The Future of Homebuilding: Half-priced Hamptons

Predicting Our Future is a podcast about the next revolutions in technology, as seen through the eyes of serial entrepreneur Andrew Weinreich. Below is an edited excerpt from Episode 2: Half-priced Hamptons. Listen to the full episode here.

Modular Homebuilding

In the Hamptons, Seattle, San Francisco, Los Angeles, and a number of other major cities, it’s now possible to build a beautiful modern home modularly for dramatically less than the cost of building with local contractors. What follows are interviews I conducted with CEOs of leading companies that will build homes in those locations.

Cocoon9 & Ed Mahoney

One company that will build you a small high-end modular home or office on the East Coast is Cocoon9, the brainchild of Chris Burch. Chris Burch is famous in entrepreneurial circles. He was the Co-chairman of his wife’s phenomenally successful retail line, Tory Burch. Some of his other high-profile investments include JawBone, Voss Water, and BaubleBar.

Chris' focus has always been on creating a high-end brand for products he thought could be differentiated in the marketplace. For his new company Cocoon9, he told the NY Times, "[T]he goal was to create a thoughtfully designed product that is simple and elegant and can be used for many different functionalities." I spoke to his Co-founder, Ed Mahoney, about Cocoon9’s modular aspirations.

"What Chris wanted to do was essentially . . . take a container and make it a home. Basically, something that could be, what we call, ‘plug and play.’"

Ed Mahoney: "What Chris wanted to do was essentially . . .  take a container and make it a home. Basically, something that could be, what we call, ‘plug and play.’ Something that could be deployed in a very short period of time. But most importantly, a luxury experience."

Cocoon9 began by manufacturing in China, but has since moved production to New Jersey.

Ed Mahoney: "Our cabin is $225,000. And our C-Lite, which is our smaller unit, depending on how you set it out, it could be as low as $75,000, and it could be as high as $95,000. . . . We have two styles. The larger one is 40 feet long, 12 feet wide, and 10 feet tall. . . . At the end of the day, it's 480 square feet of living space. We've got a smaller unit that’s 20 by eight by nine, which is 160 square feet." 

They are currently working on hospitality deals where they can sell their modules in bulk. 

Resolution: 4 Architecture & Joseph Tanney

Resolution: 4 Architecture is another East Coast company building modular homes on the East Coast. You know a firm is serious about modular building if they have a coffee table book. Joseph Tanney’s firm occupies the 19th floor in a pre-war building on the West side of 28th Street in Manhattan. I thought the architecture of the building was somewhat ironic, when you think about the sleek modern work that Joseph does. If you’ve ever been to the Hamptons and you’ve seen a $10 million modern home in Montauk, there’s a decent chance it was built by his firm. 

In Joseph’s conference room are piles of paper and books for his research – all on the topic of prefabricated housing. From his research, he has created his own framework for thinking about the space. Joseph was not a fan of the prefabricated kit approach to building homes. He recognized the inherent advantages of prefabricated kits over modular homes in the flexibility it afforded the builder. But he also recognized that the more you build in the factory, the more money you can save on the finished product.   

[Joseph] recognized the inherent advantages of prefabricated kits over modular homes in the flexibility it afforded the builder. But he also recognized that the more you build in the factory, the more money you can save on the finished product.

Joseph Tanney: "The modular homes on our website were built between $100 and $450 per square foot. For current pricing, we recommend budgeting between $300 and $400 per foot. If our clients are building in the Eastern end of Long Island, we recommend budgeting between $350 and $450 a foot." 

Andrew Weinreich: "And how would that compare if they were using a local builder, instead of a modular approach?" 

Joseph Tanney: "In the Hamptons, for a $400 per square foot house that we do in the factory, it’s $600 to $800 per square foot built on-site, when you compare apples to apples."

It turns out Resolution: 4 Architecture was able to achieve significant cost savings even without owning or operating the factory that was building their homes. 

Joseph Tanney: "Currently, the factory that's built the last 30 or 40 of our homes here in the Northeast has been Simplex Homes out of Scranton, Pennsylvania. They've been providing us the best product and the best service and the best price so far." 

Simplex Homes & Pat Fricchione

Pat Fricchione is the CEO of Simplex Homes, and he struck me as the type of guy you’d want to do business with. Straightforward. Honest. Old school.

Pat was putting out 400 to 500 houses a year in his factory, and doing it with a traditional assembly line of people. I wanted to know what it would take to build 4,000 to 5,000 homes a year, and here’s where it became clear that there was a chicken or the egg problem: how do you build massive demand based on a significantly less expensive product when you need the massive demand to fund an expensive manufacturing plant? 

Pat Fricchione: "If you come into our plant, I think most people would be amazed about what's going on. It's a beehive of activity. But they're also a little surprised that there isn't a lot of automation. And a reason why there isn't a lot of automation is the fact that everything we do is so highly custom." 

The model of a bleeding-edge architectural firm working with a factory that has historically constructed lower-priced homes seems to be in vogue.

The model of a bleeding-edge architectural firm working with a factory that has historically constructed lower-priced homes seems to be in vogue. I found other New York architects working with different Pennsylvania factories to build their high-end homes. But it seemed almost nobody wanted to tackle the challenge of building a home in one location and transporting it to another region of the country. 

Connect Homes & Jared Levy

More than any other reason, the issue of transportation is why modular building has tended to be a regional business. Most factory-built homes are delivered from factories that are within one day’s drive of their final destination. Jared Levy, CEO of Connect Homes, a modular builder based in Los Angeles, characterized the modular industry this way.

Jared Levy: "We looked at the prefab industry, and what we saw was that the prefab industry overall is regionally constrained. Everyone in the industry uses these really big modules because, on the one hand, they want to maximize the work that gets done in the factory. And the way the industry is set up, they don't really care what happens once it leaves the factory. So industry-wide, people uses modules that are 12 to 15 feet wide, they're up to 60 feet long, they're 16 feet high. They require all these special permits, special routes, special cars, special trucks." 

More than any other reason, the issue of transportation is why modular building has tended to be a regional business.

At Connect Homes, Jared’s answer to the transportation problem is to build modules that don’t exceed the size of an intermodal shipping container. 

Jared Levy: "Our modules basically took the DNA of a shipping container and we put it into our housing modules so they can, in essence, plug into that network. They can be put on trains, they can be put on boats. So if they want it to go overseas, it can be put on a boat, just like a container boat. If they want it to go cross-country, it can be put on the rail. But the key in this whole equation is that, at that size, when you're only eight feet wide and 40 feet long, even on a truck, it's cheap to ship cross-country." 

Does this mean we can expect modular mega-factories in the future that can transport homes anywhere in the world? It’s unclear. Connect Homes has perfected transportation for their distinctive designs. But this means accepting certain design limitations. For example, their ceilings are no higher than 9½ feet. Will others be able to adapt still more extensible designs to intermodal shipping constraints? Only time will tell.

Blokable & Aaron Holm

Accelerators and technology incubators are getting excited about startups that are focused on prefabrication and modular building. Jason Calacanis’ LAUNCH Incubator is helping to develop Blokable. Blokable is yet to launch their first building, but their approach seems very similar to Connect Homes in their construction of structural modules that are then shipped to the building site and connected to form a home, or a community of homes. Their target market is the development of connected urban communities.

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