BRG – JPMC – SLI – Transcript

Robin:

Hi, my name is Robin Bolz and I'm the Head of Commercial Real Estate Strategy for JPMorgan Chase. And today I have the very, very great pleasure of speaking with Arlan Collins, Principal and Co-founder of a very established an award-winning architecture and engineering firm here in Seattle: Collins Woerman. And he's also the co-founder and CEO of a company, an offshoot of that called Sustainable Living Innovations. And that's really going to be the focus of our conversation today. So let's just start with, tell us what SLI is, basically what does it does-- what's it trying to accomplish?  

Arlan:

Yeah, so SLI was kind of born out of the Great Recession in a way and having practiced architecture for 30 years – and for 20 years at the time – and there was just a lot of things that the built environment couldn't deliver. Sustainability was coming on strong, we were building a lot of the region's high-rise buildings, they're slow-- well they're all great projects and great customers. But when you look at it, you go, “It's repetitive. How come it's not faster? How come it can't cost less? How come we can't get energy and water, use less of those things?” And especially in a high-rise residential project where essentially it's the same floor 20 times. Why can't that be done differently? And because of the beginning of the Great Recession, we looked at that as the opportunity to really reach in and see if we couldn't make a difference.” And I'd read an article that said the best innovation to ever come out of Detroit happened during the Great Depression. So we thought, “Okay, we're gonna, if we're going to have some downtime, let's take our grocery money and see if we can do something different.

We didn't think volume metric – in other words, building a box was ever going to work. That technology and that idea had been around for 50, 60 years. It goes way back to the 40s. And the problem with it is there's too many duplications, double floors, double walls. You can't get rid of a bunch of material that if you do it onsite, you don't need that material. So it has a huge handicap. Plus you can ship one at a time or two at a time or two halves at a time. And so it's just not efficient all the way around. And the way people were doing it as they were just taking construction out of the field and putting it in the factory…

Robin:

Still build it out of wood and just--

Arlan:

Well still draw a hole in the stud and run the wire through it the way you do it traditionally and so on and so forth. So we coined the phrase: “Build parts, not space,” and that we thought that building the right set of parts was the right idea. So what SLI is that others are not is we're fully integrated parts. And so we took the idea of panelized construction to a whole new level by integrating all of the MEP systems and all of the finishes and all of the things that needed to show up on that panel into it and put it on in the factory. And did it in a way where it could get soaking wet because it rains here in Seattle.

Robin:

Wow, really? And so you're really building walls and floors and ceilings…

Arlan:

Yeah, pretty much.

Robin:

…essentially, stacking them flat and being able to ship them out in a flat way. I mean, it seems to me to have a lot of advantages over your traditional volume metric model.

Arlan:

The high-rise solutions can be scaled down, but you can't go the other way. So if you take a wood-frame building and try to run it up into a high-rise world, it'll-- it just doesn't work because of the codes. But as a high-rise building, we can build a less intense building by deleting things and reformatting things and still keep our technology intact. And that's turned out to be a big deal.

Robin:

Okay. Let's talk a little bit about that technology. How do you, what differentiates your technology? So you build these panels and they're built out of steel, which some people would say, “Wow, that's so expensive and it's, how do you do that?” And then how do you structure the thing? Does it support itself? Does it have…?

Arlan:

Great question. So, another one of our early observations was…we felt there's only been one built environment, manufacturing building system ever invented that has scaled, and that’s structural steel. So, our strategy was, okay, take our panelized construction and let's figure out how to take structural steel, which holds the building up in our high-rise environment, and weave into it these panels that are these fully integrated parts that have all of this stuff on them, and see if we can solve that problem. And we spent years and years and years figuring it out and we did. And so now, on the job site, the structural steel truck shows up, the panel truck shows up, and they get erected together by the same crew. And you kind of go, “Well, of course that's out here.”

Robin:

Yeah. One of the amazing things I think is it's literally 10 guys at a crane--

Arlan:

10 guys—literally 10 guys and a crane, and you can build an entire building.

Robin:

Yeah. With no silk fence with no scrap pile with…

Arlan:

No, nope.

Robin:

…anything because the parts are already…

Arlan:

Done.

Robin:

Done, and you know they fit together. They were engineered and designed to fit together.

Arlan:

And we built multiple tests to be sure they fit together. But yeah, no, that's-- so erecting structural steel and erecting panels at the same rate as structural steel ‘cause we've done it enough times. That was the secret.

Robin:

Yeah. The land usage that this affords you, it's an amazing differentiator.

Arlan:

We can take the core of our building, put it off to the side on a single-family house lot, like 303 Battery, and put a 15-story building on it that has enough rentable area to work. Whereas if you had a concrete core in the middle of that building, that would not work.

Robin:

Yeah. I thought it was fascinating yesterday, we were at the groundbreaking on 303 Battery, amazing building, we can talk about it a little bit. But that building's a 15-story building, 121 units and it's being built on a 6,500 square foot lawn. That's amazing.

Arlan:

It’s a single-family house lot here.

Robin:

And then I love the map that that I've seen that you guys produce where it would take about 18 to 20,000 square feet to build that same 15-story building in a traditional sense. In the Seattle area here, there are, it’s downtown Seattle area, there were three buildable lots available that size. Of lot 6,000 to 18,000 square feet, there are 220.

Arlan:

Exactly.

Robin:

Now you're unlocking all of that orphaned land in amazing locations.

Arlan:

And it's already zoned high-rise, right?

Robin:

Right, it's already zoned the right way. And so these are the things I think that are very interesting of the nuances about your model that, it's more than just a product and more than just a set of cool things that you've built, some panels that go together nicely, but it has so many other benefits. Talk to me a little bit about this, another benefit of this which is the sustainability features that you've built into this building.

Arlan:

It's probably a bit sarcastic, but I used to say that the current environmental programs, they're green sprinkles on the same cake.

[Robin chuckles]

We would make the building the same way and then we would use more resources to make it green, right? And it's like, that doesn't pass the smell test, right? We really need a green cake. And so we thought SLI really needed to be a green cake. It needed to be embedded in it. It only would come that way; you couldn't take it off. And so half the energy and half the water became our vision out of the gate.

Robin:

J.P. Morgan, as you know, is very committed to affordable housing trying to solve for the affordable housing crisis in America. We could add $14 billion in the next five years in our Path Forward program to that. And that's what really started getting me as a strategist to start to think about, there's gotta be a better way than just throwing money at the problem. And in a traditional way, there's gotta be somebody that's thinking about this. And so talk to us about your passion for affordability. At least buildings sound like they're great, but are you going to charge at market rents for these or… how do you feel about how's this going to help solve that problem as well?

Arlan:

Yeah, I think there's a couple of problems there to solve, as you know. There's the homeless problem. And then there's kind of workforce housing, etc., etc. And we think our technology plays in both those arenas. On the market rate or the affordable, we've built a world-class product; the finishes, the technology, the natural light, the access to the outdoors, all of those things people are gonna pay up for. And a mixed income building like 303 Battery when you can get a lot of people to pay more than it costs, you end up with money to reduce the rent for others. And so it's kind of this inside of itself, it's subsidized, right? Because these people are willing to pay a lot of money for the living experience. And that means we can turn around and take some of that money that we don't need for returns and operating expenses and the costs we've produced and lower the-- use it to lower the rent for others in the building.

So we liked the idea of a mixed income building. That building’s got 27 out of 112 units of it. Our deed restricted less than 80% of average meaning income. And so that's one way for us to get at the urban affordability problem and we liked that platform. At the same time, Robin, as you mentioned, we have this wonderful opportunity to scale our technology, and we've been fortunate to be awarded these permanent supportive housing projects by the city of Seattle, which J.P. Morgan is helping us with by the way. And we couldn't be more excited about that partnership. And as we—and as you mentioned, the same panel goes in a PSH building as goes in the market rate building for us. So the more we scale our business, the lower each of our products, the lower the costs that each of our products have. So, and we've got those projects with you guys here in Seattle, we're excited to take that model down the west coast. And if we can use our technology to get help folks that struggle and people that face homelessness in our community and other communities, that would be one of the most gratifying things we've accomplished with this technology.

Robin:

Sure. Another thing. Arlan, I think that we were really impressed with is the way this whole paradigm shift that you're creating, the way it shifts everything even down to the traditional relationship between a developer and municipalities Typically that's a very adversarial relationship and developers need things to, big things pencil out. They're pushing every, at every turn, and the municipalities want some things and they're pushing back. Talk to us about how's the sustainability and affordability and how that, what you're doing changes the dynamic of that relationship.

Arlan:

Yeah, well we've been very fortunate here in Seattle, and we were hoping to be as fortunate in other cities. That the city of Seattle is really been our partner early on and they are interested in the sustainability. I mean, they're all passing legislation and new rules on carbon and that's coming quickly now. And the groundbreaking yesterday was a good example of 303, the world's first net-zero energy high-rise apartment building. And the city of Seattle, we got an extra floor for doing that, which is great. They've been embracing that project from the beginning; we got it fast tracked for a permit because of what it did for the community.

Robin:

The mayor was there.

Arlan:

The mayor was there, the King County executive was there. And I just heard, actually I got a text end of the day yesterday, we've had a zoning change for small lots trying to roll through the city of Seattle for the last three years. It's now been pushed to the last step. So what that allows us to do is there some setbacks and some things that is currently in the zoning code that would create a burden on the next small lot development and those are being removed. So the city is really on top of it with us. We're seeing the same kinds of things in San Francisco. We have yet to have the conversation with LA. But we did see it in other jurisdictions we've been to. People really are after something that will help with affordability thereafter, something that will help with carbon and with the environment. And so that you're right, that adversarial relationship goes away and becomes how do we work together?

Robin:

Yeah. Amazing how cooperative you get with when you give something to people that they really want.

Arlan:

Really want. And then they feel it's their job to deliver as a jurisdiction.

Robin:

Yeah, exactly. Well, Arlan, thank you very much for just taking the time. I know you're very busy with everything you're doing, trying to run two incredible businesses and be a pioneer and forge forward. It's been a pleasure, really, to get to know you over the last couple of years, to work with you, to work with your incredible team here at SLI. And I'm really looking forward to the things that you're going to accomplish and hopefully we're going to accomplish together with you. J.P. Morgan is just super, super excited about being part of this journey with you and help you to face change, what I think is the face of construction, not just here in this country, but really worldwide.

Arlan:

We really have been grateful for all the help we received. The path that SLI’s had to travel had twists and turns. And we got, we were helped by there's thousands of people in this community that have helped us. One of the things we believe at SLI is that the world becomes a better place one person at a time. And that when one human being helps another human being, in that moment, the world is a better place. So we're out to help everyone we can. We're out to help team up with J.P. Morgan and help our homeless neighbors. There's a lot of work to do here and we couldn't be more excited about our relationship and opportunities with J.P. Morgan.

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