619: Taking Home Building to the Next Level – Quality Homes in 3 to 5 Days!

SHOW NOTES FOR EPISODE 619: TAKING HOME BUILDING TO THE NEXT LEVEL – QUALITY HOMES IN 3 TO 5 DAYS!

Electric cars  Cryptocurrency.  Mobile applications.  The future is here!  And real estate is no exception.  In today’s podcast, former Navy seal, Stanford engineer and real estate developer Garrett Moore shares how technology has made it possible to build a home in just 3 to 5 days!

What You Will Learn

• How existing technology has made it possible to completely design and develop an offsite home in just 3 to 5 days
• Why module home development can be the solution to today’s housing shortage
• How Garrett Moore completely built his personal home offsite and what he learned from the experience
• Why modular home development is the cure for rising home costs, labor and supply chain shortages and increasing interest rates
• What 6 major areas account for more than half of U.S. construction
• How Build-to-Rent is becoming the next big real estate investing niche

About Our Guest

Garrett Moore

As the co-founder and CEO at Agorus, Garrett brings a career of executive-level leadership and technology expertise to the construction industry. He earned a degree in Mechanical Engineering from Stanford University and a Master’s in Cyber Security from Tel Aviv University. Garrett is an Olmsted Scholar, prior collegiate athlete, and Navy Veteran.

More About Garrett

• Grew up in Arizona
• His mom was a flight attendant
• His father was a high school teacher
• Active in sports
• Played high school football
• Got recruited by Stanford to be quarterback
• Realized, however, that the NFL was not in his future
• But he loved the team atmosphere and team sports
• He was not ready to go into the business world after college
• He was drawn to the military because of the same team atmosphere
• He graduated Stanford early
• The Navy Seals attracted his attention and he went all in
• He loved the culture, the mission and the comradery
• Did the usual deployments – lots of time in the Middle East
• Spent time as an Olmstead Scholar in Tel Aviv, living in Israel, studying Israel and getting his Masters Degree in Cyber Security
• He was now married (married his high school sweetheart) and had 3 beautiful kids

Moving Into Construction

• He said he became an “accidental developer”
• In 2015, he bought a piece of property in Coronado (San Diego, CA) with a little 1963 3 bed, 1 bath home on it
• It was s large enough piece of property to have several lots so they decided to go to his parents and asked if they wanted to do a joint venture and buy one of the lots
• If the parents funded the project, they would get a free house out of it
• They agreed, so they tore down the little house on a large lot to build 2 houses
• After they looked at the numbers to do this project, he saw there was a value in time
• Therefore, he decided to build the houses offsite (in the interest of time) and assemble the parts on site once they were built
• They went through 6 or 7 general contractors to try to find a builder who would build offsite
• Found a factory in Idaho to build the homes
• In the meantime, a long time good friend of Garrett’s became the 3rd partner in the venture to build a 3rd home on the site
• However, his friend decided to build his home traditionally – onsite
• What this did was to allow two different “building case studies” to be built along side each other
• What they saw in this effort was that real estate is more advanced than construction and that construction bogged down the development process
• And, to make things even more complicated, Garrett is in the Middle East while his wife was trying to track down electricians and plumbers and having to deal with all the frustrations people contend with on a new build — it was too much
• The frustration came to a peak and finally Garrett said, “That’s it!  This is not acceptable” and he decided he would teach himself construction and real estate and would do this project himself
• They finally completed the project in 2018
• Garrett and his family now live next door to his parents and his good friend
• Today, the properties have skyrocketed in value and they see that it was all worth it

Modular Building Development

• Very few people take an offsite approach to a custom design property
• The homes they were designing had to meet all of the local rules, specifications and standards
• It was very difficult to find someone who would help them to do that
• They finally found a like-minded type of partner who builds Alpine type cabins in Idaho – that was the only person they could find
• They found people who could do manufactured housing (double-wides) but that was not what they wanted
• So, their Idaho partner could do part of what they wanted but they had to do the rest, like…
  • Onsite installation
  • Button-up
  • Connections
  • All the finish details
• He felt it would have been much easier to build it onsite, by hand, but he didn’t realize it at the time
• There are two reasons why building takes so long, especially in “higher ted tape” areas like California:
  • A labor shortage
  • A building culture that is so antiquated that you end up having fragmented rules (i.e. Title 24 energy calculations, city zoning requirements, etc.)
• After they went through this process, they realized
  • A lot of this can be solved with computers
  • You can bring in best in breed technology to bear on an industry that has not evolved
• The way builders typically build properties (4 stories and below) has not changed a lot in the last 100 years
• Construction is still lagging behind
• One challenges he faced was, because the walls are closed and a local building inspector in San Diego could not look inside the modular walls, they had to get an “offsite inspection”
  • With the offsite inspection, however, they found it more streamlined than the onsite inspection
    • Someone comes to the factory
    • They look at the project and say, “Yes, that’s to code – exactly like you told me you were going to build it”
    • Or you can use Zoom or 4-K video it makes it even easier
    • Once reviewed and approved, the homes comes with a certified stamp from that California inspector that says the home was built “to plan”
• The modular approach is best for COST and TIME but there were still bugs to work out

Industry Challenges

• In the building trade, their are some major challenges
  • Labor shortages:
    • For every 5 construction people retiring, there are only two new, younger replacements coming in
      • Part of the reason for this is that people are not interested in the trades any more
      • As a result, both the quantity of laborers and the QUALITY of the labor is declining
      • The quality of the builds is going down but the COST of the labor is going up
  • Supply chain shortages
    • On a typical construction site, there is a lot of waste
    • There are a lot of inefficiencies because everything is being done by hand, onsite
      • With the modular approach…
        • If things are built in a factory…
          • They will use less labor
          • It can be in an area where labor is cheaper
          • You will use less material because you can optimize and control it better
  • He was drastically cheaper than building onsite, however, he missed one thing…
    • The team that receives and installs the modules still has to know how to connect the pieces
      • There was a lot of friction when they brought the modules to the job sites
        • This lost some of the efficiencies that they gained offsite
  • Also, early modules lacked the flexibility you have when building onsite

Creating a Business

• What Garrett found is that creating a building offsite has tremendous advantages
• When he looked around and saw items in his home or office home (chairs, tables, computers, etc.) he saw that all were manufactured at volume – so why not houses?
• Most people haven’t benefitted from offsite construction because the perception is that they would have to live in little boxes or cubes
• People want to live in something that looks like a house
• No one has been able to bend offsite construction to the design style that people want
• So, Garrett said, rather than the stick built or modular process that they went through, let’s build a technology that can have the best of both worlds
• As a result, they created a patented manufacturing process and high tech software
  • The person sends the image of the home/building they want to the software
  • They then deconstruct that design down to a series of 2-D panels
  • When you build those 2-D panels, your walls, floors, roofs, etc. it become a series of straight lines
  • Those straight lines allow you to create any custom, complex structure
  • But you can manufacture it very quickly on an assembly line and ship it flat-sacked and can therefore assemble it on the job site very quickly
  • The idea is that it would give you the best of both worlds where you can have your cake and eat it too
• On his first job site he did it volumetrically
  • All the panels were put together in cubes before they got to the build site
    • That’s what was causing huge problems
  • They said this is not the way we want to do it because of the problems they were having
  • So they said they were going to create a new technology that is more scalable and can meet our developer customers where ever they are and in whatever design they want
  • To create a more “automotive like” efficiency for construction
• Going more digital made the difference
  • Their manufacturing tolerances are so tight there is little room for error
  • When an architect designs a home, he designs it as he wants it and that CAD file stays accurate
  • They build exactly to what the CAD file is
  • So that by controlling tolerances in the factory, it makes onsite installation very easy
  • There’s no human error that goes into it
  • Plus, they have other tools that help like:
    • Cloud point laser scanners
  • If you stay digital, you are fine
  • But, the way most people build construction today is a digital-to-analogue, back to digital-to-analogue back and forth conversion
• As this all unfolded, they saw that there was a business model there for a new business to emerge to meet a real need
  • They saw the opportunity
  • The pain point that was created at a personal level, through the process and first project, ended up forming the genesis for the business model
  • Once they saw the business model, then they travelled around the world, saw how people built, started to explore and unpack other technologies (robots that lay bricks, 3D cement homes, etc.)
  • From all this, they determined that they want to build a technology that can meet owners and developers where they are, with the materials that they’re used to, in the neighborhood that they want to build in, and make it as easy for them to adopt as possible
• While all this was happening, he was still in the Navy, had three young kids, was loving being a dad but was seeing and feeling the wear and tear of multiple deployments and being away from his family
• He was leaning towards getting out of the service but the business pushed him over the edge
• So, he left the military and went full-time into the new business

Agorus was Founded

• Garrett and his partner wanted a name that really reflected what they are all about
• Your home is the place where you raise your kids
• It’s the center place of your life
• It’s the central marketplace – In the ancient Greek, the Agora was exactly that
  • It was the place where the common man had a vote
  • Where he could come to speak, do business and interact
  • It was the center point of their social life
• Despite the business model, unit economics, the ROI, etc., they did not want to lose sight of the human components of the home

Funding the Dream

• In 2019, they found an early angel investor that was a large publicly traded real estate developer called Kennedy Wilson, out of Los Angeles
• Their senior leadership happened to be good friends of theirs
• They initially approached them for mentorship, not money
• The company said “You’re going to need some capital.”
• The company decided to invest in them to get them to “proof of concept”
  • Within the year they wanted to have their “proof of concept”
    • They bought some machinery
    • Launched their first data version of the software
    • They did their first build – a high-end coastal home in Venice Beach, California
      • It was a $3.5-4 million build
  • They did a few more projects in San Diego
• Next, in late 2020/early 2021, they went out to raise their first institutional money and brought in…
  • Blackhorn Ventures out of Colorado, combined with Toyota Ventures (venture arm of the auto manufacturer)
  • Also, some high tech, Silicon Valley venture-based firms
  • They established a factory
  • Grew their team
  • And they started to build out new product

Agourus Today

• Today, they have far more demand than they do capacity
  • Therefore, they are now in the process of establishing new factories as quickly as they can to meet production
• They have found that, across the country, there are 5 or 6 major areas that account for more than half of U.S. construction
  • Southern California
  • Phoenix-Tucson
  • Central Texas
  • Florida
  • Nashville-Atlanta-Carolinas corridor
• Their first factory was built outside of San Diego
• Their second and third factories will be another in San Diego and one in the Phoenix-Tucson area
• Their technology works well with anything built with timber
• They have around 50 plus employees and hope to triple that by year-end
• So, the properties they will tackle are 4 to 5 stories and below
  • If you go vertically beyond that, it will likely require more steel and concrete and not be in their current spectrum
  • Their bread and butter projects are…
    • ADUs (accessory dwelling units) – secondary housing unit on a single-family residential lot (Granny Flats)
    • Single story and two story single family homes
    • Light multifamily (townhomes, three-story small multifamily)
• In the future, they hope to build larger multifamily apartment buildings
• They are dealing directly with developers and real estate investors

Biggest Mistake

• Not staying focused
• Taking a look at the elephant they need to eat and not taking it at one-bite-at-a-time
• Construction and real estate are so interconnected that you can’t pull on a building department thread without getting into material science, without getting into constructability. without getting into historical tradition, etc. – it’s like a pile of tangled hangers.  You have to take out one hanger at a time

Biggest Success

• Doubling-down on their team
• They are building a team that they really care about
• As they are trying to break into an established industry and disrupt status quo
  • You’re going to break some eggs
  • You’re going to make mistakes
  • You’re blazing a trail
  • If the people working for you are looking to run a clear, clean path, they are going to like the ride
• Building a team that is fully on board with the mission has helped tremendously

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• He thinks the timing is perfect for people interested in investing in real estate
• With rising mortgage interest rates, home ownership will take a hit and it would appear that this is not a good time to invest in real estate
• However, one of the things he sees on a macro level is an acute supply shortage (of rental units)
• People still want to live in houses
• Give that, Fannie Mae and Freddie Mac are saying we are about 5.5 million units short of the housing demand since GFC of 2008
• We can’t produce enough housing to meet the need
• So, for those who have the money, the timing is perfect to invest
• Rents will increase, which boost returns
• The construction industry is primed and ready to continue building
• But the potential owner will change from the person who will buy to own to the person who will buy to live
• This will move us into the “Build-to-Rent” model
• The demand is so strong and the supply so short that the opportunities are ripe for investors

Building Homes Under 30 Days

• Currently, it takes 7 or 8 days to build a house
• Ryan Homes, one of the largest home builders in the country at one time, took a similar approach as Agorus is now to building homes years ago to meet the housing shortage
  • They built their homes offsite as panels
  • They were building homes in 14 days in the 1970s
  • They were crushing their competition
  • But, to be fair, they ended up buying the Pittsburg Pirates, lost focus and got into some extra curricular activities that caused their core business model to suffer
  • But the concept knocked homebuilding out-of-the-park
• It can still be done and it should be done again today
• We are on the verge with society of seeing major changes – electric vehicles, crypto currency, etc.
• He wants to do to construction what Tesla did to Detroit
• Within the next 5 years, he wants to see the construction industry shift in the same way

Opportunities for Real Estate Development Partners

• Garrett is interested in finding real estate development partners who really want to “turn and burn” to add so much value
• If someone who has capital to deploy and wants to become a developer and if they come across someone who says, “Hey, I can get you keys in 30-40 days, from the days you get permits,” their ability to recycle capital to almost pre-sell or pre-rent units, it starts to open up a whole new world of opportunities
• He would be very interested in finding a long term real estate development partner who wanted to take an offsite approach to injecting (housing) volume into the system ina “Build-to-Rent” type way

Current Business

• He would like to see his company become the largest builder in the country by the end of the decade
• He doesn’t mean a fully-integrated, full-blown developer doing DR Horton style sales
• It would be that they are producing the highest number of unit sales
• The current US development company tops are 75-80,000 units per year
• Garrett’s goal is to produce a manufacturing engine that can produce 80,000 plus units a year by the end of the decade

Rap-It-Up

• Favorite real estate book: The Millionaire Next Door by Thomas J Stanley and William D. Danko
• Favorite business book: Good to Great by Jim Collins
• Most valuable web site for success (other than your own): The Economist
• Favorite app: 1Password
• Favorite quote: “An essential is unity.  A non-essential is liberty.  In all things charity.” – Rupertus Meldenius
• If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business?  ADUs are exploding across the state. They are very unique in that they have a tremendous amount of leverage. In Southern California, a 2-bed, 1-bath, 750 sq ft granny flat might rent for $3,000 per month. I would try to find a partner who would allow me the ability to get into a house somehow. And then I would boot strap and build that backyard ADU myself and then, I in turn would try to cut a deal with that investor or family member to own some of that “instant equity” and then, I would use that equity (hopefully $50-150,000) to get into my second home.  I would use my primary occupancy capability to help me restart my business.

I Will Ask You How People Can Reach you

• LinkedIn: https://www.linkedin.com/company/agorus/
• Website: Agorus.com

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