How Innovation is Poised to Disrupt Development with Aleks Gampel | S3SP7
This episode of the A.CRE Audio Series features Aleksandr Gampel, a real estate professional and co-founder of Cuby Technologies. Cuby is a tech company working to innovate current real estate construction and development methods.
As Aleks discusses, if you look into the recent past, you’ll see that the construction process overall hasn’t changed in decades. With the huge growth of commercial real estate and its emphasis on the asset class, the demand for construction is higher than ever. However, with how we build today, it would be nearly impossible to meet this demand. There’s just not enough labor to deliver on those buildings. This results in high costs and developers so squeezed on returns that they’re unable to find enough viable deals. Aleksandr Gampel and his company, Cuby Technologies, work to solve this problem.
Watch, listen, or read this episode to hear Spencer, Michael, and Sam speak with Aleks on technology and construction in real estate and how they’ve evolved over time.
How Innovation is Poised to Disrupt Development with Aleks Gampel
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Episode Transcript
Announcer (00:01):
Welcome to the Adventures in CRE audio series. Join Michael Belasco and Spencer Burton as they pull back the curtain on everything commercial real estate, and introduce you to some of the top minds in the industry. If you want to take your skills to the next level and be part of a growing community of CRE professionals across the world, this is for you.
Sam Carlson (00:27):
Hello, and welcome back to the Adventures in CRE audio series. Today, we’re joined by Aleks Gampel, and it’s really cool. We have a very interesting, everybody wants to know technology, tech, construction, real estate. How do those things merge and how do they evolve over time? And so that’s going to kind of frame the framework, but more so Aleks, I guess, first, thanks for coming. Appreciate it.
Aleksandr Gampel (00:51):
Yeah. Thanks for having me. As I noted, I’ve been a fan of Adventures in Commercial Real Estate for many years now.
Sam Carlson (00:57):
Awesome. Well, we’re excited to have you. And I was looking at your LinkedIn profile, and I really like what you led with as the Cuby mission statement, I guess you would say. You said nothing I’ve done previously matters as much, or is as importantly needed by the world as our current mission at Cuby Technologies. So that’s a big statement. In our pre podcast scrum, I think there’s a lot of merit here, so let’s start there. I’ll turn it over to Spencer to get us started. And we’ll go from there.
Spencer Burton (01:32):
So Aleks, you also have a follow-up line to that, which is an even bigger statement, which is cities built in days instead of years. That’s a lofty vision for where Cuby’s going. Maybe for the audience, introduce yourself, introduce Cuby, and then let’s talk about construction tech and what the future of construction looks like in the world.
Aleksandr Gampel (01:54):
Yeah, no thanks guys. And thanks for having me. I think I come from a background that’s very similar to most of your listeners and users of the website, just traditional private equity, real estate development. That’s kind of been my origin story. It’s a world I love, but tangentially I’ve always loved technology. So I’ve never kind of kept an arms length away from both. And what I’m doing now marries the two. I think Cuby is probably in the realm of what everyone’s seen today, which is how do you change construction? All the different companies that play in that sphere. I think historically it’s been really hard to do so, and it remains to be really challenging issues. So we’ll see how well we live up to what you just referenced.
Aleksandr Gampel (02:36):
And we hope to build cities in days instead of years. Cuby essentially is a, is a technology company that’s predicated on deep tech, meaning there’s a hardware element to it. And the reason being is because we want to change construction the way we build buildings. And to do so, we have to change physically the way we build buildings. And maybe if it helps, I’ll start with kind of the background on the problem itself.
Spencer Burton (03:00):
Sure.
Aleksandr Gampel (03:01):
Yeah. So everyone on this website focuses on real estate. A lot of real estate and a big segment of it is development, agnostic to asset class. For us to build more buildings today, it’s nearly impossible to meet the demand, not just the housing crisis and single-family, multifamily, just any type of building we need more of. The issue that’s happening today is there’s not enough labor to deliver on those buildings, which is why costs are so high and developers are so squeezed on their returns and just aren’t able to find as many deals. If you just take a step back for a second, construction overall hasn’t changed in 200 years. We build buildings the same way we’ve built buildings in the past. And I think there’s a funny quote that sometimes I hear builders say, and it’s, if Jesus were to come back to earth, the only thing he’d recognize is construction.
Aleksandr Gampel (03:52):
I hear that one kind of often, and I think it remains true. And if you look at kind of every other industry, historically, I think now every other industry is somewhere around seven to eight X in terms of productivity efficiencies. And that comes from lean manufacturing, technology, cloud-based systems, et cetera. Construction is still at a one X. So it’s embraced technology in the least possible way. And if you kind of look at finance even, which is an old school boring traditional industry, I think seven to 8% of R&D… or 7 to 8% of revenues allocated to R&D in construction, given that margins for general contractors, average between five and some percent. You can’t do the same thing. So now you have kind of the slew of companies that are venture back that are coming to the ecosystem and saying, hey, we think we can build better. It seems like the last frontier. That’s kind of the realm that we play in. And before I move further, I mean, let me stop there for a second.
Spencer Burton (04:56):
Yeah. So let me add on to this. Many of our listeners know my, call it real estate origin story, and that is… Like all of us have our story of why real estate, and mine was I was in high school, I needed a job. A family friend had a plumbing company. He said, hey, I need workers. And I became an apprentice plumber. I did it for four years. Basically spent four years of my life, either in a warehouse, running around a warehouse, finding fittings and putting them in boxes and handing them to plumbers who would then go to the field, or in the field essentially crawling around in crawl spaces and cutting plumbing pipe with kind of very rudimentary tools and slapping glue on the pipe and the fitting and putting them together. That’s 25 years ago.
Spencer Burton (05:46):
If you went to a single-family construction site today, there would be a Spencer Burton on his knees in a crawlspace cutting pipe with a room entry tool and slapping glue on, I mean, construction has not changed. I mean, there are those who are trying to create software for change, but fundamentally construction change, Michael, I mean, you’ve done construction, right?
Michael Belasco (06:08):
Yeah, like yourself, I was going to…
Sam Carlson (06:10):
Yeah, this is like Michael’s background. This was pre real estate. This is what he was kind of doing. Right, Michael?
Michael Belasco (06:19):
Yeah. I was doing the same things as Spencer all over the place doing and yet it hasn’t changed. And I have reasons in my mind for why, I’m not going to say. I’d love to hear Aleks, your thoughts, but it’s been for as long as I can remember, there have been tech companies talking about tech/construction companies talking about disrupting the space and getting in there. And I’ve yet to see any real headway. And I’m curious, I’d love to hear your story more, where you guys are today. And then maybe talk about some of those issues, because it does seem primed for a revolution and something that’s desperately needed. And I have my suspicion as to what some of these headwinds are, but I don’t want to take it in mine, take it in your direction.
Aleksandr Gampel (07:06):
By the way I come from also a similar background. So I’m kind of the skeptic in the room. And I think we have the same reasons as to why it hasn’t changed, but you know, just, just a little bit background on myself too. I come from a real estate family, so I’ve always been kind of around buildings. So I understand the layers to the problem and just having someone come from the tech sector and trying to approach the space. I mean, there’s a reason why PropTech, which now includes construction tech scale so slowly, I think it’s because many people don’t come from the industry. So they don’t understand that you might work with the most innovative developer in the world, for example, right. You’re still constrained by your LP, by your conservative debt, by all the moving pieces that most people don’t think about coming from tech and thinking, oh, building a building is easy or buying a building is easy, et cetera.
Aleksandr Gampel (07:54):
Anyways, no, the software piece, I think you covered it well for a second. I think software has been a natural… I mean, if you just think about venture and where venture dollars are going, right. Venture has a very simple equation. How big is the TAM and how much of it can I disrupt and kind of build a company around it. Construction is the biggest industry in the world. I think it’s 16% of the global kind of economic output. I think it’s nearing 16 trillion-plus by 2025. So it’s a massive industry. It employs a ton of people. And then on top of that, it’s actually the biggest pollutant as well, which most people don’t talk about. So naturally for venture construction seems like a sector that just like, man, this should be where we focus our efforts. And that’s why of all these BCs and generalists, BCs now investing in construction, PCCs is because they don’t understand construction, but they understand that the problem’s massive. Software is a natural extension because it feels like it would scale better.
Aleksandr Gampel (08:48):
And it seems like it’s venture backable. And I agree with that. Software probably is more venture backable than being a modular or prefab or kind of asset-heavy company. That being said, software is a bandaid for a lot of the construction processes, but not necessarily the way we build buildings. There’s a great company called Mosaic, which I’m sure Michael, that’s maybe the one you were thinking about, that’s innovating the process around how builders actually do what they do. So I think the way that Compass made brokers better, certain software make builders better. They don’t necessarily change the way you sell a home or the way you build a home.
Aleksandr Gampel (09:24):
Anyways, yeah, I mean, it’s wild that if I asked you today, Michael, how much does it cost to build building X? You wouldn’t be able to tell me right off the top of your head. If I asked Toyota, how much does it cost to build a Camry on that given day, they’ll tell me instantly. And that’s kind of where everyone’s trying to have construction move in that direction of lean manufacturing, which is the engineering principle, which is kind of how do you mass produce something in a repeatable standardized way.
Michael Belasco (09:49):
And it’s especially relevant even in the investment side, there’s some companies that are some of the largest in the space that use replacement costs as their major form of deciding whether they invest in something or not. And you could talk about… You could ask me today, if I was quoted a price of a building six months ago, today, it could be totally different. So add in that factor of just that the fact that each component’s price changes every day. And it becomes an incredibly complex process. So yes, it’s an ambitious goal you guys have. It’s exciting to hear that you guys are undertaking this.
Spencer Burton (10:27):
Let me dig into this a little bit more. So what about modular? What about prefab? What about some of the 3D-printed homes? Do they have opportunity to disrupt the space? What are the challenges, I guess, with those? I dealt with modular when I was developing in Panama, and that was something we explored. And ultimately the irony of how homes are developed in a lot of Latin American countries is you have one template and hundreds of homes that match that identical template. If there was ever a place where you should know the cost of your unit down to the penny, it would be that. And yet every one of our homes was built by hand, block by block. And the cost was greatly influenced by the weather, by cement cost. Then those would fluctuate up and down labor, all those sorts of things.
Spencer Burton (11:23):
Anyway, so come back. What are some of the other solutions that people have to disrupt construction and how are they being received? What are the likelihoods that they come together?
Aleksandr Gampel (11:34):
Well, you said something interesting there a second ago that I want to harp on. But what you’re assuming is that standardization is the way to go. But the real way to go is how do you mass produce something at scale, but have it be highly customizable because people want custom homes. It’s your most intimate space. They want custom buildings. They want custom offices, hospitals, et cetera. So that’s the one caveat that stays. It can’t just be standardization. It’s not exactly the solution, but anyways, I mean, let’s start with modular. Modular and prefab, those systems have been around for literally almost 100 years. Maybe not 100, maybe half a century. If you look at the way Russia, Soviet Union built homes, a bunch of concrete slab that were just stacked. That kind of is the most raw form of prefab.
Aleksandr Gampel (12:20):
So it’s existed. And modular companies have existed for a while. They just Katerra was maybe the first to spin it as a venture company, a bunch of tech, et cetera, and sold the narrative correctly. Modular works. I think the issue of modular is… And why don’t I take a step back? There’s modular, there’s prefab, there’s now 3D printing. There’s a combination of those. So this just shows you everyone’s working on the problem. There’s going to be more than one winner. There’s just one that’s going to be adopted quicker than another one. And there can be more than one winner because the space is so big. If you look at modular, I think the issue of modular to date is a lot of modular companies fall into two categories. They either sell a product, and I’ll talk about why that maybe doesn’t work and, or they become this modular technology company that then starts being in GC and a builder as well.
Aleksandr Gampel (13:11):
Like I said, GCs, a terrible margin business, generally. So to be a tech company that has GC margins doesn’t really work for the return and cost of capital that you’re getting from venture. But modular just for your viewers who maybe don’t know what modular is, modulars, think a box that gets essentially retrofitted to be something. And then just stacked on top all throughout, that’s modular. The reason why modular is kind of not the most efficient system is because we talked about lean manufacturing. So lean manufacturing is people want to build in the construction world the same way Tesla builds cars or Toyota builds cars or Boeing builds planes. So people will launch these gigafactories where you basically have a conveyor belt like the Henry Ford conveyor belt, but industry 4.0 conveyor belt that’s producing these modules. The problem with these modules, I mean, you’re shipping a room across a country, basically. You’re shipping it hundreds, if not thousands of miles.
Aleksandr Gampel (14:09):
And you’re shipping 100 of these rooms for a single project. Unless you have a ton of these giant giga facilities all over, it becomes super uneconomical to use. The second issue of modular is that if you’re Spencer Burton, Michael Belasco, and you guys are developers, and you are looking to do a project, modular is kind of finite in its customization. So it becomes a binary product that either works with your product or does not work with your product, which when I say product is you’re building. So there’s a lot of limitations.
Aleksandr Gampel (14:40):
On top of that, right, there’s certain layers to the onion that we talked about, which are uncontrollable, the red tape around inspectors, zoning, et cetera, right? Inspectors aren’t the most progressive people. Municipalities aren’t the most progressive people. So all of a sudden an inspector can’t look behind the walls of a module or a building.
Aleksandr Gampel (14:59):
They can’t kind of check things. So unless you’re citizenM, which has gotten national approval in a lot of their modules. You know the hotel brand, citizenM? They went through kind of this national and international process. It’s tough to replicate in every market, but really the biggest issue is if you’re modular, you’re shipping this big box of air across the country. And there’s a huge supply chain logistics piece that just doesn’t work. And then on top of that, like I said, these gigafactories that you launch, I argue that they’re not real lead manufacturing techniques that are being employed. Meaning it doesn’t actually look like a Toyota conveyor belt, meaning that you have labor that’s just traditional construction labor, a guy or a girl wearing a hard hat, using a hammer and a drill in a saw, just now in a controlled environment, like some sort of warehouse.
Aleksandr Gampel (15:48):
So that’s one approach. The second approach is a prefab which just means that there’s a kit of parts that gets produced that then on site get put together, but same issue. You got to ship them thousands of miles, hundreds of miles. And it’s just not as economical as you would expect after a certain radius. That’s maybe a bit of a better approach. And there’s been more companies scaling in that space. Maybe I’d say almost a dozen now highly venture-backed companies that are getting close to unicorns. I think Viva’s an interesting one. I mean, they just raised a 400 million round, but Viva’s an interesting one in the sense that they’re developers/GC term kind of prefab company. Same issue with the larger facilities that have to be distributed, super CapEx intensive, et cetera. And now there’s obviously 3D printing, which I’m the least bullish on candidly. Maybe in markets like Texas for regulatory it’s okay.
Aleksandr Gampel (16:42):
And a bit laissez-faire, but here’s where 3D printing fails in my opinion. The reason why everyone is doing all this, going back to my original point, is everyone’s trying to reduce labor costs. And to reduce labor costs, you got to reduce labor hours, right? And what lead manufacturing achieves is it allows you to produce a good with less labor hours. So in construction, if a dollar, right, and you guys know this better than I do, if a dollar is a dollar of construction, 70% is probably labor, 30% is material. I think that’s a fair assessment. What everyone’s trying to do is reduce that 70% by factors. 3D printing doesn’t accomplish that because all 3D printing does is for now prints the shell of a single family home, right. Which is just the first floor shell, which means that still 85% of the process needs to be finished using traditional labor.
Aleksandr Gampel (17:33):
So you didn’t reduce much there on top of the regulatory issues and the CapEx intensity behind the machines, et cetera. And some folks have kind of a combination of both. I think where a lot of these groups vary is one, the archetype of the product they produce. There’s been a lot of groups focused on ADUs, which obviously is very applicable in California, right? And then a lot of players are focused on single family because it’s kind of an easier attack point. It’s a big housing crisis, et cetera. I haven’t seen too many people divert into different asset classes, which for example, we can. And I’ll talk about that in a second. And then you have one group that’s especially interesting called assembly OSM, which spun out of shop architects here in New York. They’re targeting modular, but for the urban ecosystem, which no one is doing, because it’s very hard to get this product 50 stories type of thing. What we’re doing though now, just to… Let me pause here…
Spencer Burton (18:29):
Yeah, yeah. No, so that’s a really good setup for the challenges in the industry. So what’s Cuby doing then? How do you guys differentiate from these other solutions that have their downsides?
Aleksandr Gampel (18:44):
Yeah. So like I said, I come from real estate. I’m a boring real estate guy that happened to sometimes play and venture back tech companies. One I love to death, it’s called Life House where a hotel property manager that was tech enabled, raised money from Tiger to Comcast, to Sound, et cetera. And then I worked at WeWork, which is kind of a fun journey, which I’m sure a lot of your viewers are aware of. But my co-founder in the contrary who owns majority of the business, he’s a deep tech entrepreneur from Europe. So he’s done many hardware businesses to date and actually launched an R and D studio in Europe, which had 200 deep tech engineers at all times. So you have a company that has IP, they go to him and they say, we’ll pay you to catalyze this to mass production.
Aleksandr Gampel (19:32):
So his whole expertise is in lean manufacturing and hardware and setting up factories. And this is kind of what he does. And the whole origin story of Cuby, right. It’s he was building himself an HQ. He went to contractors in Europe and said, Hey, what’s the cost? How do we do this, et cetera. And he was just baffled by disjointed nature of kind of what they do in engineering and kind of the processes they set out for lean manufacturing versus where construction is. So he said the easiest thing I could do is literally employ everything I know in books I’ve written into this space.
Aleksandr Gampel (20:02):
So for the last three years, he and his team have been building essentially our technology, which are these factories and what they produce, et cetera, to build buildings. We met about a year ago because I was looking for a more interesting solution to construct because Basis was just getting super expensive and I wanted to see what’s out there. And everyone was building an interesting solution, but everyone kept forgetting that all developers care about is cost.
Aleksandr Gampel (20:26):
Until you make it cost-effective, it doesn’t matter. Right. You can build the most over-engineered complicated solution, but no developer will care unless maybe they’re ESG focused. There’s some sort of ESG element that maybe they’ll overpay for. But relative to that, you guys aren’t sacrificing your yield on cost for something, right, just because. So his system, I saw a way to commercialize it with him. And we’re focused on cost and quality at the same time. And basically, let’s go back a second. I mean, what we’re doing basically is we’re setting up these mobile factories near or around construction sites to be able to produce kit of parts that prefab methodology except onsite or near it, within a 50 kilometer radius. So we’re basically able with a very low CapEx budget set up what I explained to you looks like a tennis air dome, but is more of a repurposed military hangar for fighter jets.
Aleksandr Gampel (21:17):
Not non-pressurized inside. We can basically go and rent a parking lot, inflate it, the structure, put our equipment inside of it. And a lot of that equipment is proprietary to us because it needed to be scaled down because generally manufacturing equipment, it’s meant to stay in one place. Ours needs to come apart, go to the next site. So we’ve scaled it down. And about 50% of it’s off the shelf, 50% of it is proprietary to us. But essentially with these factories and maybe, Sam, you can put a video to one of our factory videos to your system.
Sam Carlson (21:48):
Yeah, we can roll. Yeah, we’ll layer over some B roll over that right now.
Aleksandr Gampel (21:52):
Yeah. Yeah, just easier to visualize. But essentially what we produce is a kit of parts. There’s about 300 plus SKUs of kit of parts. The main component is a concrete-based panel system where MEP HVAC, all of that is within it. So we basically produce everything in these mobile factories from foundation up, all the way to cabinetry if we wanted to. And what that allows us to do is to reduce that 70% cost equation associated with labor. Eventually, we’ll reduce that by 10 times as seen in another kind of industrialized, lean manufacturing approaches across different verticals. So that’s where we’re going. So our manufacturing readiness level is about 85%. What that means is whatever we produce in these mobile factories, only 15% is left to traditional labor. Basically, it gets put together. And what’s interesting and what we were able to do is here’s the difference between Eastern European engineers and kind of the US. All, I guess, makes this joke.
Aleksandr Gampel (22:46):
If there is a hole in a pipe and it’s leaking water, right? US engineer will send some sort of sound wave, analyze it on the computer, right? Over engineer it, come up with where the hole is. In Eastern Europe, you send a little gas through there that’s colored, and you see where the leak is, right? What I mean to say by that is like a simile to how people are over-engineering solution here. We literally use the same construction materials, the same vendors. We just go about the process differently to produce a product that ultimately still feels and looks the same because we didn’t want any red tape. So we’re not focused on some end product. We’re focused on the process of constructing.
Sam Carlson (23:30):
I’m thinking one thing. What happens to the mobilization fee?
Aleksandr Gampel (23:35):
What do you mean mobilization fee?
Sam Carlson (23:38):
I used to own an excavation company. And every time we would deploy equipment, we had a fee, mobilization.
Aleksandr Gampel (23:45):
Oh, oh.
Sam Carlson (23:45):
I’m guessing that line item’s going to increase just a little bit.
Spencer Burton (23:48):
Yeah. I guess you didn’t know that Aleks. So Sam had an excavation company. It was actually a former septic tank company, right. That when you bought it was a septic tank company. And they moved into the construction site. So let me re state what I understand that Cuby does. And you tell me where I’m going wrong. And then I want Michael to shoot some holes in it a little bit and dig into where opportunities are. So if I understand, right, currently we go out as a construction worker, we go to the site, it’s either raining or it’s sunshine, it’s cold or it’s heat. We run by the shop, and we pick up our materials. Or we go by our supplier, we pick up the materials. We drop them off at site. And we literally assemble on site. In this case, you would have a called a manufacturing facility that is adjacent to the side or…
Aleksandr Gampel (24:47):
50 kilometer radius, yeah.
Spencer Burton (24:49):
Within a 50 kilometer. Oh, so as much as 50. And in that contained building you’d have pressure. It would be temperature controlled. And so it would be a nice environment to work in. You’d have the right equipment. And therefore you would be more efficient in building. It’s almost like bringing the prefab factory to the site.
Aleksandr Gampel (25:13):
That’s exactly it.
Sam Carlson (25:13):
And it’s kind of like you’re templatizing something. I feel like what I’ve heard Aleks say is the one thing that they have figured out how to templatize is labor, right? Where modular can do the same thing but the big restriction is, okay, well, if you’re going to do the same thing we’re doing, you got to ship it a hundred, thousand miles. Right. And so that breaks apart. So in effect, it’s like, well, we’re doing the same thing, but we’re making it feasible based on our geography. So they’re templatizing labor in a way. You’ve just done it in a more practical, actual useful way.
Aleksandr Gampel (25:48):
I think there’s also a caveat to that as well. Spencer and Michael will know this well, but skilled labor’s especially the most expensive piece of construction, right? So plumbing or setups, et cetera, we have practically, or the goal is no skilled labor within these factories. So our flagship mobile factory has 130 laborers working in multiple shifts to build buildings and kits of parts to buildings, not evidence skilled labor. The whole point is that, there’s going to be a ton of SPS that essentially you can get someone from McDonald’s to work within our factory, train them in less than a week, and they’d be able to operate the job. The whole definition of lead manufacturing is you break up the parts skill process so much so that becomes the quality assurance. Someone’s job is screwing a bolt, next job, right.
Aleksandr Gampel (26:35):
Unless they do that correctly, second piece doesn’t work. There’s also something else that’s interesting about our model. Remember when I told you that a lot of these groups are forced by default to be developers and GCs themselves? So, one thing that we wanted to do is not play the game where the biggest incumbents being, call it a Turner and Bechtel, these doing 20 to 30 billion in revenue a year. It’s so naive to say you’re going to go put them out of business. It’s not Netflix and Blockbuster. It literally cannot work that way. So instead, we thought the more interesting thing to do was to basically be like McDonald’s. We have a bunch of SOPs. We have a franchise model. Someone buys a piece of hardware from us. We turn on the light switch. It’s now yours. You burn all the costs, but we’ve now created a 10 X reduction labor efficiencies for you.
Aleksandr Gampel (27:18):
And that’s really our model. So if you’re a vertically integrated developer doing millions of square feet or GC, our goal is eventually to sell to you and to basically have you buy a factory, for us to set it up, higher up, turn on the light switch, hand over the keys. And then we clip a royalty fee or a franchise fee off these factories. It’s a much more economical way to scale. But the other thing that’s important is these factories generally, for other groups, they can… Kattera factories were a hundred million facilities, right? Obviously that didn’t work on a venture model in terms of scale. We’ve brought the price down of our flagship factory to sub $7 million. That in itself is a really interesting business from a PNL perspective, because that factory can do 300,000 square feet per year at 180 bucks foot. Right? I mean, you’re talking about a decent business with a 30% margin. You can flip that to a P shop at a 20 X, but our goal is not to own these factories. It’s again, to sell them to someone.
Spencer Burton (28:17):
Okay. So the developer in me, do you really save money? And does it really save time? And if so, how much? Yeah by how much and how?
Aleksandr Gampel (28:25):
Yeah. I’ll give you the anecdote kind of. So I come from your world. That’s all I care about. I don’t think systems like this work, unless it’s an actual cost-effective method. Because what we’re doing is somewhat practical, that’s how it becomes scalable. That’s when I said, when you over-engineer, it no longer works. From a developer standpoint, we’re early, right? There’s no kind of doubt there. If we were further ahead, right. We’d probably be buying a bunch of our own factories, and I’d have 100 of them over the country and build a great manufacturing business in a weird cyclical environment that we’re in. We’re early, right. We’ve done about 100,000 hours of engineering work in terms of R&D which is a lot. It takes 700,000 engineering hours to build a fighter jet.
Aleksandr Gampel (29:08):
We’re kind of at the 100-hour mark, 100,000-hour mark. So we’re still early. We’ve built an MVP of a building. It’s really nice. It’s in Europe, right? European standard of quality is much higher than the stick-built homes we build in the US. There’s actually another joke for Sam, because you found the other one funny. In Europe, there’s an anecdote that if you live in a US-based home and you put a gym on the second floor and you drop a weight, goes straight through. Just because the homes we build because of a cost equation are generally not great because we can’t afford to build better homes. But where I was going with that is we built our first kind of MDP home but right now concepting and launching our first V2 factory. We have our flagship is V3. Our kind of light version of our V3 is called the V2. We’re launching the V2 right now in Europe. We’re moving it to the suburbs of Philadelphia, Michael, in Richboro, funny enough. We got a 20-acre piece of land there.
Spencer Burton (30:07):
I thought there’s no reason… Isn’t there no reason for Philadelphia to even exist?
Sam Carlson (30:13):
Yeah, what’s going on in Philadelphia?
Spencer Burton (30:14):
I’m from Philadelphia too, by the way,
Aleksandr Gampel (30:18):
It’s a good market.
Aleksandr Gampel (30:21):
We have the most absurd story of how we ended up buying 20 acres of land. It’s an old camp in the suburbs affiliate. My partner bought it. It was really weird situation. But anyways, we get a huge discount because what we’re doing is kind of international. And the reason why we’re doing it is because the hardest challenge right now for any startup is there’s so much funding available. So easy to start a company these days. Everyone gets funded. And then everyone competes for engineering talent. Because of Olike’s previous experience with this R&D center that he has, we can hire 40 engineers in a month and pay a fifth of the burn. And what construction is end of the day is an engineering problem. To solve an engineering problem, you spend engineering hours on it, right? So if we can attack those engineering hours, spending less, we can burn less capital and it takes us further.
Aleksandr Gampel (31:09):
So when you ask, does this actually save us money? Yeah, that’s the goal. So we’re building a case study in that same region in Richboro. We’re trying to do it from foundation up – we’re talking concrete homes that I think we’ll sell around one, two, 5 million. We’re trying to do 150 a foot. We were quoted by local GCs that it would cost to build the equivalent home around 230, 240 a foot. But again, these aren’t…
Sam Carlson (31:33):
Is that above grade or is that development cost?
Aleksandr Gampel (31:36):
No, that’s vertical costs, post foundation. Yeah, Michael, these are concrete homes with full kind of interior finishes.
Michael Belasco (31:46):
All right. So couple questions here I’d love to ask. So first, what’s the scale of buildings you guys are able to do? What’s the goal?
Aleksandr Gampel (31:57):
Yeah. So I didn’t cover that. So like I said, every player in this space has kind of a subset that they’re targeting. A lot of it is centered around EDUs and single-family just because we’re what now probably 10 million homes short in the US in terms of supply-demand gaps. It’s pretty insane. But because I told you we focus on a process of constructing, our only limitation really is nine stories. And then don’t give us a curveball. Don’t tell me your structure is a curved, weird something, architectural phenomenon. Our system is based on a 10 by 20-foot grid. Basically, we can do pretty much anything from that constraint. Anything from a single-family home to a seven-story hospital.
Michael Belasco (32:35):
Cool. All right. So one of the things you had said, which feels like you guys cracked the code and I wrote it down in my own paraphrasing.
Aleksandr Gampel (32:41):
We did not crack anything yet. This is the hardest…
Michael Belasco (32:45):
Okay. All right. Maybe you’re on your way or maybe the answer is you don’t know yet. Customized, but automated, right? And this is what I found. And I kind of paraphrased that. It’s not exactly what you said, but one of the things you said is, modulars cookie cutter, right. And if it fits your site, it fits, and if it doesn’t, it doesn’t. Right? And you’re bringing these factories within a 50-kilometer radius, and you can do this stuff. And it’s essentially, I heard Toyota. It’s like a Toyota factory. It’s like McDonald’s, Katarra. And you mentioned these companies because these are companies that have sort of figured out the process. They know things by unit. When you plop a McDonald’s down, it’s the same process at every McDonald’s. When you put a Camry out there, it’s the same Camry. It’s the same exact Camry.
Aleksandr Gampel (33:37):
I have a really good analogy for you. Do you guys know what BMW is? Right. And then there’s Alpina. There’s kind of like the layer above BMW of their super high-performance car. Right. We have certain innovations on the end product. And remember I said the product is the factory. There’s also product that we produce, which is the kit of parts to build the building. Right. The IP is on both. We have one piece of innovation, for example, it’s magnetic facades, magnetic foot wallpaper, right. It’s actually pretty interesting. We can use any vendor that chips tile or wood or wallpaper, and we just stick a film on it. And it flops on our panel system on the walls, for example. To that extent, it’s standardized, but it can still be customized. Obviously, price fluctuates depending on the finishes you want. That’s up to you.
Aleksandr Gampel (34:28):
And then eventually where we’re going is like Airbnb is a real estate company that sells you a product, which is a stay, which is the experience. Yet they don’t own any real estate. We’re going to be the top of funnel. People want to build buildings. People want to work in offices. We’re the top of funnel that then gets distributed to the localized distributed ecosystem of factories. Then we’re building software too, where you guys know this better than anyone, you’re underwriting a building. You don’t know how to peg the costs right off the bat. You’re going to have to go pay someone. There’s a cost estimator. You hire GC that bakes in a buffer. Then you hire an architect. We’ll have software that both is going to do the kind of limitation, customization of a building, meaning it’s within the constraints and parameters of the factory while also spitting you live costs side by side that you can just go and submit to the city.
Michael Belasco (35:18):
So where do you guys anticipate entering during the design phase? Because the way I picture it, it’s like, if everything was perfect and smooth, somebody would hand you guys a blueprint. It would almost go into the factory and then things would start happening. And that seems incredibly complicated because each development is unique in its own way. And so that’s where I’m like, wow, that’s a really challenging problem to solve right there in itself.
Aleksandr Gampel (35:47):
So like I said, we’re early, but we’ve been trying to work with certain developers just to build more case studies. And ideally we’re never going to work in a setting of just a one off developer. Right. We want to be kind of more of a B2B solution in a way that ultimately becomes B2B2C. But to date developers have brought us their plans and said, can you build this? In most cases than not, the answer is yes. Maybe it doesn’t perfectly fit on the 10 by 20 foot grid, so they adjust a little right. Certain things that adjust. But in most cases we’re able to output what they need. Yeah, I mean, listen, I’d say we’re like 75% of buildings we could probably build that you bring us. Not everything is perfect. You might have to tweak the plans, et cetera.
Michael Belasco (36:33):
And then my other thought, and this is geographically. I spent all of my life on either the east coast or west coast surrounded or within big cities. And one of the notorious challenges for developers in big cities is not only the entitlements and costs and all that. But there is a very strong and organized labor force, which you could argue is a big reason why construction has not progressed in the way that other industries might have.
Aleksandr Gampel (37:09):
Yeah. So the way we think about unions and by the way, I come from hotel world. So unions, I’m too familiar with.
Michael Belasco (37:15):
I didn’t say unions.
Aleksandr Gampel (37:18):
Sure. I said, union. That’s fine. Which obviously exists for a reason. But to you I’m saying that our goal is to reduce labor by 10 X. Right? In other words, you can also make that same labor, 10 X more productive, right. So whether you use a union or you don’t, it’s 10 X more production output is what you’re gunning for. Right. Those are two of the same things, 10 X efficiency, 10 X production improvement, right? Like 10 X labor reduction. You’re saying the same thing.
Michael Belasco (37:54):
Yeah. Yeah, to a labor guy though, you’re hearing 10 X less hours, but it’s a problem. It’s a challenge in the big… There are a lot of places without unions though so it’s not…
Aleksandr Gampel (38:03):
But watch, I can give you an ESG spend. We had a VC once give us a smart idea, really smart, deep tech VC. They said go where jails are. There’s a lot of labor that comes out of jails that can’t necessarily plug into the white-collar ecosystem that we live in today, less manufacturing jobs, less blue collar jobs. That could be an interesting funnel of labor for us. We’ve thought about that. But I mean, labor is an issue across the board, but we’re just hoping we’re not dependent on skilled labor.
Michael Belasco (38:32):
Cool. Yeah, it’s ingenious. I mean, I love… How you’re describing this, it’s definitely a problem.
Aleksandr Gampel (38:39):
Yeah. The one thing we also didn’t describe external pressure that GCs are facing. I mean, no one realizes this, but I mean, everyone thinks airlines are so polluting, the airline industry. Construction is way far more polluting than any other industry. If you just look at landfills, I think 40% of landfills are construction waste, ground-up construction from rework, et cetera. So there’s going to be external pressure to adopt. We are kind of interesting because we still like concrete. Everyone is really upset about concrete. There’s a lot of embodied carbon, right? Unfortunately, it’s one of those materials that’s super cost-effective and widely available. And the amount of buildings we need to build, I don’t think we’re ever supplementing concrete. We are working on something really interesting within our concrete. It’s a form of Miscanthus, which is a silver grass. It’s like a thin grass if you guys Google silver grass.
Aleksandr Gampel (39:29):
We’ll eventually use that as pellets, as rebar within our concrete, which will become super interesting to offset the concrete embodiment of carbon. And then also we kind of have this more practical solution. We don’t have nearly as much waste when constructing, because construct, you throw your thumb in there and you kind of have a piece that you need that you don’t et cetera. Here we kind of are conceptualizing a building on the computer before anything ever gets produced. So we have one for one parts for that building. And then on top of that, we don’t ship something 1000 miles, right? So there’s literal emissions when you have to ship something. So there’s a huge sustainability angle that for now just so much to do, it’s too early to talk about, but it’s going to be a huge angle.
Aleksandr Gampel (40:14):
And here’s another thing by the way, about the localized factory approach. Everyone had this modular prefab, et cetera. It’s exactly what you said, Michael, it’s this whole local economy thing, right? If your factory is way far away from where you’re building, you just killed a bunch of jobs. You killed a bunch of local vendors and businesses. You haven’t paid local taxes. At scale, people will talk about that. No one’s talking about it because there hasn’t been massive options in this ecosystem yet. So we don’t…
Spencer Burton (40:40):
No, that’s fascinating. Yeah, I’m really excited, Alex, to follow this. Yeah. Keep us and the ACRE audience in the loop as to how Cuby progresses. Sam, let’s make sure we get Alex back on to talk about this.
Sam Carlson (40:57):
Absolutely.
Aleksandr Gampel (40:58):
Cool.
Spencer Burton (40:58):
Great insights, Aleks. Really appreciate your coming on today. Sam?
Sam Carlson (41:02):
Yeah.
Spencer Burton (41:05):
Go ahead, Aleks.
Aleksandr Gampel (41:06):
I was just going to say, Spencer and Michael, thank you for making all those models that have supported many of us over the years. I think you guys are doing the real social good.
Spencer Burton (41:14):
Thank you.
Sam Carlson (41:15):
Well, really interesting content. I mean we talk with, especially the last couple of three or four guests we’ve had on, all talking about new ways of using technology in a lot of different ways. And so I think the next five, 10 years in real estate are going to be incredible. So anyway, thank you for watching, and we will catch everybody on the next episode.
Announcer (41:39):
Thanks for tuning into this episode of the adventures at CRE audio series. For show notes and additional resources, head over to www.adventuresandcre.com/audio series. Would you like to learn real estate financial modeling in a matter of weeks and do it with zero guesswork? If so the ACRE accelerator is for you. The accelerator is a step-by-step case-based program designed to teach you exactly what you need to know and in the order you need to know it. So you can gain both the knowledge and experience to take your career to the next level. To see if the accelerator is right for you, go to www.adventuresincre.com/accelerator.
