. So I want to transition now into our fire round. These are asking a bunch of sort of common questions we get all the time. And basically, either one of you can answer both or you can answer. We try to keep the answers to under a minute. But I'm not too much of a stickler on it. So get ready for it. All right. First question. So you obviously build in Maine. What are the key things buyers should be aware about, about building in cold weather areas where there is snow, etc.? 

GO Logic

Build a passive house. Period. 

Prefab Review

That definitely was under a minute. And anything more about building in cold climates?

GO Logic

Yeah, just the site is important. There's free energy from the sun for passive solar heating. And our houses are not overly heated by passive solar and therefore uncomfortable. We've figured that out in architecture in the last 30 years, 40 years. But orienting the house toward the sun brings you a lot more light and some free energy. So do that if you can. Not always possible. You know, look at how you're going to manage snow and design your site so that that's not going to create problems. It's going to be easy to deal with. We typically specify metal roofs, which means the snow, It's going to slide off, which is a good thing. But you also want to look at sometimes keeping snow on the roof so it doesn't fall on your walkway. Other than that, can you think of anything other than what I just said? Just being passive. I mean,  it can be 20 degrees outside, you know, when there's any kind of sun  70 degrees and I don't ever turn the heat on. I mean, I don't feel it. It can be blasting wind out there. And I'm snug as a bug. It's the best.

Prefab Review

OK. That's good to know. So let's say the next question. So I want to go build a dream home. My vacation home or whatever. It's my dream to put a passive GO Home on it. What should I be looking at in terms of evaluating a site if I'm just trying to look for land? As a sort of part of my checklist. Just because I imagine incredible slopes make it more difficult. But it'd be great to understand if there's a couple of things to specifically look for.

GO Logic

Our homes can be built on any site. And it's just a matter of cost generally. So the least expensive site is one that has a nice flat area where the house and the driveway can be placed and you have a septic system usually if you're on a rural site. So looking for some amount of flat land, say, you know, a half an acre is all you really need. Look at the length of the driveway to the road. Try to keep that as short as possible because that's just cost per foot. You want to make sure that the land either has municipal services or it's been tested for septic viability. You want to look at whether it's rocky, which is not usually a problem or if it's really wooded, forested. What sort of an opening would you be OK with making ideally so you can get at least sunlight on the roof for active solar, if not sun in the windows on the south facade for passive solar and views and price and all that go into the equation as well.

Prefab Review

And then the final question, the fire round, so we talked a little bit about sort of building a builder network and how sort of, you know, you're doing this sort of slowly, if I'm building if you don't have a local builder in the area that I'm looking at and I need to go out and to evaluate my own builder to see if this person is going to be capable of doing a really competent job? What are the things I should be looking for? Is panelized experience necessary here? What's your checklist or criteria that you would recommend that I look at? 

GO Logic

It's really just someone who is a reputable builder, who has done architect designed plans in the past, who reads plans, pays attention to plans and follows them. That's really important. It's amazing how many builders out there sort of glance at plans and then do whatever they want. So the nice thing about our system is that we're providing all the tricky bits that have to do with the High-Performance in our Shell package. And we have a few other things they have to pay attention to, but they are pretty minor. And so it's really just a quality, reputable builder who is easy to work with and is open to the GO Home concept. And I'm finding this more and more builders as there are fewer skilled tradespeople in the industry. There are GCs around who are like, oh, you guys can do that big piece of it for me. That's great, because I'll just focus on the stuff I like to do, like the finishes and the client interaction and whatever. But I have gotten pushback from builders who say I can do what they're doing cheaper, let me do it all, which is always a disaster. I must say. So it's a three way relationship. The owner comes to us for what we do. They find a builder who is on board with the whole concept and the three of us work together to produce the finished product.

Prefab Review

And I realized I missed a question. How many homes you build each year just to get a sense of scope?

GO Logic

About ten either, you know, from the ground up or shell packages. It's going to be less this year because of CoVId 19 for sure.

Prefab Review

Like when or how? How is that affecting your business? I mean, we're just starting to see it here. Most of the California factories are closed in other parts of the country, It's kind of weird from a public health standpoint and my personal aspirations. But construction seems to actually be going on. How has it slowed for you or there?

GO Logic

Well, we've been dealing with it, dealing with it quite directly and proactively. A couple of weeks ago, we shut down our production facility shop and I'm not sure when we're gonna reopen it. We developed guidelines for safe working. Job sites, which basically means we're reducing the number of our people on job sites to essentially working on separate things a distance away from each other, we're scheduling subcontractors totally separate from each other. And often our people won't be on site if there's a big subcontractor crew there. So we're kind of just limping along with the skeleton team to keep projects moving. But there are gonna be some serious effects on the schedules. 

Prefab Review

It may be that a lot of that we've actually done a few projects in the area. A lot of the communities have building windows. Right. Like, you know, October 15th, the end of April. You can't do foundation stuff like that. Right. So you sort of have a deadline and some of the stuff, right? 

GO Logic

Well, yeah, there are going to be some projects that we have slated to start in the fall that I think are probably gonna get bumped to next spring.

Prefab Review

Makes sense. Yeah. And the world we live in. Well, it's good to have you doing your best to keep everyone safe. Final question. And I ask a happier question. I ask this to everyone on every podcast, more or less. It would be great to have both of you answer. What are you most excited about for your company or the industry for the near future?

GO Logic

Can I go first? Well, I mean, I guess I would say it's exciting that we're going to be growing, that we're hopefully going to be breaking ground on a shop. But also we just keep thinking more and more about how we can be contributing to carbon sequestration and then having a positive impact on climate change as our team continues to grow. It's just a really good tight group of people that love working together.

GO Logic

I don't know. I just love working for this company. It's unlike any other. Yeah. I as you know, once we get over the Covid thing, I just. Yeah I guess it's, I lost my train of thought. Sorry. You can edit that out Michael.

Prefab Review

Great. I like it. Very authentic. 

GO Logic

And I'm really excited to take what we have now. We've built for the last ten years, which is this platform of the design, the engineering, the pre-designed plans to GO Home and just produce a lot more of them in a more efficient way. I'm really excited about taking that to the next level of efficiency in prefabrication. Now, the building industry is like the last major industry to embrace high tech and leveraging digital technology into their industry. And it's really quite amazing how archaically we build houses these days. It's not that much different than the Middle Ages. So taking what we do and producing it in a much more efficient and higher scale way is what I'm really focused on for the next phase of GO Logic. 

Prefab Review

Awesome. Well, thank you both so much for joining. Thanks again. Alan, Lilly. For more information about GO Logic and the GO Home visit, gologic.us or thegohome.us And as always, you can read about lots of companies and different stuff going on in the industry at prefabreview.com. Thanks again, both of you. Thanks for having us, Michael.

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