Podcast

Episode #200 – Simplifying Construction Through Advanced Manufacturing with Dafna Kaplan, Part 1


Real estate construction costs have gone through the roof!  With inflation hitting every sector, real estate investors are feeling the pinch as their profits are being slashed.

The solution to these high construction prices is simple…

Use technology to deflate the cost of construction.  Now, you can build a one-bedroom apartment pod and turn it into a multifamily development at the fraction of the cost.

In this episode, Dafna Kaplan of Cassettesystems joins us to discuss how technology is transforming the real estate industry with these apartment pods that are reducing construction costs and inefficiencies.

Listen now.

Show highlights include: 

  • The new technology in pre-fabrication that is slashing the price of construction ([3:20])
  • The main reason why construction is such a slow process (and what to do to speed it up) ([4:15])
  • The Multi-family development strategy that will leave the competition in the dust ([4:35])
  • How to build apartments quicker and cheaper by using this “Lego building” method ([6:35])
  • The “Disruption” formula for eliminating contractor costs and delays ([7:45])

To connect with Dafna Kaplan, please visit:

https://www.cassettesystems.com/

To get the latest updates directly from Dan and discuss business with other real estate investors, join the REI marketing nerds Facebook group here: https://adwordsnerds.com/group

Need help with your online marketing? Jump on a FREE strategy session with our team. We’ll dive deep into your market and help you build a custom strategy for finding motivated seller leads online. Schedule for free here: https://adwordsnerds.com/strategy

Read Full Transcript

You're listening to the R E I Marketing Nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of AdWords Nerds, a high high-tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now your host, Dan Barrett.

(00:41): Alright, hello and welcome to this week's episode of the R E I Marketing Nerds podcast. As always, this is Daniel Barrett here from AdWords nerds.com. And look, if you need more leads, more deals online for your real estate investing business, you know where to go, it's AdWords nerds.com. You can jump on a call with our team and we will help you put together an online marketing strategy for your market for free this week, man, I have such an interesting conversation for you guys. This week I am talking with Daphna Kaplan from Cassette Systems. You can go check them out@cassettesystems.com. And Daphna has this amazing background that brings together manufacturing and real estate to try to do something at the intersection of both. She's got a deep understanding of complexity and the depth of knowledge in both the manufacturing and real estate fields. And over at Cassette, she's bringing that expertise to bear to work on a brand new product looking to revolutionize what's available for prefabricated multi-family housing.

(01:52): She is an incredibly ambitious person. She's a motivated person, she's a person that's motivated by a deep sense of ethics, of understanding of what troubles real estate and manufacturing separately and how those things come together to affect society at large. She is a really fascinating person and a fascinating thinker, and I think you are going to get a ton out of our conversation. So without any further ado, let's jump into my interview with Dafna Kaplan from Cassette Systems. All right. Hello everybody. What's up, Daniel Barrett. And I'm here with Dafna Kaplan from Cassette Systems. Dafna, welcome to the show. Thank you so much for being here. Hello, nice to be here. I am super excited to have this conversation with you. We talked, we spoke a little bit like I think a couple weeks ago now, and I had so many different things that I wrote down, but I want to start with cassette systems. So if you were listening to this right now, the website to go and check out for this is cassette systems.com. And I want you to give people a little bit of an overview of what you guys are doing at Cassette because it's really interesting and has, I think really sort of broad connotations that we can take in a ton of different directions. So give people the 30,000 foot overview of what Cassette systems is doing. Sure.

(03:17): So it's really quite simple or at least it sounds simple. It's actually quite complicated, unfortunately. But the simple answer is that after spending about a third of my career, the early part of my career in the manufacturing and product sector, and then experiencing the last 15 plus years in the construction real estate architecture world, I was starting to look at where those two worlds were converging in prefabrication. And I felt like there was miscommunication happening in both directions. There were a lot of, I think construction sector and real estate people interested in what manufacturing could give them in the way of better, cheaper, faster construction without a real understanding of the economics that made manufacturing happen. And meanwhile, there were a lot of people in the product and tech sector looking in thinking, why is construction so inefficient? We could just fix this without really respecting what the reasons for the inefficiencies in construction and real estate. And really, once you dive in both sectors, there are so many brilliant people. And so in a nutshell, what cassette is doing is trying to be this translation engine between what makes manufacturing work and what makes real estate work so that we can make manufacturing work in real estate. And we are doing that by going very, very focused on multi-family housing and being even more focused by launching a single product. And that is a one bedroom apartment that we're launching on Thursday this week.

(04:57): Oh my God, that is wild. So if you're listening to this, we are recording this on October. I got to check the date 18th. So you guys are getting ready to launch. I think by the time this episode is live, this will have launched already and kind of be available to the public, which is super exciting. So when you say a single bedroom apartment, can you just describe for people who can't see this right now? So by the way, you should absolutely go to the website. The cassette systems website is super cool. There's some really, really amazing imagery of the stuff that you guys are designing and building, which is just really cool looking, really kind of modern and sleek. But for people that can't see this right now, can you describe what it actually looks like?

(05:41): Sure. And by the way, thank you for saying that. I've been terrified that I've put no energy into the website. So that is a huge relief, right? We've put all of our in the last few years into engineering and focusing on the product. Yeah. We are fortunate enough to have this first product. Really the design side of the experience for the apartment dweller is led by Craig Hodges and Ming Fung, a very famous southern California duo called Hodges and Funk. They design redesigned the famous iconic band show at the Hollywood Bowl and other really interesting sort of hybrid architecture, industrial products like structures. And so they've had a dream around this idea for many, many years. And in a discussion about a year ago, we realized that our dreams were sort of aligned and they really brought the vision to life. So cassette had put a lot of energy into creating a steel structural system that could stack up to six stories without any external structure.

(06:46): So like Legos, you just stack them and they work together, they go together quickly on site. We were really focused on the ease of construction and the simplicity of general contractors and plumbers and engineers on site connecting with the system without too much complexity. And part of that is just that any given building project from design through occupancy is probably touching 80 different companies to get built from the architects and the early engineers to the community, to the plumbers, to the drywall contractors, the electricians. And so if you're going to disrupt or hopefully transform if you will, the construction process, you really have to make that a simple change for every party in that chain. And that becomes even more critical when you think about the fact that every project is designed by a different combination of these companies. And so you're not having a series of 80 companies that's learning this new path with your product, you're changing that mix every time a project is getting built. So it really needs to be a process innovation in how you deliver it, which is part of, I mean, that leads to my explanation of why we're launching with one product. If your first answer is, well, can I get a two bedroom and a three bedroom? Well sure. If the customers will invest in this first Lego brick and we start building it scale into the thousands, we will absolutely launch a decking product.

(08:25): Want to find motivated seller leads online but don't know where to start. Download our free motivated seller keyword report today. Edwards nerds have spent over $5 million this year researching the most profitable keywords for finding motivated seller leads. And you can grab these exact keywords when you download our report at www.adwordsnerds.com/keywords. It strikes me that you have, and this is something that I want to dig into when we talk a little bit more about manufacturing, which is such a big part of your background, it really sounds like you have a deep understanding of how complexity creeps into businesses and systems and processes. I mean, it strikes me just that you were saying that 80 different companies can be involved in the construction of a single building and it's like one of the sort of go-to stereotypes of construction projects is, well, if you ask someone how long they're going to take and they say a year, you really make that five years in your head. It's you have this sort of creeping project management expansion thing that happens. I'm curious, is part of the idea that it's just going to be by managing the complexity inherent in the thing you are producing, you are also producing sort of easier scheduling and project management and lower costs. I mean, have you really thought about that sort of complexity element in what you're doing?

(10:00): Oh, for sure. Oh for sure. And I think mean I'm not the only one who thought about that, that is part of the driver and the reason that there is this surge in demand over the last 10 years for prefabricated manufactured solutions. My observation was just that, and thank you for what you said, I'm not an expert in manufacturing. I know enough to be dangerous and I've interfaced with almost every kind of manufacturing. So I understand the drivers and the economics of it and what it requires to actually be manufacturing. And part of what I think the problem is is that a real estate developer wants what manufacturing has, but often that real same real estate developer, when it buys manufacturing, it breaks it . So it breaks it by saying, this is what I think I need on site. Can you do this? Can you do that?

(10:52): And in essence, what that developer is then getting is a prototype, which in manufacturing is usually not better, cheaper, faster. It's usually slower, more expensive and sloppier than a production unit. And so if you want to buy a prototype, that would be the process. If you want to buy half of your construction cost, if you want to buy it the same way you buy a refrigerator or an air conditioner, you have to respect that. No, you can't change it. That product has had the prototyping and r and d baked in by the company that invested in developing that and making it work every time for you. And so your job is to, or your job as the architect is then to take that object, then it's constraints and see if that works on your project. It may not work on every project, but if it works on your project, what are the things you can do that can make that architecturally exciting on that site without breaking the manufacturer or breaking the product in the process?

(11:55): So I want to dig into that a little bit because it does strike me. You said this earlier, part of what cassette systems is trying to do is almost be a translator across these different worlds. You have the world of manufacturing, the world construction, and you've got even connected even further beyond those, the communities that these buildings are going to be in and all that stuff. So I want to dig a little bit into your background. How did you get involved with what you're doing today at cassette systems? You mentioned you sort of came from knowing enough about manufacturing to be dangerous. So what's that kind of plot line that gets you to cassette systems?

(12:36): Well, I mean my background was really working within the consumer electronics industry and an early filter that I had was working at a company called CRA Clarion, I'm sorry, in my early twenties. And they at the time were the OEM manufacturer for nine out of the top 10 car manufacturers for technology. And so at the time, which was in the nineties, and I'm aging myself, those manufacturers in that exciting Toyota moment, Japanese automotive manufacturing really taught the world about lean manufacturing and about process improvement. And so it is, it's an early filter through which I see the world, but so is sort of later experiences in that early career where I worked with a bunch of art center graduates that were industrial automotive designers that started designing products for consumers. And they built in me this understanding that great design didn't have to be expensive. If you respected the process of how things were manufactured, you could actually build great design into that if you were willing to do it at production scale. And very soon thereafter target sort of showed the world that model with Michael Graves for Target and these other architects and designers that they started engaging to design things like your teapot and things at home that you could have delight out of. But buy for 1999, Right?

(14:05): World World famous architect designs my teapot and I get it for 20 bucks. So that whole understanding of what's possible if you ask the right questions and respect people that are experts in each of their fields, that's the sort of thing that I think started to illuminate my interest in how to make modular construction work on an ongoing basis so that it wasn't just on the first project, you're going to show this great product that works. Hey, how do we actually reduce the cost of housing by 30% in three years period? Why is my television better, cheaper, faster every year? But construction is always more expensive and less efficient. That needs to change. And especially I live in Los Angeles, we are epicenter of the homelessness crisis in the country. This just has to be an emergency. And that is qualitatively the side of things that really push me over the edge to make a move and just try this

(15:05): So mean. Let me ask, you mentioned this kind of philosophy that you developed through your experiences, your first some consumer electronics and then this idea that if you respect the fact that there are really intelligent people in these different domains that have to come together to make this thing happen, you can really affect really incredible change. The example you used, I have a designer teapot in my home, right? It, it's an incredible thing. It's a beautiful thing, but I got it for 20 bucks. That's a big positive change, right? Yeah. I'm curious why you think that doesn't happen more. What is the source of the miscommunication or the inability or maybe the unwillingness to communicate between manufacturing and real estate? Is it just they speak past each other? Is it that there's a lack of openness? I mean, why do you think that problem persists?

(16:02): Well, I think both are very deeply complex industries. And I'm not talking about necessarily plastics manufacturing. I'm talking about complex manufacturing like aerospace or automotive would be more akin to manufacturing an apartment because there's a lot of sub-assemblies and systems that go into that that's complex. And one of the early factories I visited that I was so impressed with was just making layered plywood can clt, they call it sort of a high-end version of plywood. And I said, how long did it take you to become this efficient? This factory is amazing. And they said about 50 years. I think it takes a long time to become something complicated. And the same thing in construction. You can imagine how long it takes and average, say 50 million building might take three to five years to get built. And so you look at most architects that are expert and they're in their sixties already. I worked at a construction company that celebrated octogenarians. We had 80 year old plus people that were overseeing and they were respected for their wisdom. And so I think these are just very complicated areas. I think I missed the first part of that question if you ask it again.

(17:17): No, I mean that was great. I was asking why do you think there's this sort of persisting issue of lack of cross communication between those domains? Yeah, there's another piece of that that I think is really important and it's just that there's this fundamental dynamic that's different between what manufacturing is usually doing as we know it in the world and what real estate is doing. And so usually if you buy an air conditioner or a television set, you place an order and manufacturing makes it and it arrives kind of as soon as I can get it to you. When you're in real estate, you think you're going to start a project on May 1st, but you are, as a real estate developer or a customer of construction, you're also at the mercy of your financing, whether that's a bank or private equity or some other financing, you're at the mercy of how busy the building and safety department is in your town. You're at the mercy of the fire department, you're at the mercy on that schedule of a lot of parties.

(18:20): And what the result is, the net result of that, as most of your audience probably knows, is that the average project might slip six months from when it's scheduled to start. And if you feed that dynamic into a factory and you don't respect that, if they have 10 orders in the factory and everyone is customizing their order, that's going to create idle time on a factory floor and that factory might be burning a million dollars a day in capital. And so you simply can't connect those fundamentals unless you create a really easy way for the manufacturing side of the business to handle that variability. And that's part of what we spent so much time trying to figure out and map out. It's still going to be something that's a learning process for us on the way. But again, it speaks to why are we launching with a single product? Well, there are a lot of variables solve that are actually not technical various variables so much as they are business dynamics.

(19:20): So when you, at cassette systems, when you're working with your customers, are you sort of providing that sort of additional service of helping them through that process and understanding, because I see what you're saying, right? If you treat manufacturing as if it was open to the same contingencies as, for example, real estate project management, you blow up both of those things continuously, right? Like you, You're, and the weight work and the way that they're built around risk, it's sort of easy to see how either the project fails or the manufacturer fails. How do you make them both win? And so, no, my answer is I can't make real estate. That's something I can't fundamentally change about the ecosystem of real estate. What I need to change is the flexibility of my business in providing that manufacturing service and that product. And I don't, I'm not going to get into exactly how we're doing that, but some of that is just, again, how do you simplify that or diversify? You see it in the stock market. How do you diversify inputs and outputs on a simplistic level? Hey guys, hope you enjoyed part one of this episode. It's just too good to limit to one show. Join us next week to hear the rest.

This is thepodcastfactory.com

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