This Week in Startups - Elizabeth Holmes Theranos fraud trial kickoff + Blokable’s Aaron Holm: how to scale housing | E1274

Episode Date: August 31, 2021

First, Jason covers the kickoff of Theranos founder Elizabeth Holmes' fraud trial (1:48). Then, Blokable Co-CEO & Co-Founder Aaron Holm joins (16:37) to discuss solving the housing crisis, the Phoenix Rising project (27:05), why vertical integration is the key to making modular affordable, green materials (40:53), why LA's homeless housing project went way over budget (46:46) & more.

Okay, we've got a great show for you today. We're going to talk about the Elizabeth Holmes trial. Jury selection has started today. And she is once again manipulating the public. And apparently she's going to try to manipulate the jury with her lies and deceit that got her in trouble in the first place. That's my opinion. And I'll dive into it at the top of the show. After that, Aaron Holmes is with us.

He's working on blockable. He's trying to solve for affordable housing and market rate housing by building. modular units inside of factories. He previously worked at Amazon. It's a fascinating company. I'm an investor, and you're going to love this interview about the wider issues around.

Why can't we build more homes? Stick with us. This week in startups is brought to you by Dell's XPS products were built with entrepreneurs in mind. With increased mobility and longer lasting battery life, you can stay productive on the go. Sign up for a free IT consultation and a 5% off coupon at

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growing food brands in the U.S. Everything real foods makes is low in carbs, high in protein, and made from real food ingredients, from enchiladas to Italian entrees to breakfast and more. Real good foods can be found in the freezer section of your local grocery store, Walmart, or Costco. Okay, jury selection has begun for the Elizabeth Holmes trial today, marking the official start. Let's break down what we know so far. Just for a quick refresher, obviously, you know, with thereinos was a blood testing startup here in Silicon Valley. It was backed by a bunch of weird non-venture capital firms and it had a bunch of people on the board of directors who were old men from military and, you know, senior cabinet positions in politics. It was really a technology

company backed by non-technologists and, you know, with an governance of old white men. It was really weird. And we all noticed that here in Silicon Valley. CEO Elizabeth Holmes and the CEO O Sunny Valwani were jointly charged with wire fraud and conspiracy to commit wire fraud back in June 2018. They were also in a relationship, something I said on CNBC, I might have been the first person to report that accidentally because it was kind of an openly known thing in Silicon Valley.

According to the Wall Street Journal's, Holmes is being tried by herself, not with Balwani. And this is because of the fact that she is now going to claim a Schengali defense that she is being manipulated or she was manipulated. She faces a dozen counts of wire fraud and conspiracy to commit wire fraud for allegedly misleading investors and patients about Theranos's technology. In other words, when you got the blood prick, you were supposed to give like one little drop and they would tell you everything. Turns out they didn't know anything. They were giving wrong results to people. They had to recant all of those blood tests. And they were

also when raising money from investors, according to John Careroux and many people's reporting and witnesses, taking blood samples, and then using a different machine, a commercially available machine, getting the results, putting them back into their fake machine. Crazy. I mean, deranged behavior. Both of them have pled not guilty. And if you want to check our prior coverage of this, there are no story, I really highly recommend episode 828 and episode 617 when I had John Carrioux on the show.

So this is like 600 episodes I had John Carreau on after he wrote the first story, episode 617, and then when he finally wrote his book, which is amazing, he should have won a Pulitzer for the coverage here. I don't know why he didn't. An episode 828. And he, John Careroux is doing his own podcast about this. So you should look that up, bad blood,

the final chapter. I'm no expert on the law. But essentially, when you lie to people and you sell them shares, and you take their money, the money goes over the wire and boom, fraud. There you have it.

And Holmes and Balwani are facing a maximum sentence of 20 years and a fine of $250,000 if convicted. My God, the fine seems. so tiny these days when, and just out of proportion when, you know, this is a $10 billion fraud because that's what the company I think peaked at in its valuation. And they raised hundreds of millions of dollars. They've obviously both pleaded not guilty. Neither one of them have cut a deal, which I think actually is what's going to happen with Elizabeth Holmes. I'm going to

put it out there right now. I think they're going to get two weeks into this trial. And it is going to look so bad for her that I think she's going to cut a deal. Flip on Belwani and Maybe she serves. I put it at three years. This is my, I'm giving you my estimate right at the beginning. I think she serves if I had to set an over under, which is like setting a line and gambling,

that has a reasonable chance of falling either way. I'm putting it at 32 and a half months. I think that's where it comes down for me. No push folks. If she does two weeks or something like that, something funky, we're not counting it. So we're going to do it in full months.

So according to the Wall Street Journal, newly public court record show that Holmes could argue that quote. She was in a decade long abusive relationship with former Theranos president, Ramesh, Sonny, Bawani, that left her under his control. Obviously, she's arguing that she was under his control during the period in which the frauds were committed. Very convenient. Tomes accused Mr. Bawani of controlling what she ate when she slept and how she dressed, throwing sharp objects at her and monitoring her text messages and emails, among other things. Again, all of this is according to court documents obtained by the Wall Street Journal.

And according to that Wall Street Journal article, the newly released documents were filed in court under seal between 2019 and 2020. John Careroux, who is covering the home trial in a new podcast titled Bad Blood, the final chapter, called this the Schengali defense on Twitter. And so, you know, the Schengali defense is, quote, according to Wikipedia, a legal tactic that portrays the defendant as a pawn in a scheme of a greater, more influential criminal mastermind. So the Wall Street Journal also noted that, quote, Mr. Balwani unequivocally denies that he engaged in any abuse at any time, according to newly unsealed filings. The Wall Street Journal also interviewed a forensic psychiatrist named Jason Roof for the article, and he gave the money, quote here, given the complexity of a white collar crime over the span of a great deal of years, making the case that the person throughout each of these dealings was unable to understand the nature and quality of what they were doing is going to be difficult, Rufal. So I mentioned that defense is rooted in manipulation and PTSD can help explain situations where, quote, brief acute episodes to really impair the defendant's behavior.

Brief and acute, I think, are the exact opposite of how you would describe the Theranos fraud. So while this defense, you would want to give the benefit of the doubt to anybody who was, in fact, abused. I think Elizabeth Holmes is a masterful manipulator of people's emotions and minds and is incredibly savvy when it comes to image, obviously cribbing details of Steve Jobs' is, you know, dropping out of college, wearing turtlenecks, using his quotes, mimicking his, you know, behaviors and mannerisms and using that deep voice. This is a completely insincere person who augustrated a massive fraud by all accounts and, you know, just objectively looking at

what happened. And you're going to say that she was the one who's manipulated over a decade and was Balwani there for the entire decade? Because I don't think that that's the case. So what about the time she wasn't with him was, did she, was she actually committing a fraud? And then he came and that it became a bigger fraud. You know, I think this is a hard one to believe. And then there's also the issue of she had a baby right before going on trial, which, again, that's like a third rail to even discuss here. But it's actually been discussed in the Wall Street Journal, John Kerry was first podcast. He danced around the issue.

And people are looking at this saying, she is a master manipulator. That is at the core of what she does and what she did with eranos was manipulate people. And she manipulated them to give her money, to give her business deals. and she essentially did blood tests on other people's equipments or incorrect blood tests that put people at massive risk. This person is deranged to do that to accumulate money and fame, which he was obsessed with obviously and obsessed with having status. This is a seriously deranged person.

Think about it. You would risk somebody's health just so you could receive more money and increase your net worth and to be on the cover of magazines. think about that. Just let it sink in for a second. This is somebody's blood test. This is somebody's mother, brother, son, daughter, uncle, aunt, grandparent, friend, teacher, you know, teammate. This is crazy.

And then to have a baby right before you're facing a 20-year sentence, what does that say? What type of person, male or female, put gender aside here? And gender is, you know, going to be linked to a lot of this because she's putting it on the table here with this Schengali defense. And then she has a baby right before. And this is going to be something where the jury is going to have to take these things into account and say, did she have a baby in order to be more sympathetic? And does she want her mask off so she seems more sympathetic? Now, all defendants have, you know, worn suits and dressed up and tried to present themselves in the best possible light.

I guess that seems fair, right? It would be biased in making them go up there in a jumpsuit because it makes them look by default guilty, right? And we're supposed to have this assumption of innocence and until you are in fact proven guilty in our system. But, wow, you put these things together. I think that this is going to blow up in her lap. I think she's, she is going to meet a different fate when all of this information has been revealed about this giant fraud. And then she goes out and tries this manipulation technique with a jury. I can see this having the opposite effect where a jury member will go, really, how many years were you under this spell of this Schengali?

And oh, you did a 90 minute fireside chat at a conference and he was directing that. And then you did three more speaking gigs. and he was directing those as well, that's the level of this. And I think this then makes you think this person is less sympathetic because they're in fact in the moment trying to manipulate the jury. So then that would be a pattern of manipulation. And again, very difficult to look at a newborn mother and say, oh, my God, you know, she's got a baby and she's going on trial.

Oh, that poor baby's never going to see their mom. They're going to be in jail. That type of manipulation is real. all the talk of Silicon Valley right now and all the talk on all the legal podcast. So I'm no expert on how this actually plays out, but it is super strange. I think if she committed a crime like robbing an equivalent amount of money or even a modest 1% of the money from, you know, somebody's home or done any kind of blue collar crime, she'll go to jail for longer than this white collar crime. And that's really a problem in our legal system. A kid on the corner with a giant bag of weed is going to

get the same sentence as her. Does this seem fair? I think this jury needs to really throw the book at her. We'll see what if the evidence pans out, you know, in terms of what we've already read, I think it's going to be worse. And I don't know why Balwani isn't flipping on her. I mean, that would make sense that he would flip on her. And so what's really interesting about this is Balwanis trial is set to begin after Holmes' concludes. So I, you know, if you're an attorney out there, how does a judge pick who goes first? And then is there an advantage to going second or first and who's taking more risk here or is it just the nature of the legal system that somebody has to go first and you flip a coin? Is it random? Is it the person who has more power

allegedly in, you know, this crime and who's the principal? Because it does seem like Elizabeth Holmes, as a CEO, so she's the principal, and then Balwani played a supporting role, so they do the supporting person after? I thought they did it the opposite, where they tried to get the lower level person, Balwani, to flip on the higher level person, but here you have the higher level person saying the lower level person is manipulating her. So this is also convoluted. I'm really interested in watching the analysis of this by attorneys. And the weird thing about this, too, is it's not going to be televised, unfortunately, and I don't think any recording devices are allowed, but they can live tweet from a simulcast room.

I was actually thinking of sending somebody down there, but it looks like, you know, in the slow news months and the nature of this event is going to be national news, and it seems to be international news because I noticed the Guardian had sent people. So we'll be covering this every day, basically, in the news, and I am fascinated. And honestly, you know, it's pretty clear she's guilty, and it's a really norther thing she's guilty of.

I think this goes beyond the monetary fraud. I think this is, you know, risking people's lives. I hope she gets the full sentence. I really do. And that's not because I don't like her personally. I don't really know her personally. But I do think that this is such an important test case for fairness in our justice system and for the reputation of Silicon Valley and tech startups that if she gets off,

it's bad for everybody. This kind of behavior should be prosecuted to the fullest extent of the law. She should go to jail for the max sentence if, in fact, she's convicted. That's my feeling on the subject. and it's she's manipulating us already with having a kid and taking this defense. I think this is like peak level Elizabeth Holmes manipulation after peak level manipulation where she literally went on TV and said that John Carriro and the Wall Street Journal were liars and they were defaming her and then had no evidence of that.

I think she's just a sociopathic liar. I mean, I'm not a psychologist either. I mean, I have an undergrad psychology, but I'm no expert on that. I'm no expert on the law or personality disorders, but I think she's absolutely crazy and guilty. That's my take on it. Okay, Dell for entrepreneurs wants you to stay connected to your business no matter where you are in a world where you can work from anywhere. Why would you let technology hold you back? You shouldn't mobile-ready devices such as Dell's latitude, line of tablets, pair with Verizon,

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dot co slash Dell. All right. Next up, everybody is one of my founders who is working on one of the most acute problems in the United States today housing. And housing, as you know, is a very complex

vertical to try and solve for. In fact, when I started 11 years ago investing in startups, I was given sage advice. Stay away from the music industry, stay away from health care, stay away from higher education, and stay the heck away from housing. Why? Regulations, incumbents, and generally, those are the categories where startups I was told go to die. And this startup blockable has not only survived, they've thrived. So I thought I would get Aaron on the program to talk about

the larger issues in affordable housing, an instruction, and in the United States today, because the housing market obviously feels very broken today. Welcome back to the program, Aaron Home. Thank you very much for having me, Jason. It's a pleasure. So you and I have been working together for five years on this. When did you come to our accelerator? Is it 2015 or 16? 2016. So we met when you were when you had your angel summit down by down by the water there in San Francisco. And then we were part of the accelerator through that spring. And then we sprung into our first wave in the summer. So in July, we kind of came out and, and then, you know, started, started hardcore R&D at that point. But that was that was kind of the kickoff. And the concept originally was, hey, you had worked at Amazon. I think we're not breaking any NDAs here, but they had aspirations to build stores, and you were involved in that product early on, correct?

Yeah, I mean, basically in the process of working on Go and books, it just became, I mean, the challenge was how do you build, you know, how do you build 80,000 stores, right? So in short, the answer was buy whole foods. But leading up to that, there was a lot of work on the business model and looking at like, how do you build a repeatable process? And so in building out books, I mean, we built out Amazon books in like six months. It was a crazy hair on fire process.

And all of the major risk was around standard construction and permitting. And we just, we did, you know, a thousand times the innovation on the internal side, but then going through the standard. sort of real estate process. That's where all the red lights were. And so in looking at that, there was a lot of, you could kind of see the writing on the wall in terms of the need for the industry to embrace productization and standardization. But that's really kind of step one. And then obviously, as you were alluding to in the intro, all the eggs break from there to getting to actually having something that's viable as a development process. And I think one of the great insights was, hey, if you're building on site, that's the equivalent

of Tesla shipping a bunch of parts, dropping them in your driveway, and building a car in your driveway. That is the state of building housing today. And you said, there's got to be a better way. Let's build the homes, the blocks, as we say, in a factory, ship them to the location, and then do the last 5, 10, 15% of the construction process on site. How has that actually manifested itself in the real world. I know that Phoenix Rising, a blockable project for affordable housing, had the ribbon cutting, I think last year? Yeah, it was late last year when we opened it and finally opened the doors, yeah.

I mean, you're basically trying to move as much of the process as you can into the factory. But then, you know, you kind of get to the larger issue, which is the business model, which drives, ultimately drives the product development process. So the way that the industry, because modular, modular construction as a process has been around for decades, right? And so it's been around 30, 40 years. But what it's typically meant has been to move the framing process of construction into the factory. So you take labor and you move it into a factory, you take supply chain, you move it into a factory, and then you're either building out of wood or you're building out of steel. But ultimately,

what you're doing is the building framing. So developers who are the ones who kind of control what gets built, where it gets built, how it gets financed, who lives in it, how the value's created, they're ultimately the ones who drive the economics. Previous and a lot of current incarnations of modular or prefab are set up to sell to the developer, right? So you build some kind of process that's going to save the developer some amount of money. So let's say, let's say framing is 20% of a construction budget, and let's say a construction budget is 65% of the total development budget. So a developer can look at building their building out and getting the framing process done in a factory. And if that can save them some money and some time, they'll buy that.

But it means you will never really get to any significant amount of standardization in the factory because all you're really doing is the framing. And the developer could always do the framing on site. So the modular part of the process is just a commodity. And so the developer is basically calling all the factories and saying, who can build me this part of my project cheaper because that's what will make my project pencil. So the approach that we took is very different, which as the developer, building a fully standardized, productized system that we manufacture ourselves, but also that we

sort of take the maximum upside of because we're the developers. So the big moment for us was, you know, after we got through our first phases of, you know, product innovation, so the framing prototyping, building out a few small buildings, the building that we brought to down to the innovation center that one time. We trucked a building all the way down, loaded it into the Innovation Center and people are like walking into a small studio apartment inside of a conference center basically. That was still in the process of, you know, what materials are we using? How much labor does it take to build one of these things? What kind of energy efficiency can we get? How do you load it onto a truck? How far can the truck go? What kind of, you know, what are the economics of logistics?

There's so much that you're working out that's just baseline. But then the real, the real issue for us was becoming the developer. And so once you have those core product, sort of, you know, structural, how does it get approved by the state? How does it get approved by the local municipality? Once you've worked through all that, then you have the set of problems, which is about, well, how do I develop using this system? And so Nelson and I, in going through that process, that's really where the value is created. And all of your decisions change, because if you look at the economics of a real estate development versus the economics of selling a modular product to a developer, they don't even

resemble each other. And that was kind of the big, that was the big insight. So to recap there, if you sell a developer, a unit, they are going to do what's in their best interest, which is get the lowest possible price, charge the highest possible price when they complete the project, and between those two numbers is their profit. So that is, for them, I guess the virtuous way to run their business, but what you realized was they probably maybe don't care about the long-term value of the asset in the way their customer, who is actually building the units and owning them does, correct? So there's an incentive issue there?

It is, but it's also like real estate is just this unique business model, right? So like in a typical product sale, like you can make a product, someone can buy the product, you make some margin on the product and they purchase the product and use the project. The developer is a bit of an intermediary. The developer is eventually going to rent, right? So they're going to rent these units into the marketplace. So for a developer, where the disconnect happens is for every dollar that the modular construction company can make as a profit, that dollar is worth $10 in equity to the developer. Right?

So the modular contractor, it's never worth as much to them as it is to the developer to get. at a cheaper price. And so you have this constant fight over, you know, what should the cost be? Like we'll get, we get multiple inquiries every week from developers who would love to buy our product to use for their project. And the only question that they'll ask is, what's your cost? And the reason that they're asking that question is because they can't get projects to pencil, right? So they're looking at their build. They've got some dirt. They've got it lined up. They know what the rents are. They want to go build something, but it's too expensive. It's too expensive in the market. So they look at modular plants and saying, you should make this cheap.

for me. If you make it cheaper for me, I don't really care what happens to you, but if you make this cheaper for me, now all the economics work, and I've got something that's worth hundreds of millions of dollars, because you've built it for me at a cost that now allows me to take the equity in the project. How much time and money do you spend integrating a bunch of different software products altogether? Let me guess. Way too much time. Well, Odu is here to help you with that. Odo is a suite of business apps that runs your entire company on one platform. They'll streamline workflows by bringing all your information together, plus Odo's integrations eliminate repetitive tasks and data entry.

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It's a great platform many people are using in the startup community and raving about it. Your first app is free forever and right now, O-Doo is sweetening the pot with a thousand credit on your first implementation package. That's right, no joke, $1,000 off. Go get that $1,000.com slash twist. That's O-D-O-O-O-com slash twist. O-D-O-O-O-com slash twist. So now blockable has after doing a couple of projects,

and we'll talk about one of them, the Phoenix Rising one in Auburn, Washington in a moment, you said, hey, instead of selling to developers who would then get this massive equity value, we're going to become a real estate developer

in addition to making the modular homes and the modular home system. Yeah, and I think part of that is also, so my co-CEO Nelson, it's also a mindset, right? So Nelson's been a developer for 30 years. There's a perspective that you have as a developer when you think about, you know, buying the build and then owning the build, financing the build, paying taxes on the build,

getting rents on the build. The economics of that dwarf the product sale. And so looking at what would it mean to design an engineer and build a product that the first time we look at a site, we know that it'll be approved, we know how it'll perform, and we know what its costs will be, is sort of something that's never been done in the industry before. So having that engineering done up front and available in 3D connected to our ERP system means that, you know, as a developer, we have an advantage that no other developer can possibly have because we've basically vertically integrated the process and taken to your, an original

analogy, the idea of building a car in your driveway every time. It's not even, it's not even that. It's building a different car every time in the driveway. So even if you had the same car and you sent to everybody the specs and you said, here's what it is, you can build it, here's what the cost of it. It's like saying to someone, I'm not going to build you a car, but I'm going to tell you that there's something called a car. And then you're going to have to figure out who you're going to work with to engineer all the different parts of that car, and then figure out who's going to supply you with the parts to go build it. It's a crazy process. So by getting all that engineering done up front, it gives us this position as a developer, which, you know, as I was mentioned before, Nelson having that perspective, when you think about how to develop real estate and then you think about the input of the construction process, it changes all the thinking on the product development side.

So the product that you would develop to go and sell to developers, you're trying to think about, you know, what is the pipeline of sales that I can get that develop? will purchase. Developers aren't looking for you to actually make a whole bunch of innovation or create new intellectual property. They're just looking for a commodity input. That's why it's always kind of struggled in that space. So the other thing that we had to do in our projects, including the Phoenix Rising project, it wasn't just doing the build and sort of engineering the build and getting it approved, but it was also all the process of being a vertically integrated developer. A lot of that's contractual. So it's like, how does the flow of risk work? How does the law work, how are you transferring ownership of this project? Which part of the business, you know,

does the build versus which one develops the real estate? So it's a sort of comprehensive business model as much as it is a sort of innovative product. So we did the Phoenix Rising project for $1.5 million. The floor plans were 280 square foot studio, a 340 square foot, one bedroom, all made in our factory. We shipped it there for, I think, about 125 or 150 a door. Which is how 125 a door, people can work out their own price per square foot, which I know you're reticent to talk about. Let's talk about who this was built for, who's living in these and the impact it's having

on that community. And then let's talk about the build quality of these, because the thing that I was amazed that when I visited the factory, which with Mitch Kepoor, who's also on the board and an investor in the company, was just the quality of the build and what you were able to do in terms of energy efficiency and higher quality. So start with either one who's living there or the quality level and what innovations we had in that version of blocks. Yeah, I think that so a lot of it with the Phoenix Rising project was honestly, if we were not

a vertically integrated developer, the project just never would have happened. Because a lot of the, you know, you were sort of alluding to it at the beginning, you know, the way that the market works, both for affordable and market rate, is very complicated. So there's a lot of complication as to like how something goes from being, you know, a piece of land that on which it's legal for you to build something, to having something completed that people are paying to live in and how they pay for it. So, for instance, for the Phoenix Rising project, if we were a traditional developer, so traditional not-for-profit housing is developed, usually developed through low-income tax credits, right?

So low-income tax credits legally, the only way that you can, you can go out and submit an RFP to build something, if you're a modular builder, you have to legally sell your product to a partnership that includes an architect, the general contractor, and a developer. So that's how it's set up. So the state, state of Washington, had allocated some money that they wanted to try some different things with. They called it their innovative housing fund. And they had allocated a small amount of money and they said, we want to go try something different. If they had put that out to tender, if they had just said, we're going to give this up to the

county, the county's going to put out an RFP, we would never be able to apply for that because we're not under the umbrella of an architect general contractor, which means, you know, we just wouldn't do it that way. So we had to work with the senator to. have the money funneled through a direct appropriation. So we said to the senator, we need you to say that this money is going to be appropriated for this specific project. If you can do that, then legally the money is attached to that project. Then we needed to provide the contract structure so that the not-for-profit who owned the site that was legal to build on could contract us

to deliver it as a design, build, vertically integrated modular developer. Basically, it was, you know, We gave them a cost and a schedule and all the risk was on us. We said, look, we're going to deliver to you at this price on this schedule. You're taking no risk in this. You're going to draw down the money from the state. When you draw it down from the state, you're going to pay us. That's the nature of the contract. So it's really difficult to actually find sites.

If you're developing a new building system or a new product and you're going through these rounds of prototyping, one of the most challenging aspects is to actually be able to find sites that you can build on. because traditionally, if you have a factory, it's not a problem. All kinds of developers will come to you and say, if you can build it for me for this cost, I'll give you a 200 unit project to go build. And then you've got to go figure it out. And then you actually don't develop that much product innovation because the project's too big. And in the end, you probably do some framing.

And that's enough innovation at that stage. And then you're locked into that because that's what the market wants you to build. So the Phoenix Rising project was a huge success in that we pushed it through from both a regulatory and a finance perspective, which was probably the more difficult aspect of what we did. So the people who are living there, Phoenix Rising is run by a group called Valley Cities. And Valley Cities is a not-for-profit that operates in Puget Sound area. And they are generally a behavioral health not-for-profit. that site has on it basically a shelter. So it's a shelter for youth who have substance abuse or other types of issues.

They can only have people in that shelter up to a certain age. And then they were finding that once those people got to that age, there was nowhere in the market for them to go live. So a lot of them would end up on the streets or end up, you know, some other situation. So the housing ended up being for people who earn less than 30% of area median income, which in that area, I think, is somewhere between, 17 and a half and $20,000 a year, right, income. Oh, wow. Yep. And so a lot of these folks were literally homeless, which means that they did not have homes prior to them moving into the Phoenix

Rising Project. So on the one side of it, you're taking a really difficult problem in society, right, which is people who make some money, but there's just really nowhere that they can afford to live. And they oftentimes need supportive services around that as well, where they might need to get back on their feet. They need to get job counseling services or they need to get access to to different things. So there was there was one woman whose story has been coming out more and more who's been living in one of the studio units and it's literally right across the street from a school. And it turns out her kid goes to the school across the street. But she had been homeless for a period of time and during that period she lost custody rights of her kids so her kids weren't able

to visit her. So she moves into this new apartment. And this new apartment is like head and shoulders higher quality than anything else, not only anything else that's subsidized, but anything else in the neighborhood at all. Like the housing around there is really, you know, it's not long-term housing. It's typical. So she moves into this beautiful apartment and then she starts talking about how she's now able to get back on her feet. So she's got visitation rights with her kids again. They can come see her. She's got access. She's got a steady address. She's getting mail now. She can get visited. She's got her income coming in. And like to her, the apartment is what turned her life around. now she's able. And so this is what we've seen with these apartments, you know, now that we're

eight months, ten months into running them. One, people are keeping them in incredible condition. So these are clean, they're beautiful. And it's actually taken a community where there was a lot of, you know, sort of sketchy stuff going on. And now there's lights on in the exterior. There's people living there. And so the whole area has become safer. The people are keeping their units in beautiful condition because they have a lot of respect for the place that they're living in and what it's done for their lives. And then on the quality side, we're seeing that the studios are 46% cheaper to operate based on utilities and heating and cooling. And the one bedrooms are 60% lower cost to heat and cool. And that was a major initiative during the build. So when you came to see

the buildings in the factory, they were, I think, to a certain level of finish, they weren't done yet, but they were on their way. But you could see, you know, in the factory, they were 16th of an inch, you know, tolerance all the way down the line. So you could shoot a laser through a hole in one of the beams and get to the other end of the factory. And then through our work with the National Renewable Energy Lab, one of our major areas of focus was to really push how far we could get the building performance in terms of its energy efficiency, right? Because you can, there's a lot of effort going into, you know, new batteries and new solar panels and all kinds of new ways. to generate and create more energy efficiency and housing. But the issue is, unless the building envelope is efficient,

it's just going to be more costly for everything else. If you can make the building envelope itself efficient, it takes a lot less energy to power it. It takes a lot less cost. And that's where being, as the developer, on our larger projects, which we're now moving into the phase to go build 100 plus unit multifamily projects, as an owner, that all comes back to your net operating income.

So if you can operate a building that is 20, 30, 50% lower cost to heat and cool, that all comes right back to the bottom line of the real estate. Yeah. And this is where that disconnect of Blockable becoming the developer, not in the Auburn example and Phoenix Rising. Obviously, that's a project where you serviced a partner. But in the next couple of projects, if you owned 200 units and Blockable is renting them, and you can say, hey, these are 60% less.

you know, energy cost, that's going to directly impact the rent cost, correct? It does. And it also, it creates a really beautiful loop because if you're, you know, if you have a 300, a 300 unit, you know, multifamily project and you're able to generate, you know, $20 million a year of net operating income, that now operating income then feeds directly back and can cover your fixed, fixed costs on the factory and labor side. So suddenly the costs of your next development go down by that much more. So you create a loop, which in traditional development is just not possible. We all know how hard it is to eat healthy when you're grinding on your product and you're

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Maybe you talk a little bit about new materials and ways to avoid a flood in one unit affecting the five below it or on either side or a fire on the bottom unit affecting the five above it and the two on either side. Yeah, well, I mean, California you've got, I mean, the two most common are floods and fires, right? So you get floods and fires. And so building with non-combustible materials has a huge impact, right? Because you're able to, you're able to really reduce your risk. Now, truthfully, for the first couple projects, you probably don't get a ton of credit for that from the insurance groups. But over time, you will, because you can show, you know, you can show the cost impact of being able to build with more tolerant materials. And then the other big one is seismic. So in California, one of the big issues is being able to build in different regions. Like not a lot of people know it, but I mean, two of the most complicated and costly areas of engineering and building stuff in California is around fire assembly and around seismic. And that's generally solved on a project by project basis. So imagine for a 300 unit multifamily project, a developer is going to go out and hire an architect, structural engineer, mechanical engineers, all these folks. And they're going to have to, for that site, develop site-specific seismic structural engineering, and they're going to have to develop fire assembly, right, that talks about how, based on the architectural

code of the building that you're building, what the fire tolerance is, you know, one hour or two-hour rating as things go between floors or from the outside to the inside. All this stuff is highly technical, and it's solved on a project-by-project basis. So what we've been doing for the last year and a half is solving that in a programmatic product basis so that it can work anywhere in California. So two of the big things that we've done over the last year have been, one, to create a vastly simplified fire assembly that's reviewed by the state that can work anywhere in California for infill multifamily. That means that we can build the same assembly every time and we don't have to engineer it on a project by project basis. The other is the structural joint. So the joint that allows us to connect the buildings is a very specific structural element

that gets raided and tested by different agencies so that they can break it and test what's going to do with fire, what happens when you bend it, how much pressure can you put on it, how much pounds per square inch can it take. We have now filed a patent for our structural joint, which allows us to build anywhere in California, but also build a lateral system that requires no shear wall. So this is kind of like a technical component, but shear wall is how you, you know, create structural capabilities for any given site. So let's say you're going to have a certain number of one bedrooms and two bedrooms and your walls are going to be here and your, you know, your, your assembly is going to be built this way. The structural engineer will just put in shear wall as a way to kind of solve site specific problems.

What we've done with the structural joint and with our lateral assembly is make it so that our buildings, right, which come out of our factory, 95% complete, have 100% of the structural built into them, which means we can build our buildings the same way in every location, which has a huge impact. So basically, whatever the highest impact area is, you build for that, and then everybody else gets the benefit of it. So if I'm like on the San Andreas fault, you're built for that or, you know, 100 miles east or west of it. That was the reason for focusing so heavily on California, because California's got really. strict building codes. So the energy code, structural code, fire assembly code. On the one side is, you know, you work with the state because the state is the agency that inspects all of the engineering for anything that's built in factory. And so the great part of that is in your product

development process, in our product development process, as we move through the engineering of our structural joint, and as we move through the engineering of our fire assembly, we can have them tested by agencies, right, who will give them the green light from an engineering perspective and say that these are okay to use in as many projects as you want in California, which means you're basically taking the industry away from what's called a prescriptive approach, which says every project, we're going to review the engineering on this, one off every single time, and you're moving it to what's called a performance-based approach, which basically is what, you know, if you build, you know, doors, let's say, and you're a door manufacturer, you get your

door is rated, right? And they say, here's the fire rating for this door, whatever the piece of equipment is. That means you can make as many as you want, and they know what the performance of those is. We're doing that now for the whole building, for the structural elements of the building, for the fire assembly of the building. And that's been, you know, I'd say the investment that we've made over the last year and a half in doing that, but then also doing it with our digital platform so that we know all of that as we're looking at a site. That's the gap that no one has moved through in the industry before, right? Because there's no incentive to do it because they don't get the benefit of it because they're not the developer.

Yes, this is where, you know, the economies of scale, being the developer, and making these units pays off. And there's a bigger trend going on at the same time, which is cities are having a really hard time building these units. I was looking at an LA Times story that said the average cost of building a single unit of housing for the homeless in Los Angeles has risen to 531,000. and that two of the projects have stored to nearly 750,000 per unit and have had tons of delays, and their original projection was 350. Yep. And I know here in San Francisco, we've got 8,000 people who are homeless, and maybe homeless is the wrong term because it's mental illness and addiction and all these other issues, you know, blended in. In some cases, they don't even, won't even go into a shelter or a home.

but we have, despite all that, an $852 million budget per year, that alone is $106,000 per homeless individual, if those numbers are correct, just back of the envelope, and you built the all for $125 a door. So in other words, just maintaining the status quo is costing about what it costs you to open a door in a location. So I guess you're also doing for-profit, you know, market rate apartments as well. well. So less than anybody, anything blockable is just doing homeless housing. But maybe you can talk over the bigger issue of why is this such an issue for cities like San Francisco and LA where they

can't seem to make this work or solve this problem. So that's a big one. So yeah, I mean, I think so the the approach that Nelson and I have put together is, you know, is very much a comprehensive business model that addresses the fact that housing is both a market rate and an affordable problem, right? So if you take municipalities, like in L.A., for instance, that period of time that you just described is basically the period of time that it took, you know, the triple H bond to kick in, right? So if you take, and this is the core of the issue, right, this is why we always say housing is not a construction problem, right? It's a development problem. Housing needs to be solved through innovation in development. Innovation in construction changes nothing because it doesn't

change how and why things are built, how they're financed, how they're approved, and how they move through. So if you look at LA's a great example, you take a market that has this much supply, right? And then you say, here's a billion to build more. You haven't changed the supply. All the changes is the cost. So you take the same supply of, you know, development capability in that market and it goes from 350 a door to 720 a door because it's just that much more constraint. And so there's that much more demand for the exact same supply of development capabilities. And it just drives up, drives up the cost. You see this in market after market. You don't have the number of construction companies. And so the if the state or the city tries to

do the right thing and pump more money into it, it's not actually going to work. They're not innovating in any way in this process. So you have the same capacity, but people are bidding it up. Yeah. So working against their own best interest. Totally. Because an affordable housing developer, right, is essentially a group that is optimized around managing low income tax credits, right? Because low income, and this is the thing, low income tax credits are what finance below market development. So if you take, if you take what cannot, basically the market can't develop, up housing for folks who don't make enough money to be able to pay the rents, right? So if they're not able, and that's a huge, that's a huge number of people in the U.S.

tens of millions of people can't afford to pay market rents. The rest of it gets subsidized through low-income tax credits. Low-income tax credits are a mechanism that basically provides that, you know, 20 to 30 percent missing element of financing for housing for folks who don't make enough money to make rents. That's guaranteed by Section 8 vouchers. So Section 8 vouchers are basically rental subsidies for people who don't make enough money in order for them to be able to pay rents. So you have a development process that's underwritten by guaranteed rents by Section 8. So it's basically end-to-end subsidy. That's the process. Affordable housing developers, when they go to

build something, are in the exact same market as all the market rate developers. They have no ability to reduce the cost. And so this has been the big thing. that we've been working on, which is in our business model, we have an incentive structure for blockable to build for the real estate partnership at as low a cost as possible, because the real estate partnership benefits through greater and greater ownership, equity in the real estate, by being able to deliver the finished development at as low a possible cost. And so when you create that incentive loop, you basically then create a model whereby investing in innovation, that drives efficiency and drives down the cost has a direct economic benefit,

particularly in the market rate side. Then on the not-for-profit side, you're delivering a social good. So you're delivering something that ties you into the political structures that govern what housing can be built. And so you've created this kind of two-sided business model. And this is something, you know, I know Nelson's done in the commercial world before he sort of was the father of P3 structures in Los Angeles. you know, 30 years ago, creating this public-private model where by creating efficiency, you drive down the cost and create a ton of wealth creation on the market rate side, but you also create an incentive on the not-for-profit side so that you have a voice when you're

talking about reforming policies, changing zoning. You know, you have a voice in that conversation, which is a huge issue, particularly in housing because it's so political, because it's tied to the dirt. Let's talk about the nimbism as we get ready to wrap here. At least in the area, I am the Bay Area. They seem to have every project get downsized, downscaled. It's casting a shadow. It's going to affect the quality of life of the people around it because I don't know. The people who can afford affordable housing maybe aren't as desirable to the rich people who live around it or just as general nimbism.

How does this impact what you're trying to do with blockable? It makes so the shortest answer is it makes it clear where we want to be, you know, sort of prioritizing our work. So, you know, there's a lot of areas where it's just very clear that there's going to be major opposition to anything that brings density into the area. And I wouldn't even classify it as affordable or not. The general issue is, I mean, a lot of people, particularly, it seems to be largely a West Coast phenomenon too, there's a lot of people who, regardless of how they sort of portray themselves politically, there's a lot of people who have made a lot of money just sitting on the scarcity of single family real estate. Right. So you could, for the last 10 years, if you lived in Seattle, the Bay Area, Los Angeles, Portland, San Diego,

all you had to do was have a single family home in a reasonable neighborhood in town and you saw double digit. increases in the value of your home. You didn't have to lift a finger. Yeah, just because it's scarce, right? So because it's a scarce asset. So what that means for us is there are areas where that fight hasn't played out yet. And then the truth is if you look at studies, bringing density in and bringing services and actually increases values. So even if you have a single family home, if that area starts to increase in density, the values increase as well. So what it makes clear for us, though, is there's certain areas where it just doesn't make sense for us to be operating because there's going to be too much resistance.

Whereas there are other jurisdictions like you take a place like Redwood City or Culver City or there are areas where politically everybody's behind housing creation. And our model is hugely attractive to what they want to do. And so we can move quickly. And then also at the state level, one thing that they've done in the state of California is California has started to put more and more pressure on local municipalities to green light projects so that they can hit their housing targets. And so if you're building near transit or if you're building in areas that are more walkable, you can reduce your parking requirements, you can

get guaranteed approval through the local regulatory process. They've started to make it simpler and simpler if you're delivering housing where it's needed and the state can mandate that through certain laws that they have. Yeah, I mean, here in Marin County or San Francisco, you have all these single family homes and the idea that somebody would put in a a six, 12, 18 person unit is just, they will fight it or I think they just basically try to tie. This is my reading of the situation is if they just torture the developers with red tape,

delaying, you don't have to even stop somebody. You just have to delay them or downsize. And those two tactics alone will make them move on to the next place where they might be more into it. But we've seen here, Redwood City really did build a lot of apartments. And that's a booming, booming area. It turns out if you build these things, then the firefighters, the teachers, the nannies who maybe couldn't afford to live there or people who are your kids? That was the most convincing argument I ever heard was, where are your kids going to live when they graduate college?

Like, if you live in Palo Alto and your kids go to college and want to live near you, you're not going to see your grandkids. They're going to have to live two hours away. There's no affordable housing. I think these are really vibrant areas. So I think it's sort of like, you know, you end up building places. I mean, the thing that happens when you maintain the sort of zoning and single family scarcity locations is it does get hard for the folks who are working in the restaurants, for the folks who are teaching at schools, you just end up becomes a very sort of, you know,

dry culture. And I think you see the vibrancy of some of these places as they, I mean, a lot of people are embracing this notion of the 15-minute city, right? So you're living in a place where you can walk to all the things that you need. You can get your groceries. You can get health care. You can get, you know, education is close by. A lot of folks are starting to brace that idea because it forces planners to think about how they're going to deal with transport, how they're going to deal with housing and how they're going to deal with density mix so that you can't just create.

I mean, this is the one thing about, I think California has reached this inflection point where it's just really difficult to keep building sprawl. it just doesn't work as much anymore. It's really, it's hard on the utility. It's difficult on services. You can see people's commutes get to a point where it's just not tenable, like it's just too far. And so I think that there is an embrace of this, you know, building out more dense towns, not necessarily like high-rise cities, but just sort of these infill, denser, walkable communities. I mean, it's sort of like, you know, the neighborhood you grew up and in Brooklyn was, you know, you didn't go out and just get in your car and go everywhere, right? You could get around and walk.

You didn't want to take your car out because you lose your spot. Exactly. They're cleaning it twice a week, right? They're cleaning it twice a week, so you just didn't want to give up the spot. But anything under a mile you would 100% walk in Brooklyn. So if it's 20 blocks or less, you're walking. If it's over a mile, maybe you would take the car. But then you have to deal with parking wherever you go.

So it's a little bit harder. Which cities are going to be the most vibrant in terms of new housing and new housing. supply when you look at it big picture. I know a lot of people moving to Austin, a lot of people talking about going to Miami. But those places that seem to have highly functional or ready developers working there. California in the short term, I think is having some problems and it's pretty nimbly. How do you think about the national picture of this with all the moving and migration caused by COVID? Well, I mean, you sort of have a really dynamic situation. Yeah. We're focused on Southern California just because there's such a big housing need. And in Southern

California, you have a lot of entitled sites where building infill makes sense, right? So you have, there is a lot of spending on transportation in Southern California. There is a move. I mean, the one thing you can look at in Southern California, you look at areas of places like Los Angeles where there is some amount of walkability, values are high because people want to live in areas like that where they can actually get to things that are close by. So we're pretty focused there. I think the way it works nationally is, you know, what we're focused on is kind of the S curve of cost reduction, right? So the early stages as we're building our prototypes, we're just pushing the numbers straight down. First prototypes were expensive to build.

Then they're less expensive. And then when we got to building the project at Phoenix Rising, we're at a point where we're like, okay, we figured a bunch of this out. Over the last two years, we've taken 30, 40 percent of the parts out of the system. So now we're kind of market cost, right? We're able to build at where the market can build, but we can build a lot faster. We can build a lot more efficient. We can build a very high quality product. The market across the country, so you can build that in tier one markets.

So you think of tier one markets, like where are the highest rents, right? So Southern California, Northern California, Pacific Northwest, the Northeast, those are like the primary high rent markets where the development aspect of it really works, right? Because you're building at a cost, you can get your rents. that's where you build your suite. So you need to have an, if you had an X, Y, access, high rent and pro development. And high cost, and high cost. Which they tend to go together, right?

Because it's, that's, but once you do this. So the thing is, once you, now that we've created the incentive structure, which means we can push costs below, what's really interesting over the next bunch of years is construction costs, year over year are going to do this, right? I'm going to go up. The biggest, one of the biggest issues in this country is your construction costs, you're going do that and your incomes are going to do that. And everything in between needs to be subsidized. For those of you listening, he's basically showing one chart where construction costs will outpace people's income growth. Correct. Which means housing becomes less affordable naturally as time goes on.

And requires more government subsidy to step in and fill that gap below what market rate rental can be underwritten for. How much faster can you develop, you know, a project than on-site construction at this point if you were going to do a, you know, whatever, 20 unit, you know, build, you know, assuming all of the, well, I don't know if you can assume all of the approvals would be the same because you have a faster approval process because you're building, as you said earlier for the, the best seismic, best fire conditions or standard. In the first phases, even if, so the construction side of it's just the one part of it, the first part of it, so let's say you're a developer and you've got a site and now you want to start going through the process of, you know, know, building out your architecture, getting your costs, getting your financing in place and doing all that. For us, we have a huge advantage there. So that part of the process typically takes a year and a half, right? A year and a half to two years to go from having an entitled

site to having enough definition in the architecture and the engineering to have hard costs to be able to go out and actually finance something. So for us, I mean, that's part of it we can have in weeks because we have all of the engineering already done. We don't have to go and invent it. So when we first look at a site, if it's 20 units to what you're saying, we can look at the site and we can say, okay, how many, what does this market bear? What are the rents in this market? What's the right mix of studios and one bedrooms and two bedrooms? What kind of amenities are needed? Does it need a pool? Does it need balconies? Does it need a roof deck? Should there be bike storage? You ask all these kind of development type questions. Having that, having the engineering done

in our architectural systems and connected into our ERP means once we're done that initial massing, we can have a level of construction drawings ready to submit to the state and ready to have approval for and also get a hard cost because everything's connected into our supply chain system. So if you take, even if we're building at the same cost from a construction, our hard cost perspective as everybody else in the market, day one, we're call it 40% cheaper on financing because we're going to build in half the time, which means you're not going to have capitalized interest through the build, and we're going to accelerate the rents by a year.

and then you're going to reduce your... That's worth pausing on for a second there. If you develop faster, you're paying less interest on your loans and you're getting more revenue in quicker. So when somebody takes two years to build an apartment complex and you can do it in a year, you do it even in just in 18 months, you get six months more rent and six months less interest. Correct. And that's when a project goes over, it becomes super costly because your whole expectation

of when you would have be generating revenue. And for people who don't know, you mentioned ERP before, it's enterprise resource planning. So basically you can plan out very quickly each of the new projects based on the standardization of the previous ones. Right. And so it means like because we know what every part of our system is, we have a cost because we've already done, we know who our suppliers are, we know what their costs are, we know what their lead times are, it's all connected in.

If you're doing a traditional process, you know, building the car in your driveway, once you've done the design and the engineering, now you've got to go figure out what all the parts are. Then you've got to go figure out the costs on those parts. And that's actually going to be an increasingly volatile market just because of all the supply chain thrash that's going on for the last while. I mean, having certainty in the design up front gives you a ton of advantage. So let's say it's 40% advantage on the financing cost and then 25% advantage, at least on the soft costs, which means we don't have to do all the engineering. We don't have to do. We already have it.

We've already made that investment. So that on its own gives you a huge financial advantage as you're building a project, kind of regardless of size. But where it really starts to pay out is when you start looking at these larger projects, 100, 200, 300 units. Because the issue with development is kind of two. One is it's the same set of steps to develop 20 units as it is to develop 300, right? It's the same.

You have to go through the exact same steps. And so most developers will look at it and say, well, why? Let's go build 300 because, you know, the financial, impact of building 300 is huge. And the other is as a developer, you're all sort of using the same financial, you know, you're getting construction loans, you're getting, you know, you're dealing with banks, you're dealing with valuations on the building. So the whole thing is if we can build a building, you know, if developer B is across the street trying to develop 300 units and we're developing 300 units, but we can do it in half the time, right? That on its own has a huge

amount of advantage. And that's typically what developers will try to buy from modular construction companies. They look at the framing side as something that can speed up their process, not necessarily make it cheaper, but speed it up. So for us, we will internalize the benefits. Time is money. I mean, literally. What do you think of like this 3D printing cement stuff and foldable, modular ADUs? I know everybody when they start blockable is like, oh, put one is in your backyard and we even like, I think you even consider that, but quickly realized that's not a great business to be in. But it does seem like it's a business a lot of people are moving into. So what do you think of these like, you know, accessory dwelling units, ADUs or what they

call in-law or nanny units? Well, I'll tell you from direct experience. So there's two different answers to that. So the ADU market, I would say it's great. There's a need for it, but it goes back to what I was saying before, which is if you're going to do a project, it has the same number of steps, whether you're building one or 300, right? So we looked at ADUs as a way to prototype the envelope and the build, right? What's the labor model? What's the sequences? How do we get the building enclosed? How do you get it on a truck? How do you get it to site? What kind of crane do you need? It's a great way to prove all that out. The delta between the engineering and architecture of an ADU and a multifamily building system is huge.

An ADU on its own is one thing. A multifamily building system is an entirely different animal. So ADUs are complicated because ultimately most of the models, you're looking for a homeowner who's got a site and maybe it's got the right utilities, maybe it's flat enough, maybe they can do it. Most homeowners really have no idea what development really is. And so it's really a long shot that you're going to get a homeowner who's going to step in and do all of the necessary stuff for you to actually be able to, you know, sell a building that they're going to put on site that's going to work.

Like, it's just really complicated. For the 3D stuff, you know, I'd say that the 3D is, it's the same as modular and steel framing in that it's framing, right? So it's one way to frame a structure. The concrete looks like it can be useful for single family in certain climates and in certain jurisdictions. It's, again, a long leap from going single family to going multi-story and going multifamily. And the thing that most people don't necessarily appreciate is the framing of it, again, when you've delivered the framing of a building, you still have the vast majority of work to do. You still have to put in the mechanical systems. You still have to run all the electrical.

You still have to connect in the foundations. So you're thinking about, you know, the vast majority of the project that still needs to be done. It's, you know, framing's 20% of a construction budget, which is 65% of a development budget. So, you know, you've made some efficiencies in a part of the process. And then ultimately you have that fundamental conflict between the developer and the product maker. The thing that I've seen happen over and over again with innovation is, companies will will basically go to developers and say, hey, can you, we want it, we're building this thing, isn't it great? The developer will say, yeah, I've got this piece of dirt over here.

If you can build it for me cheaper with no obligations on my side contractually, then sure, go ahead. And then the innovative company takes that and goes to investors and says, look, there's a ton of demand in the market for what we're doing. You should finance this. So they finance it. And then the innovative company goes to try to build this thing. And it's really cost. It's more complicated than they thought, so they lose a bunch of money and trying to develop it. And then when they're ready to take the next step, the assumption is we'll be able to hold that price or we'll be able to get more of it so we can get margin. Then developers like, no, no, no, you should build it cheaper for me next time. Right.

So you just get this, it's hard to escape that. You see, you've seen, I won't name names, but you've seen big companies that have run into the wall with exactly that problem because, you know, it's really complicated to engineer, um, A complete, yeah. I can say it. I mean, Katara is this giant company that just raised a huge amount of money to basically do even more than blockables doing. They wanted to boil the ocean, it seems. And they just collapsed, I guess.

Well, I mean, the thing is they got into also, they wanted to sell lines of fixtures and stuff that they were bringing in from China and they had a software layer that they wanted developers to buy. So this is, this gets into the real complicated issue, which is if you develop a product, right, whether it's a 3D printed product or metal framed or wood framed or its fixtures or whatever it is, you're requiring that an architect and a developer specify your product. So you're saying that an architect and a developer have to know about what you have, and they're going to say, yes, we want to use that on our project.

It's a big leap. That's business development in that world, which is basically how do you get a whole bunch of developers to specify your product in what they're. they're building. And that's a typical product sales pipeline. The issue is you're going to be taxed, you know, as ordinary income on the margins of all the products that you sell. And you end up, in the end, you're building the only asset class in the world that appreciates in value when it goes out the door of the factory, but you're participating in zero of the upside. It'd be as if like every time Tesla released a car or Apple, you bought an Apple iPhone, it would go up in value 12% a

year. Yeah. Like, it's, it's unlike anything else in, you know, running a business, right? Like, I'm trying to think of another business where whatever product you sell somebody goes up in value. And then you don't catch it. It's the dirt. It's the dirt.

Maybe actually it would be the mining. It would be like rigs for mining Bitcoin currently in 2021. Like you sell the rig and it's going to have more future potential than the current rigs sell price, I guess. Or it's like, it's like the ability to get into space, right? It's really hard to get to space. Yeah. Right. In the same way, it's sort of like, yeah, it's really hard to fully develop real estate. There's a lot of laws and it's really complicated.

So the way we looked at it was like, you know, that's kind of this, it's sort of like, you know, Nelson and I working together on this business. Like we're a very un, like there's not, you know, he's got a huge, he's got a huge development background. I've got a big sort of product, product and tech background. And it makes perfect sense. And I think the history of the industry is like people that come at it from development don't really do that much fundamental innovation because it's hard for them to see that. people that come at it from tech get rung up in the in the mixer of real estate because they don't know how complicated and crazy the world of real estate development is yeah but if you can sort of do this and bring them together you know that's where the that's where the real value creation

is yeah you know the the I try to be open-minded towards this like cement 3D printed thing um aesthetically they look like you're living in like I don't know like a prison you know like the concrete architecture is just so oppressive. You know, it's like somewhere between the flintstones and a prison cell. That being said, I was looking at icons, you know,

3D printer and they did put some nice touches on the outside of it. Obviously, that was all done post you're saying, like there's so much work to be done, that it does seem like, you know, for an accessory dwelling unit or if you had like a ranch,

maybe building these, could be a viable solution, like those little, you know, what do they call those homes, the small homes movement where they put them on the tiny homes. Tiny homes. Yeah, like tiny homes getting dragged somewhere and just dropped in somebody's backyard in Austin and, you know, you, I saw this lot for sale in Austin. I was tempted. It just had like 10 tiny homes that had been built or dropped on them and they were making it into like a little retreat center. And I said, oh, that's kind of cute. No, not for me. But, you know,

when you have that kind of land, I guess. But yeah, I mean, you really, I'm looking at a boulder shaped house, a house in boulder or it's a boulder shaped house that's 3D printed from a Dutch couple and yeah, it is it looks like a prison or like a border detention camp or something.

It's aesthetically brutal. But think of it like, you know, so a 300 unit multifamily building with a mix of you know, different apartment types in a primary market, right? If you look at the, and this is where you get into the real world of sort of real estate stuff, everything changes based on the cap rate. So if you take that building, I mean, that's a $190, $200 million building, right? And if the cap rate goes from 5% to 4%, suddenly it's a $236 million building, right?

That's the real estate world. It's based on what can you build, if you were to go build a three, hundred unit, you know, multifamily unit projects, somewhere in a, in a class A rental area of California, that's the challenge. You know what I mean? Because that's where you can drop 300 units of housing onto a site and create an asset that's 200 million plus in value, right? That's going to be able to operate along the very well paved roads of real estate finance, right? But you have the advantage of being the only developer, right, who has access to your proprietary system to build a higher quality, lower cost, faster way of doing that. Yeah. Right.

And that is, that's where, like, honestly, when we start to get the scale up a little bit, developers will have to do that. You'll have to look at, okay, well, now, because again, it's construction's not going to solve it, right? The 3D printing and all that stuff, that's a construction technology. It's all good. It's useful. It'll be useful for construction companies. It'll be useful for home builders, all those folks. But the economics, all those are pretty baked in. Right. So, but once you start to unleash the innovation on the development side and you create that loop for, you know, how do you create wealth by reducing your costs? Suddenly, you know, if you can start to, if you, if we have a 400,000 square foot factory that's capable of building three, four, six, you know, 300 unit projects out the door a year, and you start to look at the economics of that. And then you start to look at servicing all of your tier one markets. And then you get your costs to a point where you can service tier two markets. Right. That's a lot of real estate. That's how you make the real impact. Yeah, for sure. All right, listen, it's great to be in business with you. I don't know if you're hiring for various positions right now, but if people wanted to work at the

company, where they go? Blockable.com. You can you can look at all the open positions. What are we hired for? Real estate development, engineering. architectural design, product design. So building all of those parts, putting them together, and then developing the real estate pipeline to go build. Fantastic. Okay, folks, you could do well.

I can tell you, I invest in a lot of startups. And this one has been fantastic to watch the velocity and the innovation. So continued success. And we'll see you all next time on this weekend startups. Bye-bye.