This series highlights our Pitchfest finalists. At the 2023 Housing Innovation Summit, we introduced a new program, coined: Pitchfest in order to bring new ideas to light, offer feedback that startups can use to advance their solutions, and introduce these innovators to potential advisors, partners, investors, and clients. A dozen companies made it to the final round, and four came out on top.
In this episode you'll hear from Tomas Garcia of Arx. Tomas was a finalist in the Tech + Data category.
Read more about Pitchfest and the Housing Innovation Summit.
This series highlights our Pitchfest finalists. At the 2023 Housing Innovation Summit, we introduced a new program, coined: Pitchfest in order to bring new ideas to light, offer feedback that startups can use to advance their solutions, and introduce these innovators to potential advisors, partners, investors, and clients. A dozen companies made it to the final round, and four came out on top.
In this episode you'll hear from Tomas Garcia of Arx. Tomas was a finalist in the Tech + Data category.
Read more about Pitchfest and the Housing Innovation Summit.
Haley Baumeister (00:00):
Welcome to the Housing Innovation Alliance podcast. This series highlights our pitch Fest finalists. At the 2023 Housing Innovation Summit. We introduced a new program, coined Pitch Fest in order to bring new ideas to light, offer feedback that startups can use to advance their solutions and introduce these innovators to potential advisors, partners, investors, and clients. A dozen companies made it to the final round, and four came out on top. In this episode, you'll hear from one of our tech and data finalists, Thomas Garcia from arcs, to get in touch with them, visit their website, and find ways to connect in the description. What
Tomas Garcia (00:36):
Do we all wish we had more of when it comes to real estate capital and what is capital, but time? How much time do you spend sourcing and diligent potential investment and development projects? Too much. Think about how long it takes to identify a potential opportunity. Gather the relevant data, figure out what you can and should do with that property. Build a financial model and make a go or no go decision based on that return on investment. Has anyone in this room looked at just one property and then done one development deal? Ah, I was hoping to find somebody to go buy lottery tickets with later. And that's, that's about right, right? Because when we talk to developers, they tell us that about 90% of the time that they spend going through this exact process of sourcing and diligence and potential opportunities is time completely wasted.
Tomas Garcia (01:26):
Something comes up, the property doesn't, pencil zoning doesn't allow for the development that they had planned. It's a waste of time. There are 54,000 residential developers across this country wasting their time looking for needles in a haystack. What does that waste add up to? An undersupply of 150,000 residential units a year. According to the National Association of Home Builders. Every single year for the past decade, there are 150,000 units that should have been produced in the United States that are not produced due to market inefficiency. Here's another number, $400,000. That's about the median sales price of a new construction home in the us. So if we do some quick mental math here, we have 150,000 undersupplied units by a new sale price of $400,000, and we get to $60 billion of undersupply in the United States every single year. How did we get here? There's complex zoning regulations, local ordinances, supply chain issues, shifting costs to materials.
Tomas Garcia (02:32):
It's enough to make anyone's head spin. You've got market forces on one hand, regulatory forces on the other, and in that very narrow window where they overlap, that's where we can build. Aren't you tired of wasting your time looking for needles in a haystack? Let me show you the metal detector. Let me dance in this direction to show you the metal detector. I'm Tomas Garcia, co-founder and c e o of arcs. Arcs is an AI driven SaaS platform that helps our clients answer not just the question of what is the highest and best use of this property, but what is the highest and best use of my capital and my time across the entire real estate market? Period. That's a pretty big question. We're not going to underwrite every single future scenario for every single property by hand because well, that would take years. But what if it didn't?
Tomas Garcia (03:19):
What if it took seconds? What if we wanted to quite literally search the future and identify every single property in Los Angeles that supports for sale single family infill development projects with a minimum return of 15% that require no more than a million dollars of cash, and that could be completed in less than 20 months. There are the 2,708 properties that meet our exact underwriting criteria in seconds, not years. Let me tell you a quick story. I was introduced to a developer in LA who was struggling to find projects in the sideways market. After a quick intro to arcs, I could tell by the look on his face, some of you have it on right now, there was a thought bubble up here saying, there's no way this is possible. Well, he turned to me and he graciously said, all right, pull up this project that my team and I just finished underwriting.
Tomas Garcia (04:08):
So I did. The look of surprise on his face was priceless. He carefully reviewed the project output before saying Not only does the configuration match exactly what my team and I have decided to build, but the expenses schedule projected sales and r o i, they're all within 5% of how IO wrote my own project. 5%. Now, what had taken that developer and his team weeks to put together, we presented in front of his very own eyes in seconds. So imagine you're a developer. You are sitting in your office, you're looking for deals in this sideways market. Now with a few clicks on arcs, you can produce all of the information necessary to start making offers on the best residential development opportunities in seconds. A RX is currently live in the select markets of Los Angeles and Seattle supporting residential infill development, but we're just getting started.
Tomas Garcia (04:58):
Soon you'll be able to analyze every residential property and every major metro area for its infill development potential, its renovation potential, as well as its rental potential. Oh, and ADUs, particularly for those of us on the West coast, those are coming soon. I'm proud to say that a RX is backed by leading industry executives and venture capital funds. It's still early days for us. We just closed our pre-seed round in December, and we're just getting started on building the future of real estate analytics. When we set out to build arcs, we saw a technology market saturated with point solutions. Here's a template Excel model, fill it in. Here is a an analysis on that project for that one property. By the way, it doesn't pencil. Can I have my $1,000 consulting fee? And here's five terabytes of raw data. You've got a data science team on your on your development team, right? That's, that's part of every developer's standard kit, right? No. When we set out to build a rx, we set out to build the first end-to-end analytics as a service platform for the real estate industry, because data is useless if you can't understand it. I'm also proud to say, if we can get to the next slide, that the industry is recognizing the game changing leap forward. That arcs represents <laugh>. That was seven minutes. That was
Speaker 3 (06:08):
Seven
Tomas Garcia (06:08):
Minutes. Interesting. Well then questions,
Tomas Garcia (06:15):
What's the timeline to grow into additional markets? Absolutely. So the technology is extremely scalable. We've spent the last two years making sure that basically it's as simple as plug and play with data providers. So we work with a number of different data providers. They have data from all across the country, and it's literally just a question of capital. We flip a few switches on our ends. Our models are robust and set up to deploy. So let's say if I wanted to cover the United States tomorrow, it's a question of capital and it really would be up and running within the next couple of months. So expanding to new markets what we're doing right now is in a targeted fashion. We are working with sort of large scale pilot customers to, to dictate where we're expanding to next. I think that
Speaker 3 (06:50):
Last slide you have was market potential. What was
Tomas Garcia (06:52):
That? So in terms of TAM or market potential, so this is just the, the, obviously this is just the US real estate industry. We're not, I'm not gonna tell you, there's a $6 trillion tam. We view ourselves as going after the real estate consulting industry. The traditional consulting industry that is a $60 billion TAM in the United States. That gets segmented out in a variety of ways, but it comes out to about a $20 billion industry for the residential real estate consulting industry. So that's where we're starting. Ultimately, we do plan to expand to cover additional asset classes asset types, investment strategies. So ultimately we're going to work our way through that industry.
Speaker 3 (07:24):
Are you looking to empower the teams within developers, or are you looking to go head to head and take the business directly away from the consultants?
Tomas Garcia (07:33):
I'm a big believer in empowering everyone with this technology. So we are trying to produce a mass market scalable technology suite that is cheap and is available to be distributed as far as possible. So that's why, you know, right now we're working directly with developers, builders and actually real estate agents who are sourcing those properties for developers and builders. We've built a SaaS platform. Anyone can go on our website today. Unfortunately, if you're not in Los Angeles or Seattle, it might, might not make too much sense to you, sense to you, but you can sign up for a free trial. You can dive into the platform that is the full platform that you will have access to you know, when you, when you jump on our system. Can you talk
Speaker 4 (08:06):
A little bit more about where you get your data and the reliability of that?
Tomas Garcia (08:09):
Absolutely. We work with a number of different data providers and we also have our own proprietary data sets, and we also have our own proprietary enrichment process. So I'm gonna speak generally about the types of data that are being used in this platform. It's pretty much everything that you could expect under the sun, right? So you've got tax assessment, data deed and recorder information, building footprint information, parcel boundary construction, cost estimation data, zoning data. I'm sure there's more. And there's, there's topographical data, there's demographic data. What we've really worked hard over the last couple of years to build is a system that is extremely robust and data pipelines that are automated. So at this point, you know, we, we are using the data sets that are absolutely critical to produce this sort of preliminary analysis that a developer or builder would be used to seeing. But now sky's the limit. Now it's pretty much whatever data set that we can throw at this closed AI loop, it's going to learn from and it's going to incorporate into its analysis. Tomo,
Speaker 5 (08:55):
Thank you so much for the presentation. There's a like established platform called CoStar mm-hmm. <Affirmative> and offers like very similar services. So I was wondering how are you planning to compete with them? Because that platform is fairly big. It's like over a billion dollars and there are similar platforms like this that banks, you have j l has one, so Right.
Tomas Garcia (09:09):
How does anyone plan to compete with CoStar without ending up in some hot waters beyond me, but <laugh>. But, so the way that I would address that is I would say, you know, we're CoStar is very focused on providing raw data. So they are a very large source, a very good source of commercial real estate data. We are trying to move beyond just providing data to our end users. Because what we've seen, we've talked to developers all along the size spectrum. So we've talked to the big guys and we've talked to the little guys. The big guys are wising up and they're starting to do some of this work in-house. I was actually very, very surprised to learn that a lot of the in-house work is still being done through brute force, through very, very large teams of folks who are basically underwriting areas by hand and mass.
Tomas Garcia (09:47):
Some of the larger developers have actually, you know, my joke started to actually build out their data science teams and try to do this. My answer to that would be, would you rather I, I know how expensive a data science team is because I I have them on my staff. Would you rather hire your own individual data science team or would you rather pay a very nominal fee in order to leverage our, our access to that? So we're trying to move beyond the, just the data that CoStar provides and we're trying to move into the analytics business. You know, in the future maybe CoStar could actually be a potential partner providing us with data that we would then analyze and spit back to their
Speaker 6 (10:16):
Customers. How do you think about the future eventual world where everyone can do this in seconds? Because right now it's a competitive advantage, right? Absolutely. That's part of the pitch, I assume to a developer. What happens when it's not a competitive and it's table stakes?
Tomas Garcia (10:28):
So when you mean by it's table stakes, do you mean so many people are either leveraging this tool or other similar tools or
Speaker 6 (10:34):
Yeah, I mean it's, it's the common SaaS challenge with investment tools is like they pitch
Tomas Garcia (10:40):
Alpha gets decreased. Exactly. Yeah.
Speaker 6 (10:42):
And when everyone has it, it's no longer becomes as interesting of a value proposition.
Tomas Garcia (10:46):
So I completely agree that is, that's a question that we get a lot. It's one of those things where I kind of liken it to the stock exchange, right? Where now everyone has access to literally trades by the second, by the millisecond. There are literally hedge funds that pay for physical location closer to the stock exchange so their trades processed just a little bit faster. This is the type of tool that once it's out there, once the genie's outta the bottle, you can't take it back. Once your competitors start using this platform, you will have to start using this platform, right? Because you will need to keep up with technology in some form, whether it's this tool or a competitor's product. You will need to start leveraging big data AI analytics in your real estate development. It's just a matter of time and that competitive advantage will go away.
Tomas Garcia (11:25):
The early movers will be the ones who will benefit the most from it. But at the end of the day, if you're not using this tool or a similar tool, it's going to be very, very difficult for you to compete in the new market ahead. I think that's actually a lesson on AI and, and big data for everyone in the audience from a real estate perspective, because I was terrified when I first started doing this kind of stuff, and now it's just kind of my, my everyday thing. And that's something that we work a lot to educate real estate professionals about the coming big data and AI wave. It's very, very important to be ahead of the curve on this one because it is coming, it's here to stay.
Speaker 7 (11:54):
All right, thank you. So one from the the audience here, what data did you train your machine learning model on? And I wanna add to that, a big part of this looks like it's construction costs. So how are you getting intelligent construction cost data?
Tomas Garcia (12:03):
So cost data is, I'm unfortunately going to have to deflect and say that that's a trade secret. 'cause We've worked very, very hard to try to get accurate construction cost data. So we initially started off working with a couple of the providers that are out there that everyone's probably familiar with that are offering construction cost data that's based on sort of survey based or things like that. Now we've actually built an in-house engine that is leveraging a lot of different alternative data points in order to arrive at a, an ac more accurate construction cost data figure. That's actually not live yet, that's launching in the next two weeks, but our early users are very, very excited about it and raving about its accuracy. The other thing that I would say is from a builder's perspective, you know, you can view our products pretty easily as a normalized underwriting, a normalized view of the real estate market, right?
Tomas Garcia (12:45):
Everyone's got the same cost of capital. Everyone has the same cost of construction, but we know builders know their costs better than than we do, right? Sitting here in, in, you know, data land. But at the end of the day, what's important is that we are producing a ranked order of the future value of each property. So if your costs are less, that's great. A good project is gonna get better. If your costs are more probably not great, but at the same time, you know, a bad project is gonna get just slightly worse or a good project's gonna get slightly worse in that sense. So at that point I would say it doesn't really matter, but you can always input your own construction costs into our system. Everything's live updates flawlessly, so you can really quickly see how a project is tailored to you. Okay. Great.
Speaker 7 (13:23):
Time's up. Thanks Thomas.
Tomas Garcia (13:25):
Thank you.
Speaker 1 (13:29):
Thank you for listening to the Housing Innovation Alliance podcast. We invite you to learn more about pitchfest and let us know if you are interested in participating in the next cohort@housinginnovationsummit.com.