Innovation in Off-Site Construction with the Co-Founders of MOD X

Calling All: Innovators, builders, financiers, off-site and service providers –this one's for YOU!

WHERE is #Innovation happening in #OffSiteConstruction? And where is the industry responding to #RealNeeds (#HousingShortage #Sustainability #JobCreation)

The Co-Founders of MOD X share what they consider "mature off-site ecologies" and explain how they determine what is innovative in off-site construction.

Find Ryan Smith and Ivan Rupnik on LinkedIn and at www.modx.network #modxnetwork

Many thanks to our partners at the University of Denver for their editing and post-production talents, specifically Lija Miller and Lisette Zamora-Galarza.

The University of Denver Franklin L. Burns School of Real Estate and Construction Management, teaches the full life cycle of the built environment. From integrated project leadership skills to a cohesive understanding of the built environment ––experience the only school of its kind!

"Upbeat Party" is brought to you by Scott Holmes, songwriter from Free Music Archive. 

Transcript

Eric Holt (00:05):

You're listening to the housing innovation Alliance podcast in partnership with the university of Denver's Franklin L burns school of real estate and construction management. The housing innovation Alliance is a nationwide community of game changers driving the future of home delivery through crowd accelerated innovation. We represent thought leaders from dirt to dweller with a focus on the production builders business environment.

Dennis Steigerwalt (00:34):

Hi, this is Dennis Steigerwalt, president of the housing innovation Alliance and I'm here today with the cofounders of mod X, Ivan Rupnik and Ryan Smith. How are you doing today guys?

Ivan Rupnik (00:44):

Great. Thanks for having us.

Dennis Steigerwalt (00:45):

On today's show we're going to talk about offsite construction hotspots and we're going to link that back to the recent launch of our offsite heat map. Do the housing innovation Alliance. Before we get into that, I want to talk a little bit about Mod X and if you can just give us some background on this organization. I know it's been around for a bit.

Ivan Rupnik (01:00):

Well, so monarchs has grown out of a long collaboration between myself and Ryan and other folks that are part of our network. So we go and try to find innovation. In the industry, wherever it's happening and try to contextualize it. And we also work directly with companies providing more specific either knowledge or solutions. It's something between executive education and consulting work.

Ryan Smith (01:20):

We are fundamentally professors. We do research and so we bring that to bear in our work, in working with companies. Part of it is try and connect folks like yourself, Dennis and others to one another. So there can be business to business development occurring through a network. We offer virtual exchanges, so exchanges, but also live exchanges and we take folks throughout the world to learn best practices.

Dennis Steigerwalt (01:42):

There's a lot of similarities between your community and what we're trying to do, right? Our goal is to go out there, we identify, prioritize the innovation happening in the marketplace with a specific focus on the production home builders business environment. We share that, that same goal of driving awareness and creating the opportunity for the private sector to constantly challenge itself and bring these opportunities forward. So let's, let's just talk a little bit about where you're seeing some of the, you know, the most interesting things happening in offsite construction in the U S today

Ivan Rupnik (02:06):

we started by actually focusing more broadly and globally on hotspots more, most directly through, I work for NBI for the modular building Institute. And so we identified places like Sweden and Japan, which have been longterm hotspots as well as near places like Poland and the U S we started by focusing on really the Heartland of offsite construction in the U S which is the Northeast, particularly places like Pennsylvania, but also New York city. There's some innovation going on in New Hampshire and that's, that was probably our for our first exchange was built around that established network. And then more recently we've really shifted focus to where we're finding a lot of really interesting innovation, which is both is the Pacific Northwest and now also particularly in California and we're both the Bay area and Los Angeles are really seeing a lot of interesting business models, approaches, uh, public private partnerships.

Dennis Steigerwalt (02:52):

This referenced to overseas is something that happens often, right? You've, you've taken several trips over there with your organization. This is one of the areas of between our two organizations. I think being able to link up some of the, you know, the senior decision makers in our community and have them participate in these trips with you would be extremely beneficial. The U S market has been slow to adapt some of these ideas. What do you think some of the biggest barriers to success have been?

Ivan Rupnik (03:16):

One hot topic now, which we're actually seeing a breaking the barrier is communication and openness of sharing IP. And so actually it's something that we're seeing with the unfortunate situation of Kobe is that people are more willing to share everything we're having. We're sharing our ideas. Um, and this, this kind of sharing culture has not been typical in the U S even though we have the largest offsite industry in the world. That's been really our goal is even just changing the culture around what, respecting obviously investment in IP and recent in development. And at the same sense trying to develop a place, a comfortable place where both industry but also the public sector. And the different aspects of the industry can start to come together and feel more comfortable understanding what they really need to protect and as an offsite industry with the biggest competitor being not other offsite companies but being conventional builders on conventional construction.

Ryan Smith (04:04):

When Ivan and I ran a study a few years back to try and identify how the offsite market could grow, we identified four major pillars. This is a study called the five and five. It was to try and grow the industry to 5% of the market in five years. What we found in that is all around this notion that I haven't shared about sharing and willingness to share and those major areas are number one, we identified if we're going to move this industry forward, we need data and there's not a lot of data in this industry. How much is being produced? What are the barriers, what are the challenges, what are the difficulties? Are they real or perceived? We've been working with a number of groups to try and find what are the methods to collect that data and what are the ways to then disseminate that data.

Ryan Smith (04:47):

Second, our partnership you've recognized and us in your housing lines, this is what you're motivated and mission is. We have a similar mission, which is you've got to develop these network networks and partnerships in order for that sharing to happen and connect people that can help one another in the industry. The third area, our standards, we do believe that in order to move this industry forward, you have to have some baseline standards just like other industries do. That's not to take away competitiveness. That's actually to instead of competing against one another, they are now competing against traditional construction as a group and so if you have some standards then that allows that to happen. Then the last one we identified was we call three CS, which is competence, capacity, and capability. Really building the capability of the manufacturers, the fabricators and those who are installing these products wholesale, and so we're dedicated to that kind of education.

Dennis Steigerwalt (05:37):

We see this within our community quite often. You know, if you hold up a ballpoint pen and pass it around to each of the members of our community, they might be 30 different names for that pen. That right there is a great, a great example of some of the inefficiency that we take this opportunity to work out. I want to focus on the partnership piece. Certainly dealing with a tragedy right now of what's happening with covert 19 and and the impact it's having socially and what is doing economically, but there there are some shining lights coming through this, right? There's a silver lining to this. I've seen a lot with the relationships that are being developed not only with the customers, between businesses and their customers, but across the value chain. We're starting to see people kind of look beyond themselves and really truly reach out to help other businesses understand the impact they have on the entire ecosystem. I'm wondering if you have any thoughts on kind of how this more transparent operating environment leads us to perhaps more collaborative frameworks where vertical integration isn't required for success like you might see in some of these hot spot markets, but it actually allows us to create more interesting or creative partnership models that allow us to deliver these solutions in the U S market?

Ivan Rupnik (06:40):

Well, it's an important concept, Dennis, that you just brought up is that standardization, vertical integration. They're not mutually exclusive and they you can adjust the lack of one with the exact lack of the other. That even, that's something that I think is very important for the industry to understand. We've seen both actually contributing to growth and successful markets. We are seeing that whether it's the industry lad or whether it's public sector lab, there's just a call for standardization because standardization allows for a more consistency in production and allows for in a, in a pinch basically for us to respond to issues like this. This is why for years FEMA has turned to manufactured housing because it's a standardized solution when we haven't merged with other kinds of emergencies. But that solution has proven to have other problems. In fact, those problems that come up in previous catastrophic weather situations, and we're seeing coalitions again, bottom up coalitions, but we're also seeing a HUD trying to get involved with trying to see we're driving.

Ivan Rupnik (07:32):

We're seeing other other entities getting involved and they're all saying that something that, again, we've seen abroad longterm producing results in the industry from a unit, purely economic point of view is that standardization is a, is an important part of the beginnings of competition, not the end of competition. It's real and it's the beginnings of innovation, not the end of it. Innovation. It's really when you have a common platform, you're able to both assess from an economics standpoint, but you can also really assess what is worth protecting, what is worth patenting, what is actually innovative and what's not.

Ryan Smith (08:00):

When we talk about standardization, immediately product manufacturers are thinking, you're going to tell me how to build a panel or a module or a product that I am going to supply to the market. We're talking about some of that. I mean maybe some key details or specifications around that. We're also talking about standardization with regards to things like procurement models, contracts, processes, so that then those manufacturers of those products can compete head to head on publicly procured processes like from cities or governments. And so that's the kind of standardization to increase competitiveness and be able to compete with the traditional construction sector.

Dennis Steigerwalt (08:38):

As we look at health and wellness in the business environment. And we think about the sensitivity around the various interactions that take place. I mean I remember reading one time that you know, the typical community requires a thousand different transactions. So that's a lot of face to face activity and the traditional business model of negotiating everything in person would put a lot of people in potentially in harm's way software we're at today. So I'm kind of curious if you think that this will push us closer towards more offsite production as a result of you can more easily monitor your workflow and the traffic and your team and even provide them with added value benefits such as onsite childcare in a situation where schools are now closed and you know, they need, you know, people still need to go to work to earn their income. So just wondering if you have any thoughts around if this, this is actually something that's going to push us closer towards more offsite production.

Ivan Rupnik (09:25):

Well, as academics we love to speculate. Uh, one thing just to keep in mind is I think all of the issues that we were facing before the epidemic are not going to go away. So the shortage of is probably gonna get worse. Shortage of housing. So people can't really currently either they can sequester because we've made, this may not be the first and will likely not be the first pandemic that we experienced. Not only are they not able to sequester, but the housing that we built tends to not really even be designed around this kind of lifestyle. Even live work is a relatively still new concept. You know, people are finding that their welling spaces are not really designed for that. We know that a lot of tech companies on the other hand have looked to offsite construction specifically because they find conventional construction to be a difficult framework within which to integrate the smart home solution. I think we're getting a pretty good glimpse of what might happen and I think it's a good way to start to at least be able to forecast where is the market and where is the industry ready to go and then who is going to push in that direction.

Ryan Smith (10:21):

I don't think we're going to see things pivot in so much as accelerate what was already happening. If there were issues in the, in the market before, we're going to see those things accelerated. It's going to happen faster. Offsite was one of the solutions to help solve some of those accelerated problems. I think what we're, uh, speculating is that offsite will take on greater meaning and uptake and demand as we come out of the covert 19 tragedy.

Dennis Steigerwalt (10:44):

Yeah, no, I, yeah, I agree with you. So I think one of the things that we're hearing in the community a lot is that there's many ideas that have been talked through and even roadmaps developed, but they've been placed on the back burner. And what's happened over the past two to six weeks is that these items have become, have come front and center digital transformations for some organizations setting up a remote workforce, looking at some of the inefficiencies just in their overall business processes. Now I want to talk specifically about some of the MNA activity, some of the roll up activity and consolidation that's taking place inside our industry. So, you know, you look back at the LPs investment in Integra a few years ago. More recently we have BFS acquiring Rainey construction solutions out of Florida. We have the Pulte and ICG acquisition. So I'm just kind of curious what trends, you know, do you see this trend continuing? Is there any insight you can offer, any perspective you'd like to share with us? You said you'd like to speculate, so I'm really want to give you a long leash on this one. Go, go for it.

Ivan Rupnik (11:42):

Yeah. Well we're seeing, I mean again we've seen a number of different business models emerging so we've seen, well there's, there's Katara which is a unique condition so far, I mean, but not unique in other industries. Just unique in construction which is, you know, startup was a lot of capital. Trying to do a little bit of everything. We've also seen established companies take the leap into capacity and capabilities. So we always like to talk about Bensonwood and New Hampshire. It's near my neck of the woods, but also a company that's been around for 30 years has a certain reputation and craft that has made an investment into a very high tech line and how they finance that as fascinating to us. We're also seeing again in different kinds of partnerships, developer driven growth so that develop more vertical integrated transformation downstream, upstream, so from the developer developers moving into building and manufacturing.

Ivan Rupnik (12:31):

And then we're also seeing from the other side of the supply chain, we're seeing building products, companies with a much, much more robust cashflow than the construction companies or even modular manufacturers are used to looking to consider moving downstream either through developing new products or even through developing partnerships. And then we're even seeing construct. So I think we're also seeing bigger GCs moving into the manufacturing side or either through partnerships or through acquisitions and all of those. We're seeing consolidation again, both in terms of capacity capability across the supply chain. It's starting to become, although it's not clear which of those models or maybe they're, they're all can survive, we're actually surprised to see manufacturers who aren't either changing or considering a change.

Ryan Smith (13:11):

We have seen companies in places like Japan and Sweden that have these sort of supplier relationships. But an interesting model that we've seen is that you have in the U S oftentimes a developer driven project who then goes and hires a design team to design the product and you have general contractor that comes and builds it and then it's occupied and the manufacturer is of the panels modules, et cetera, is procured in the U S and these other countries that the model that's has been developed is the manufacturer becomes, in many cases they single point for turnkey or the developer themselves has a fully end delivery process. We're seeing that model becoming much more common in the United States now.

Dennis Steigerwalt (13:54):

It actually seems to much of my experience with offsite construction in the U S to date until you overcome the learning curve. If you're not willing to take that fresh look at adds more risk, right. Where you're, you're doing as much as you can to take that off your plate and hand it onto the next delivery chain.

Ivan Rupnik (14:06):

Yeah, it's very straightforward. The idea of asking for more capital earlier on in the process without guaranteeing the outcome is just crazy. Why would we've never seen that. That is something that only happens in the U S the idea that the separation between developer, manufacturer, builder, owner, operator, it doesn't happen anywhere else. No one would be crazy enough to lend you money, go make a high, high quality product, especially a very high quality product with robotics and all kinds of technologies and then B then say, well the person making it isn't really going to be involved in the assembly and then that person's not really going to be involved in even the sort of checklists and ensuring quality control. No one would ever invest in that kind of business. I mean we, when we talked to our colleagues abroad, they don't really understand. That's just a no brainer. And if you talk to industries in the U S it's no brainers.

Dennis Steigerwalt (14:49):

If there's a couple of things I look at when I talk about off off off construction with people in the U S you know I talk about, you know, you look at the cost savings, the schedule savings that are there could be achieved. I find that people are typically very upset when they find out that it's not less expensive to build off site or that a prefabricated home will be the same, if not more. Talk about the quality and the quality control and some of the standardization of the factory and that approach. The way the U S market has evolved that evolved this way for a reason because of the availability of resources, the availability of labor, local regulation, but when you look at the opportunity to potential to improve and scrape away some of these inefficiencies, I think our chip away at them. I think this is where we can see some real gains in this area and it kind of going back to your five for five models, you're both professors at universities on different sides of the country. Kind of when you're speaking to your students, what are you telling them about where we are today, globally and where we are as an industry? I think in some ways it's our job as professors to prepare our students for a new world and we see an opportunity to change the construction industry for the better. Of these VR students. So when I talk about the construction sector, I say, Hey, it's broken. You can be a solution to that problem. Here's a new way to think about it. They can be a vehicle, an agent of change.

Ivan Rupnik (16:06):

Building upon what Ryan said, also, I teach mostly architecture students. So, um, there's always been an oppositional relationship between architects and contractors and developers and it's, and I, and actually doing this research made it clear why, and it's because we're set up to be, there's an opposition. It's to build it through the system. It's what costs. And it was, it's one of the things that drives costs at the end. Also, regulators, inspectors, I'll say construction just simply because a lot more decisions are made early on, requires a much more intelligent and much more in a better funded design process early on. A lot of decisions have to be made, which means that for architects, that sounds on that firsthand good. But it also means that for Accenture students, since that's what they think they're learning, on the other hand, it really requires them to understand business better than they usually do. Technology better than they usually do. And they need to be used to being part of a team as opposed to being the lone Wolf, whether it's the artist or the innovator. And they really need to be working with a much, much wider group of folks early on.

Dennis Steigerwalt (17:01):

It sounds like you're both very optimistic about where the industry's heading and you're able to work that into your conversations day to day with your students, the universities that you work and that, that's fantastic cause that's one of the things that we've tried to do as a community is really look at the next generation of industry leaders. Well gentlemen, thank you very much for your time today. It's been a great conversation. I'm sure we'll be reaching out in a few months to check back in and, and see what kind of progress you're making on some of these different projects. Is there any, uh, any parting words you'd like to share with the audience before we cut out? Yeah, thanks for what you're doing, Dennis. Thank you guys. Much appreciated.

Eric Holt (17:37):

On behalf of the housing innovation Alliance and the university of Denver. This is Dr. Eric Holt. Thank you for being part of our journey. This is where innovation calls home. [inaudible].