Is Prefab Construction About To Take Over The Industry?

Prefabricated construction has been around for decades, but it's just starting to take over the industry. In the past few years, prefabricated construction has taken over large sections of the home building industry, with new technology allowing faster and cheaper production times. This episode will discuss prefabricated buildings and why it's such an important trend.

Cuby makes better buildings by developing and operating turnkey, transportable factories that output easily assemblable parts and offer the world's most efficient, precise, repeatable, and sustainable processes for the construction industry. It is building better buildings for the people who live, work, and play in them by reshaping processes for those who deliver them. Cuby offers solutions to vertically-integrated developers and construction companies.

Know more http://cubytechnologies.com

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Is Prefab Construction About To Take Over The Industry? | Aleksandr Gampel

We will talk about mini mobile factories, but we have to take the audience on a journey, and it starts with what we said here. Let's dive into this a little bit. I assume you would agree that if you have these warehouses clustered around major zip codes or areas, those factories can produce on-site and service that area. Is that where real estate is heading conventionally speaking?

What we are seeing in the catering industry now is this concept of cloud kitchens or ghost kitchens where big-box retail space, old restaurants, or whatever are being repurposed. Now, you do not walk into the restaurant, sit down, and order food conventionally. You have your third-party on-demand. The driver will go there and pick it up. Are we going to see somewhat of a similar evolution with how construction works? Is prefab going to be meaning not thousands of miles away but much closer? How do you see this evolving as an industry?

It will happen a lot slower than we saw the emergence of the ghost kitchens. That is the constraint of the industry and the big CapEx dollars involved to build out a ghost kitchen. You are spending $400 or $500 a foot on probably 5,000 square feet.

It is what you have left, and you can repurpose a lot of real estate for it.

It is here to launch a 200,000-square-foot plant that produces some component, whether it is a module, a box we talked about, or a kit of parts. Whatever that approach is, those groups are competing with the same warehouse that Amazon can be overpaying lease.

Maybe the ghost kitchen analogy does not hold here because that analogy assumes you can put these 5,000 square foot facilities in urban densely populated neighborhoods. That is not going to work because of the sheer size and scale of these warehouses, so where are these warehouses popping up? Are they popping up in the same places where Amazon is competing for the run distribution of warehouse space?

You can answer that, given you are in a restaurant Boxabl because it is approaching it. They also have factories that are at least in warehouses. I would imagine those warehouses are similar use cases as Amazon.

Sometimes, it is ruining everything ground up, and you will bring a lot of heavy machinery in, and you have got to work along getting proximity. I'm sure this is the case here too, proximity to highway and one round.

There is one group that we are pond of that we think is doing this right, but they are focused on one specific subset in terms of asset classes, plus the product they produce. It is a company out of Canada called Nexii. That company is focused on producing concrete panels for warehouses and repeatable quality type assets, like Starbucks, where you can quickly pop up using this concrete composite panel. The way they have grown us is interesting and similar to the way we are growing, which is this local factory approach servicing a certain area where there is a lot of geographic demand.

There is such a missing cost of capital out there that sits somewhere between venture and real estate. That is why we have seen a lot of businesses struggle.

We are still in the early days, but is there an opportunity here for prospective real estate investors or speculators to go and start buying land and leasing to these lodges? Talk to us about that because that will get some of our readers excited.

You will hear this when we are talking about Cuby and some of the players. Let's take a step back for a second. If you look at a lot of the venture-backed groups, Boxabl included. They have been incredible in terms of the PR they have been able to get, how quickly they have been able to grow, and the orders that they have been getting from retail investors, etc.

What you are seeing is now anywhere from 1 to 2 dozen venture-backed. I call it sticks and bricks. Technology companies that are innovating in the construction space are all focused on raising venture dollars and spending those dollars to innovate around what they think is the right way to construct. They are also taking on the work of the GC and the developer a lot of times because they realize that it is hard to integrate and sell to those groups that they have to do everything at once.

They will realize the right approach of what we are trying to do and what next he is doing, which is, for your real estate readers, Nexii is trying to find smart real estate investors that will be the propco dollars behind these factories. These factories will be super high EBITDA producing P&Ls, and they are going to license their technology to these factories. That is where the world is going to move.

As we move on to a different segment here, could you define the word propco and opco? I would love to talk about this deeper here.

There is the simplest analogy. Everyone knew Hilton before Hilton divested their real estate assets and their brand. The notion of propco and opco is there is a property holding company that is the physically asset-heavy division or holding co behind those assets, and separately, there is an opco and operating company that is behind some brand, innovation, etc. That is the, no pun intended, but the operations of the business.

What I was saying is there is going to be a construction company that is innovative, that is the brand, that is funneling the demand, and there is going to be someone else that owns the factory and managers that P&L of that factory. You will see a lot of different factory owners that are all answering to one opco brand or technology. It is similar to how you have different franchisee owners in a way.

On the VC side, I certainly see a lot more propco and opco. That is a legitimate path and sometimes a needed path, especially if you have got a unique technology that you need to underlying real estate. Go and start raising a fund. Go and start bringing in investors and owning the underlying real estate, especially if your opco can bring in the technology high margins and produce good investor returns.

That is probably where you and I jive with the most in terms of our respective thesis. I think there is such a missing cost of capital out there that sits somewhere in between venture and real estate. That is why you have seen a lot of businesses struggle, think co-working and co-living because they are taking high cost of capital venture dollars and applying them to lower threshold real estate returns. You do not see those businesses scaling well.

PTVC 151 | Prefab Construction

Soon, we will see a big emergence of an asset class that sits somewhere in the middle because you have a lot of great businesses. I put our business in that category where venture dollars don't necessarily solve all the pieces for us, and we are missing a certain cost of capital. Now you are seeing these credit firms like high 80 and upper 90. 1Sharpe is amazing. You are seeing these groups start focusing on that ecosystem.

What we are saying here is that there is a fundamental shift in the way PropTech is unfolding, and the rise of the propco and opco trend or structure presents a lot of opportunities. The current problem is, to double highlight what you said, the current capital that goes into propco and opco is not well set up for these structures because venture dollars often require a high gross margin and no hardware involved. Venture investors certainly do not want money going into buying real estate. That is not acceptable.

On the other side of things, you have got your typical real estate investors that want high cashflow, and they can't stomach the idea that we are investing into some type of private equity or real business sale. What I believe is that rather than the VCs and typical real estate funds benefiting from this strategy, you have got a lot of special-purpose vehicles and family offices that are coming in and are more nimble, flexible, and understand this trend. They realize this is a company that has two distinct avenues of growth, opco and propco. Both are different, but we like to fund the entire thing. Family offices are one capital flow that is coming in. Do you see anything else there?

Family office capital is probably the right approach now until we institutionalize this concept that goes beyond hotels because if you look at hotels, the propco and opco concept is nothing new. Look at CitizenM, for example. It is a great hotel brand. It started by building out an opco. That same dollar that built out the opco brought alongside big propco dollars to help it grow. We will see that emerging across other asset classes, but it is the chicken or the egg that keeps happening.

In terms of other capital, you are starting to see what the ’90s used to hold, which were these CapEx facilities and these lease TI facilities that used to exist for retail. Now you are seeing a similar resurgence of that and groups that are producing credit facilities. Some include 1Sharpe, the high 80s, and the upper 90s of the world. They are starting to think in that way. You are seeing PropTech companies, even the getaways of the world and the Saunders. We work with getting there where they are launching these big credit facilities where the first dollars pay for subsidizing some of that borrowed money on the CapEx front.

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How Cuby Is Changing the Construction Industry - https://www.youtube.com/watch?v=dSnmseGPSMs

How Construction Is Changing without Being Impacted by Legislative Red Tape - https://www.youtube.com/watch?v=seiCGz2l6B4

Red Flags to Keep In Mind When Buying Rural Property - https://www.youtube.com/watch?v=5nXneTH_A1s

About Zain Jaffer:

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30," "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.