CEO Steve Glenn on Integrating Design, Sustainability, & Efficiency in the Prefab Custom Home Market

As CEO, share Plant Prefab’s mission and the work?

Our mission is pretty simple: at the high level, we’re trying to create a better world through design. More specifically, we think there's an opportunity to dramatically improve the built environment by constructing architectural homes in a more effective way. Homes that are far more sustainable with respect to how they operate from an energy and material resource standpoint and that are healthy for inhabitants. We're trying to make single and multifamily homes more responsibly, faster and for lower cost.

You've been investing in and working on the custom prefab home market for years. How has this market evolved?

Prefab has been around for a long time. Decades ago, prefab in the US coalesced around mobile homes or HUD code. They were/are limited to mobile home parks because they can't be permanently attached to foundations. Lately, there has prefab has been used to address a much wider segment of the housing market.

So why have conditions changed recently? We in the US are experiencing conditions that other parts of the world have experienced for decades. Since the downturn of 2008 to 2012, there has been an unprecedented increase in the price of land, materials, labor, and even permit fees. The net result is it's gotten even more expensive to build, and demand for housing has greatly increased since the downturn, increasing the disparity between demand and supply, particularly in cities. So people are seeking more efficient, predictable ways to build. Fortunately, at the same time, the investment community has realized that there is trillion-dollar industry ripe for disruption. There's been a large and growing amount of venture capital available to fund startups like us who are focused on different housing segments with new, innovation technology and solutions.

Long cognizant of the potential role technology could play in revolutionizing residential home construction, how has that market opportunity evolved over the last few years?

I'll just share my journey a little bit because I think it'll inform how we got here. I wanted to be an architect growing up. I learned during a Design Program in college that I had neither the talent nor temperament to be an architect, but I learned about developers, and one in particular.  Jim was the first social entrepreneur to whom I was exposed. He turned me on to this concept of companies that wed profit and purpose. I was in school at a time when “mission driven” business wasn’t yet a popular term/category. Rouse also helped me to appreciate the fact that if you care about the quality of the built environment, there are people like developers who can facilitate great design because they hire and empower great architects. After a career in startups, I felt like it was time to get into real estate and my thesis for business came very quickly. I concluded that there is a large and growing number of people who, like me, care about design, health, and sustainability in the products we/they consumer, but the production home builders weren’t creating homes that worked for us.

So we started LivingHomes in 2006 and our formula was simple: Get great world class architects, integrate a LEED Platinum level environmental program, and use outsourced factory production to build our homes. Why outsource? I came from technology, an industry that realized some time ago that manufacturing was a different business from consumer products, so I didn't want to own factories. Frankly, the one and only advantage of starting a real estate company a year-and-change before the worst real estate downturn since the Great Depression was the fact that the factories to whom we outsourced our work weren't busy, so they took our projects.

During our first 10 years, we worked with 10 different factories, five of whom closed during the downturn. It was never easy working with them since we were asking them to build architectural, sustainable homes that were very different from the mobile homes they mostly built.   Post-downturn, we got very busy and we had to figure out a better way to make our homes. I still didn’t feel like we should have our own factories. We speculated that if there was a company set up to do custom, high quality, sustainable homes, and they had the right technology and processes, it would not only address our needs, but it could also address the needs of hundreds of thousands of individuals and developers who want a more time and cost-efficient way to build their custom architectural projects.

As we researched the opportunities, we realized there were two big segments here. Big projects, 100 units and above, which are served by national and international general contractors (GCs). And smaller projects, 10-20 multifamily units, individual homes, etc., that are served by local GCs. This smaller segment is a $50 billion+ market —and it's 100 percent fragmented.

We realized we had an opportunity to create the first national company to address this opportunity so we spun out Plant Prefab six years ago to address it. A year later, it was clear this was a bigger business opportunity so Plant acquired LivingHomes. Plant designs and manufactures single-family and smaller multifamily housing. We work with any architect on any design and we've got some great technologies to build more efficiently. Two factories are open with a third on the way.   That new factory will be our first automated facility and we’ll be able to build our components far faster and more cost efficiently than we do today.   This will enable us to extend our geographical reach, as well as the type of housing products we serve.

Elaborate on your company’s “Plant Building System” and how it distinguishes your prefab work from most others.

There are two major building systems in prefab: modules and panels. Both have certain advantages and disadvantages. Modules are great because you can work in parallel to the site work. As these homes are being constructed at the factory, site work is happening, so you can save substantial time. A disadvantage is that those modules are really expensive to ship. Also, each one is structurally complete, and so when you stack them, there’s a lot of redundant structure.   This can be a challenge for multifamily developers, who, in general, want to max out the number of potential units, as well as the floor height and unit square footage. Redundant structure can make that more difficult.

As a result, multifamily developers often use panels.  They have less redundant structure, they can solve design problems more elegantly. Panels ship flat, which substantially lowers shipping and install costs. The leading panel technology is called a SIP, a Structural Insulated Panel. That's essentially framing and insulation, but you still have to do electrical, plumbing, cladding, drywall, paint, millwork, tiles, and appliances. So, all that work shifts back on site, which makes it vulnerable to traditional site cost, weather, schedule challenges.

So we designed and patented a new kind of panel.   We call them Plant Panels™.   They integrate electrical, plumbing, and finish work. We combine them into specialized Plant Modules for kitchens, baths, utility cores -- the places in the home where you have expensive specialized labor and materials. With the Plant Building System (PBS), which is unique to use, we offer greater design flexibility, cost and time efficiency, and transportation efficiency. We introduced PBS last year and it’s been an overwhelming success for us. Every project we’ve built since January last year is based on PBS, and every project is a smaller number of Plant Modules and a much greater number of Plant Panels. The modules covering the more complex space and the panels covering the places that are less so.   This system is unique to us.

On finding construction efficiencies in design and engineering, elaborate also on the software and technology involved, and how the latter is likely to evolve?

To build any type of building, new construction, there are three major phases: design, permitting, and construction.  We're focused on the two phases that we believe one can reasonably make more efficient: design and construction.

We have a number of important initiatives to make design and engineering more efficient.   Here’s one.    We developed a tool that works with CAD Works. We create a virtual SMEP (structural, mechanical, electrical, plumbing) model of every home we build. This gives us three things.

One, we're able to assess constructability issues virtually. Oftentimes in construction, when you actually start doing work, you find issues with plans that are not fully resolved. So, a Request For Information (RFI) goes to the architect or the structural engineer to resolve and that can hold up work until you get answers. We're issuing our RFIs digitally before we even get to the floor, so this reduces delays.

Two, we get totally accurate BOMs (bill of materials). We've got great margins and frankly, they're better than best-in-class. One of the reasons is that construction waste is a huge issue. That's a cost issue in real estate, but it's also a sustainability issue.

The third thing we get is CNC instructions that drive automated equipment. Currently we have CNC saws, so it precisely cuts the different structural elements we need. In the new factory, it will drive a much bigger part of our production process.

A quick pivot to a TPR Rorschach test: I say 3D printing, AI, and supply chain—and you respond how?

3D printing will be important in some areas. I think it'll be a nice niche, but in a $400 or $500 billion market, even a niche can be a multi-billion dollar market. Essentially what 3D printing gives you is your framing – and maybe insulation and some finish – like a SIP.  It doesn't give you your electrical, plumbing, windows, doors, or millwork, all of which you need to do in the field.

The other issue with 3D printing is some are using concrete, which is really bad from a sustainability standpoint. Every pound of concrete produced is a pound of carbon emissions. Some companies are experimenting with new kinds of compounds, and they're expensive. I think we'll see some important work here in the future, but I don't see mass adoption of concrete framing for many building types for which we're currently using wood or steel.

 I'm most interested in AI as it helps to figure out the actual performance of homes in the field with respect to energy, water-use, and indoor air quality. Certainly, we will start to see greater robotic adaptation on the manufacturing side, and we'll be doing that with our next factory. AI is integral to figure out what can be done smarter and more efficiently.

We're trying to get better at integrating with our supply chain so that we can have a more efficient way of ordering. Hopefully, a smaller number of materials are delivered when we need them, and they’re efficiently tracked. Frankly, one of the other things that we get out of our virtual engineering system is a barcode for each individual component. We want to be able to start tracking from the minute we order every component through delivery and have an online database accessible for our workers, general contractors on site, or homeowners with any information they need.

In terms of your marketing, what advantages do you offer your custom clients?

We are always faster and always more predictable than a traditional, site-based approach. When we miss schedules, it's in days or a week, not months. We can be lower cost, but this will vary based on what you’re doing where. If you're doing a project in a place that has crazy labor rates and labor availability, it's probably going to be lower cost with us.  Our new automated facility will allow us to be even faster and more cost efficient.

Where now are the national home and multifamily builders putting their money in terms of prefab technology?

There are really only two big home builders that use prefab at any scale, and that's NVR and Toll. Both have their own factories and are making different components, trusses, walls--essentially their own SIPs. None that I know of are yet doing modules or any more sophisticated kinds of. Lennar is pretty active on the investment side with their own investment group. They’re also a big LP of Fifth Wall which focuses on PropTech.

To conclude, have you experienced market resistance to prefab? If so, how have you overcome this resistance?

We have not. But we're actually doing something different from many existing prefab companies. There are some prefab companies who offer standard homes they don’t modify, and they do their own design and construction.   We’re targeting a different market: the custom market, which is mostly an urban infill market.   And in cities, you have lot sizes and zoning that can vary neighborhood to neighborhood, so you’ve got to be able to create custom solutions, regardless of whether it’s a single-family home in West Hollywood or a 200 unit condo project in downtown LA.

We think the tens of thousands of architects around the country understand local building vernacular, materials and permitting processes better than we could ever, so rather than disintermediating them, we want to empower them to build their great designs more efficiently.

How do you do this them? You need to have a more robust building system that can accommodate different sizes, design aesthetics, finishes, and fixtures. Frankly, it’s a harder problem, but there’s a big upside because, again, cities require custom solutions. Also, unlike cars and iPhones where we will accept more limited standardization, in the homebuilding space, there seems to be a greater desire for consumers to do a higher level of customization to meet their family’s lifestyle living needs.