Hello again. This is Josh Carr at The Real Angle, and today I'm speaking with Roger Krulak, founder and president of Full Stack Modular. Roger, how are you doing today? Pretty good, Josh. How are you? Good, good, good, good. Thanks for asking. So today, we're going to talk about modular construction. So let's start with the basics. Full Stack Modular, the 30-second elevator pitch. What are you guys, so to speak? We are a fully volumetric design, manufacture, system for mid to high-rise buildings. Got it, got it. You're a building in a modular fashion. And three dimensions, all good. And just so everyone out there knows, I've actually been to Roger's factory. So this is not a this is not a tech startup. They're based in Brooklyn. They actually are legitimately building buildings. Let's talk about some of your projects just to give people a scope scope for an idea of the kind of stuff you build. What have you built? What are you working on? What kind of projects are you doing? Yeah, so we you know we started out building the tallest modular building in the world, which is now the tallest modular building in the United States because the industry is growing elsewhere. We've built hotels, affordable housing, a couple of projects, atypical for LaGuardia Airport. We have just been we have just been selected to build 4,200 student housing beds in California. So it's a wide range, but in the markets that you know that that are really are our sweet spot. Now that's interesting. So I mean, I know the factory is in Brooklyn and you're building 4,200 beds in California. How does that work? Do you have a second factory? Are you trucking things across the country? Yeah, so we actually moved from Brooklyn to Hamden, Connecticut last year and that factory has moved and we also have a factory right now in Portland, Oregon. Got it, got it. So obviously that helps on shipping. So at this point, then you can do the east coast, you can do the west coast. Does I imagine cost of shipping becomes a factor? So if I called you up and said, Hey, I want to do something in Denver, is that is that not going to make sense at this time or how do you think of it? Yeah, it's like any other job, right? There's there's countervailing costs, right? So like, can I build it cheaper with labor? Can I buy the material cheaper? Does transport cost more? You know, it's a it's a typical reconstruction conversation. Got it. Now and you're talking about labor. And you know, you mentioned labor costs. So I guess that was one question I was going to ask you. I mean, we're like, I mean, I'm 50. I've been kicking around for a while and since I entered the industry, people have talked about modular construction and about why it made sense. And I mean, not to do your work for you. But you know, it's, it's you can control the process because it's in a factory, you know, whether stops being an issue, you can get the you can get the project up relatively quickly once you deliver the materials, all that sort of stuff makes sense to me. So where, where's your sweet spot? Does your process work better in high labor markets? Like what where? Why does someone go with you versus just saying, let's do it the good old fashioned way of how we've always built? Well, I mean, look, the value proposition of modular is first, you know, faster construction, less neighborhood, less neighborhood disruption, more sustainable, etc. And if the design build process goes correctly, you can also save money. And if you repeat what you're building, I should say, if you admit that you repeat what you're building, because all developers repeat what they're building, that they don't always admit that they're repeating what they're building. If they admit that they repeat what they're building, then yes, there's some cost savings just from the economies of scale that are created by industrialization, right? Because there are only so many ways to build one bedroom apartment, assumedly. And once you kind of figure that out, flying with code, there are there are a whole lot of parameters that you have to meet. And, you know, you can make a three or four fixture bathroom and you could put the toilet on one wall versus another. But the windows usually in the bedroom, you know, and you probably want a window in your living space. I mean, it's not, you know, it's not, there's, I don't think there's as much magic flow and multifamily as people like to pretend. Sure. And especially, I mean, you mentioned you're doing a student housing project and imagine a student housing, that's a wonderful example of repeat ability. I mean, because a dorm room is a dorm room is a dorm room. It's hotels, hotel makes sense. The thing, yeah, hotels up to the ultra luxury are, you know, up to, you know, five star probably pretty simple. The rooms are pretty much the same. You have this version, that version and that version, multifamily, the same thing, you know, like, do you really need three different types of one bedrooms? Like, if you can take one, one bedroom, one two bedroom, three bedroom, again, you can get enough repeatability that there is a value proposition. And the quality's really, sure. Yeah. So the other thing I saw it's the other thing that you were alluding to is the question about labor. And the reality is, is that you don't need to read, you can read a rag, you know, on your way, checking out of the grocery store, if you don't have your food delivered. And you'll notice that, you know, like, labor markets everywhere are a problem, right? Even in China, you could read today, labor is a problem. So not unskilled labor is more readily available than skilled labor and generally costs a little less. So if you want to be able to meet the housing need, which we're not, you need to find ways of using, you know, moderately skilled labor to produce things that are needed. And industrialization has been utilized in every industry construction for exactly that purpose. Right. No, and it is interesting. I mean, like, I enjoy following construction technology and seeing what the new innovations are. And I mean, every year, there are new innovations. Like, of course, there are. But like, at the end of the day, there's a, there's a lot more that doesn't change than what changes. I mean, I'm sure there's a toilet manufacturer out there who disagree with me, but fundamentally, a toilet is doing the job of the toilet. You know, like, it fine. This one flashes 10% stronger. Like, but at the end of the day, it's, it's, we kind of got that technology down. Yeah, vacuum systems for plumbing are quite interesting. Not exactly new, but they're getting pro they're getting proliferated. But I'm just to play with what you're talking about. But the interesting thing is, is like many of these construction innovations are very hard to implement on site. Right. I mean, everything that goes into a building is manufactured. Let's be honest. Like, what does what do we have? And even high end trim is manufactured. You know, custom trim is manufactured. So even the tools you use to put the darn thing together is manufactured. The only thing that's not manufactured is the built environment where it all ends up. How silly is that? Like, it makes no sense. Yeah, it's, it's, it's, it makes, I mean, look, everything you're saying makes a lot of sense to me. It's just, you know, amazing how long it's taken to get people to accept the reality of this. Now, full stack modular, like when did I know you were spun out of Forest City Ratner, right? That's what it was originally. And by then at one point, end of 2016. Okay. And were you a four? Did you work at Forest City? I like how did that? I was there for 15 years. Yeah. So I started this within four city. Got it. Then it became its own thing. Well, that's pretty neat. I mean, it's funny, because again, like, real estate isn't tech, right? So I think having a spin off entity whereas if you talk to Google or Apple, that would just be another Tuesday, but for our industry, we don't tend to spin off businesses again, because we don't tend to be innovating stuff. So there's no real reason to spin anything off. So that's interesting. That's interesting. Cool. So, so I guess a couple other questions I wanted to just run by you. So you've got you've got your team, you've got your factory up in Connecticut, you got another one down in Portland. So are you guys at a place now where you have a pretty steady flow of projects coming in and out? Like, which I imagine also means there's something of a lag time. So like if I called you up today and said, Hey, I want to build a, you know, eight story building, right? It's a matter of what getting in the queue. How does that? What's my experience of hiring you guys versus the old way, if you will? Yeah, I mean, I think it's the design build process, right? So it's design build to add industrialization. So you sit down day one and say, we want to build this, we want to use your system into control costs, we need to work together. And we're doing that right now, you know, at Cal Poly, we're defining the building, we're, we're utilizing the system, we're getting local, you know, HJs involved. And we're constantly pricing so that we can keep the process aligned with the goals. And so that's how it works. I think one of the things that you're addressing is, is it really a business to provide modular buildings for other people? Because, you know, the development cycle is is is very volatile, like the stock market and factories don't like sure. So, so, so, so, so, you know, we and many others in our industry are trending towards being part of the development team. So we can drive product through the factory, at least for a portion of our capacity so that you can level out the volatility for exactly the reasons that you're talking about because it doesn't happen in an hour, we have to buy all the materials, we have to organize them, we have to set up the factory, etc. So, it's a great question. And that to me is the future of at least most modular construction is is that they're going to be part of the development team, which is not unlike other industries. I mean, I know an automobile manufacturing, you know, sometimes like, you know, like the there's an EV that Jaguar is now discontinuing after a few years, but the joke is it wasn't actually built by Jaguar was built by a third party manufacturer in Austria. So it's like, you may say Jaguar, but it was built by a bunch of Germans, and it or should say Austrians don't offense to the Austrians there, but built by a bunch of German speaking Austrians, you know, but not a bunch of Brits, because that's just the way it is. And we which again, other industries have been doing this for centuries, you know, we could go on, I'm sure. One of my favorites is the is the like, PTAC or split system world, like, those are made in the same factories, you could slap, I mean, nothing against it, by the way, it's better if they keep it going with church, it's the inability, but you know, they slap a free drink on it, or they slap a GE on it, they slap it's the same product. Anyway, so yes, we, we, we, we have the need to be part of that development process so that we can keep our factory efficient cost effective, and if the staff employ trained and running. Now, so here's another question I have. So let's say, so you got this this gig for lack of better word, doing this development project for Cal Poly. So when they went out for the RFP, because I imagine it was an RFP because they're their government folk, when they went out and said we're doing an RFP to build, you know, X number of beds, Y number of rooms, whatever they put out, were you then competing against just other general contractors, build to suit folk, like, like, are there other modular people, not that I'm asking you to name your competition here, but like, was it like one modular guy, you and like four other just random people? Like, what did that look like? Well, so in this case, they were actually, actually, modular was the goal for intersecting is timing, etc. There are many cases with people you've already mentioned that that, you know, are like, Oh, modular or conventional or design build, they're comparing systems and they choose somebody to be part of that system. And we've done, you know, hackathons for that purpose. And you like, let's compare one versus the other, etc. But this one was a modular, specific focus. Interesting, interesting. No, I just, and I found that to be fascinating, because I mean, that that's remarkable that they as a client even were tuned in enough to say this is something we want to pursue. Because I've definitely worked on a bunch of RFPs where the client just says, you know, we need X number of rooms and shrug like that's as far as they got. I mean, I guess this is a good way to put it. There isn't a large GC in the United States today that doesn't have a group that is, you know, offsite, focused offsite construction. So, you know, I won't name them all, but you know them. They all have one of them have a big group. Some of them have a couple of people, some of them have, you know, but they all have one seven years ago. None of them had it. So, so it is a growth, you know, that's sort of a test. Besides the growth of the actual module, you see that the industry adapting slowly, but adapting, but adapting. Well, yeah, look, it takes us time. I mean, we are, we are definitely an industry that has the attitude of it worked before. So let's keep doing it that way, which also an all fairness to ourselves. It makes sense. We're building things that are not consumer products. We're building things that have to survive years and decades, even. So if you want to build something in the last decades, you know, you probably ought to be saying, I mean, I a little bit loud. I mean, I, I think my great grandfather was a carpenter. And you can put him on a construction site today. And he, I he's been dead since I was born, which was a while ago. And he would be totally comfortable on a construction site today. That's disappointing. I mean, at best. No, that's true. That's, it's it's true. I mean, yeah, the technology moves. But at the end of the day, once you kind of figured out the basics of it, it kind of, it kind of keeps on trucking. So, so I guess, so here's another way of looking at this. So your, your entity, you guys are, you've got your privately held business, you've got these couple locations here. How does your firm grow from this point? Is it opening up additional factories? Is it just doing more of your own projects? Like, where do you want to grow the firm in the next five, 10, 15 years, if you will? Yeah, 15 years, I will be retired. God willing. But, but our our trajectory right now is, is, you know, the industries we have, but really focusing on being part of the development team, we want to build our own stuff. That's really where I think the industry needs to go to be successful and grow. Got it. So then, so then in a lot of ways, at that point, and I don't mean this in a bad way, but at that point, you're, you're just like every other, you're just another multifamily developer, except you have this secret sauce, if you will, because you have your own factory, you can control costs, etc, etc. And we have a whole bunch of things as a result of that, you know, and the relationships that we've created with, with the industry and labor, etc, are make it very, it's a very big push to rethink how we create housing, because we're not succeeding at all as like, as a country as an as industry, we're not creating the housing we need. And we as a country have created this incredible manufacturing capacity for technology, actually, you know, like chips, etc. And there's nowhere to live by any of the factories, like, what are we going to do? And, and yeah, oh, my topic. And, and so we have been focusing with all those people to try to figure out a way to lean into this process and find a game plan that is, but collaborative and, and, and, and aligned rather than a sort of adversarial situation that you're talking about, like, I need a hotel that costs less than 200,000 a key. What do I do? Right. No, it's interesting. It's interesting. I mean, it does, it does tie into a lot of the broader issues regarding, you know, cost to construction. And the fact that we're just not building up housing units, we have a lot more people than we have housing. And there's been a total lack at the state and federal level and most most jurisdictions of the state level and feds in general to have anything resembling an answer. Just it is what it is. Yeah, they have been historically inefficient. But the good news is some of them are opening up their eyes to say, could I be more efficient, which is at least a first start. Right. So, so here's another angle I wanted to, to two other questions I had just to get them out. One is from a regulatory standpoint, and the other is just from a union union unionized labor standpoint. So from a regulatory standpoint, like, are they doing when they do inspections for you, they're doing inspections on site like everything else? Are they coming to the factory? I mean, from the code enforcement officers standpoint, is his job really any different, I guess? Yeah. So the interesting thing is, you know, you mentioned, you know, sort of the old HUD manufactured housing world, the interesting thing about it is it was created in the 40s and 50s, mostly 50s, the post world war. Sure. And, and they created a nationwide system that was almost exactly the same in order to have states inspect the manufacturing process and its compliance. And most of the modular construction, whether it be permanent or temporary or HUD, you know, or manufactured, follows that process. And it's, it's well oiled and well organized, and it's code compliant, etc. Usually, there's a third party inspector that is certified by the AHA authority having jurisdiction, usually the state, not always, but almost always. And they inspect in the factory. And I'm sorry, just just to jump in, you used an acronym, what was the acronym you used? AHA. HJA. AHA just already having jurisdiction. Thank you. Just wanted to find that for people listening, keep going, keep going. And usually, I said, it's the state, there are a few cities or counties that have their own sort of modular process. It's still the same process, but it's just a different group that's sort of in charge. So those inspections in the factory, with the exception of special inspections, which obvious, well, usually by law across the United States have to happen by the owner, the owner has to hire the special inspectors. So those special inspections, wherever they're happening happen, but they're small, you know, small in quantity, have to happen wherever the work is going on. But the rest is done by a third party. They're signed off as complete according to plans and specifications, a full quality assurance program certified factory, etc. and so forth. And then it goes to site and then the final inspections happen. Obviously, all the systems get tested and it gets signed off by the by the so yeah, so so so there's so that machinery looks not dissimilar. And then from a union labor standpoint, is that I mean, I'd imagine if I'm a union rep in my hometown and you now tell me you're building this in Oregon, obviously that would not make me feel warm and fuzzy. Is that is that an issue for you guys? How does that work into this whole conversation? It's a great question, Josh, and I'm really happy you asked it because we have a very as I sort of alluded to earlier, we have a very good relationship with with with the building trades holistically. And we believe so so we now act as basically an alternative apprentice program for the trades. And we are signatory with the trades. In the factory, the work is different. Okay, like it's not, you know, it's not trade organized. It's it's work organized. But we have no full cooperation and collaboration trying to figure out how to build more housing with the building trades. So far, working with, you know, New York, Connecticut, Pacific Northwest, and parts of California, as as the as the start of that. But we are we are planning on growing together this process because we need we all know we need the housing, including the people who work in the trades, you know, the average right I mean, the day if it doesn't get built, I don't get paid anyway. So okay, so it sounds like a process which is yeah, we have a great relationship, huge respect, believe in the process they understand the need to build housing, you know, you know, full union rate housing in most places where unions are strong is not affordable. And it's not even attainable in many cases. And and so they also are looking for solutions that don't abandon their goal of supporting the workers, giving them a living wage. But if you have to live three hours from your job, you know, how much value is it to make an extra 15 or $20,000? I don't know. I don't have an answer for that. But it is a concern and something they're trying to. Yeah, I know it's interesting. I mean, it sounds like you guys are winning the fight based on more about controlling the process than it is about well, we'll just use a bunch of low wage labor, because at the end of the day, you still need skilled labor to do a lot of this work. Just by its nature. You need to train people to do your their job. I mean, that's manufacturing 100% right if people don't effectively do their job, your inefficient cost inefficient quality and efficient. So it's bad. So you're putting in so when you guys are building stuff in the factory, is there anything you're not building in the factory? Like elevators, I imagine, have got to be local, right? So like, there's there's some stuff that you guys just don't do because you just don't do, right? Yes, I mean, we don't put the final roof in. We don't actually install the elevators in the factory, although there are many successful modular elevators that can go, you know, six or eight stories. But we do go to elevator shafts, we install the stairs, all the hallways, fully distributed MEP. It's an entire structural system by itself. You don't we don't match anything. We just sit on opposite thing. So it's a fully holistic holistic system. Got it. Got it. No, it's fascinating to me. It's just all there. It's it's it's interesting stuff. I there's definitely there definitely better ways to do things that we've we've done it today. Cool. So I guess last question I have and then I'm I've gone through what I wanted to go through. So right now product type wise, hotels, I see the obvious need multifamily, I see the obvious need. Any other any other things that would surprise me or product types that just you think are going to stay site built for a long time? Like, where do you where do you think you guys don't have an edge? I guess is a better way of putting it. I think the question is is where we think our product and our process fits best, right? And apart from the three things that you talked about, which is hotels, student housing, multifamily, you know, from affordable through market. We do we have several times done work and airports for this, because if you think labor is inefficient on a construction site in its city, labor at an airport is even more on unproductive. So there is a compelling reason. And by the way, some airports have holistically embraced it. In Texas, there's two airports that literally built almost their entire airport modurally so that they can and also so that it could be moved around like when, you know, one airline goes out or when gets busier that you could move like retail back and forth. I mean, so so there are a whole bunch of applications that are that are compelling, mostly from cost and efficiency perspective. Interesting, interesting. Well, good. Well, thank you for turning around my turn around question. That's much appreciated. Well, good. Well, I've gone through what I wanted to hit. I wanted to introduce the the modular concept and also for people listening, have them realize that it's it's more than just we're not just talking about a house on a truck here. We're talking about the big stuff at this point. For those of you who are interested in checking out more about Rogers Company, their website is full stack modular.com and they've got some information about projects they've done and some pretty pictures. And at least you can see some of what they've been building. Great. Well, look, Roger, thank you again for your time. And again, for anyone who wants to check that out, that was Roger Crulack at full stack modular. Thanks again. Thank you, Josh. Have a great day. You too. [BLANK_AUDIO]
