Shell Shock Absorber: One Way to Cut Lumber Waste, Secure Framing, and Deliver on Time and On Budget

Completing two-story house building enclosures at a rate of 17 a day, Orlando-based Raney Construction offers a fully-operational offsite look at high-volume building's near-future.

In Central Florida, as in many markets around the United States, builders feel the brunt of both labor capacity constraints and lumber price hikes, playing havoc with input cost pro formas and gross margins.

Orlando's a hot market, where by far the lion's share of homes carry price tags of $300,000 or below, where margins are razor thin on a good day.

Builders there, like almost everywhere, are paying more for lumber and have a more difficult time securing their framing lumber packages, and then, have trouble lining up framing crews to fit tight start-to-completion schedules, all factors that impact their ability to deliver homes within price tolerances of home buyers that also make money.

You might think that one thing every home builder without fail would do to respond to these input cost headwinds in a business environment like this would be to go all out to eliminate waste in the use of stick-framing's basic building block, framing lumber.

You might think that, and you'd be wrong.

Estimates these days are that a framing lumber package for a typically-sized home in Central Florida runs these days at about $10,000, up $3,500 from where prices on the same package would have cost a year ago. In the judgment of some, builders incur waste of as much as 20% in a traditional stick-frame on site.

On the other hand, if a builder shifts construction of roof trusses, wall panels, and flooring off-site to a factory, that builder's headache over on-time delivery to site of the lumber package, not to mention savings of up to 20% on the added cost of lumber and labor hours for each new home--around $1,000 per versus the latest price shock on lumber prices--can restore reliability to both a completion schedule and a gross margin. Add to that the precision and speed a builder gains from having software-driven CNC machines cutting, and other automated processes to fit, nail, and move completed components to a next stage of completion.

This year, Raney Construction Inc., run by bootstraps offsite innovator Buddy Raney, will serve as "vertically-integrated total solution" on 3,500 homes, on track to factory-produce 1.1 million board feet per month of roof trusses, flooring, and wall panels, a 20% increase in business activity over 2017 totals. Builders like Ashton Woods, Beazer, D.R. Horton, Jones Homes, KB Home, and Shea regard Raney Construction as a go-to source for construction operations velocity and predictability on 17 homes per day, which in times of labor volatility and cascading detrimental impacts of an escalating global trade war, can go far toward assuring builders the profits they modeled in their 2018 budgets for direct costs.

To a degree, home builders aren't home builders," says Raney. "They're home closers--great at land speculating, positioning strategy, and investment, marketing, and sales. What we do is to provide them the whole shell, including the slab, which has to be perfect to make all the other precisely engineered and cut assemblies work on the home site."

Raney says his business--around now for the better part of two decades--has swung into overdrive as more builders awaken to the construction operations opportunities offsite. This awakening has accelerated, especially as it becomes clear that the conditions that account for residential construction's labor capacity predicament are only likely to get worse as the current stable of skilled tradesmen and women age out at a rate five times greater than the pace of new, trained entrants in the skilled trades.

Raney's plans currently call for expansion--he's currently running at a shift-and-a-half capacity at his Orlando factory facilities--with a new Florida plant coming online in the next 12 months, and a move into the Texas market within a 24-month time frame. All of this expansion momentum will draw, Raney believes, from a capital raise effort he's now in the home stretch of, thanks to the financial strategic guidance of Margaret Whelan, ceo and founder of Whelan Advisory, LLC.

"The commodities market is going to do what it's going to do, and builders can't get around having to pay for their materials and labor, so it makes sense they're trying to eliminate as much waste as they can from every unit," says Raney. "That's why more of them are looking for what we can do for them right now."

With construction workers scarce, homebuilders turn to robots, software

BALTIMORE  – The construction of an American house embodies the spirit of the nation’s workers and the dreams of its citizens.

It’s also perhaps the least-efficient endeavor in the U.S. economy.

Dozens of workers turn a plot of land into a small factory, sawing wood, nailing it together, cutting holes for windows, running wires and pipes and installing drywall and other finishes. Four months or so later, voila: A home for generations of families.

Now, a worsening construction worker shortage that has driven up home prices is beginning to turn that routine – largely unchanged over the past century – on its head.

At a sprawling factory owned by Blueprint Robotics on the industrial outskirts of this city, a house frame – complete with windows, plumbing, insulation and electrical wires – is chiseled in large panels by computerized machines in about a day. The pieces of walls, floors and roof are then trucked to the construction site to be assembled in several more days. Although drywall and other features must still be added, the process – which has been used in Europe for decades – can shave the time to build a house by as much as half.

A new generation of prefabricated housing that bears little resemblance to the modular homes of old is among several technologies homebuilders are embracing to cope with the worker shortage. They’re also starting to deploy bricklaying robots and software programs that allow them to avoid miscommunication and delays. 

We’re at a tipping point where it’s finally just gotten too expensive to build the old-fashioned way,” says Margaret Whelan, CEO of Whelan Advisory and an investment banker for the home building industry.

Many construction workers left the field during the housing crash. Baby boomers are retiring in droves. Immigrant workers face new government crackdowns. And few high school graduates are choosing a career of back-breaking labor.  

Last year, at least half of homebuilders reported a serious shortage of framing crews, carpenters, bricklayers and other tradespeople, according to a survey by the National Association of Home Builders. The worker deficit is a big reason NAHB counted a four-month supply of existing homes in April, below a balanced six-month inventory. The limited stock is crimping home sales and has helped drive up national home prices nearly 50 percent since 2012, according to the S&P CoreLogic Case-Shiller index.

The emerging builder strategies already seem to be paying off, at least to some extent. Despite the labor crunch, 910,000 single-family homes are expected to be built this year, up from 851,000 in 2017, NAHB says. Yet there’s demand for 1.3 million, says Robert Dietz, the association's chief economist.

While hundreds of factory-built homes have been put up the past couple of years, up to 20 percent of houses could be prefabricated in five years, says Stephen Kim, a senior housing analyst for Evercore ISI, a research firm. And factory workers earn 30 to 50 percent less than construction craftspeople, he says.

“I think this will be a significant change in the way houses are built,” he says.

The industry is due for a fresh approach. While U.S. productivity, or output per labor hour, rose an average 1.76 percent a year from 1995 to 2015, productivity in construction declined an average 1.04 percent during that period, according to an Evercore analysis of government and McKinsey Global Institute figures. Contractors are vulnerable to weather, human error and the missteps that result when dozens of unrelated subcontractors join forces to cobble together a home.

The factory-based builders aren’t producing the kind of modular houses that have been around for decades – three-dimensional chunks of finished home pieces that are shipped to building sites in limited varieties. The new manufacturers, who serve as suppliers to traditional builders, make flat panels and can churn out any blueprint the builder requests.

Building a house frame in a day

At Blueprint Robotics, about 30 software engineers and architects convert builders’ plans into programs that computerized machines follow. The machines, robots essentially, cut wood to length, form holes and grooves for electric sockets and wiring, nail the wall studs together at precise intervals and then add bigger holes for windows and doors, along with a particle-board-like sheathing.

Tasks that could take traditional workers an hour or more are completed in minutes. The factory crackles with the familiar sound of sawing, hammering and drilling, but it’s mostly machines making them. About 35 workers in blue sport shirts are scattered throughout the 200,000-square-foot plant to assist rather than toil, starting up machines and loading panels.

Machines tilt walls upright and move them on a conveyor to stations where workers briskly add wiring, pipes and windows. A robot shoots insulation into the spaces between studs. A similar process cranks out floors. A walk through the factory is like watching a house being built horizontally, with wood facades lined up in neat rows at the end.

At the construction site, it takes about a week for a crane and seven Blueprint workers to lift the panels into place and bind the frame together so the homebuilder can complete the house. The homebuilder then takes over, finishing the house the usual way by adding features such as drywall, kitchen counters and carpet.

Of the on-site improvisational method that still dominates home construction, Blueprint CEO Jerry Smalley says, “Would you have your car built that way?”

New Jersey custom home builder Robert Kiejdan recently hired Blueprint to help put up a 2,700-square-foot house in Margate. He says it normally takes his subcontractors up to six weeks to construct the shell that Blueprint turns out in eight days. After factoring in weather and other delays, he estimates the house will be completed in three months instead of the usual six.

Other technologies:

Bricklaying robot

Construction Robotics of Victor, New York, has developed a bricklaying robot known as SAM – Semi-Automated Mason – that can lay 2,000 to 3,000 bricks in an eight-hour day compared with 400 to 600 for a human mason. Last year, it erected the brick façade of the lower floors of a 180-unit apartment building in Chicago.

“It’s more productive,” says Jim Weyer, president of Richards and Weyer, the masonry company for the project. The firm was able to use just two bricklayers instead of seven, cutting costs despite the $2,900 weekly rental fee for SAM.

Construction Robotics executive Zak Podkaminer says other multifamily builders are lining up. And single-family homes are a possibility, though smaller facades would be built in factories.       

Construction management software

Building a house is a study in chaos, with a contractor bringing on dozens of subcontractors in a kind of ballet that’s anything but graceful. If rain delays framing by a few days, that pushes back the door and window crew, the drywall team and everyone down the line. Calling all the players to relay changes often results in missed messages. And if tradespeople show up the wrong day, they may not be available on the right day, further snarling construction.

Management software connects contractors and subcontractors to the same schedule, says Felix Vasquez, CEO of Hyphen Solutions, a provider of software used in 27 percent of housing starts last year. If framing is delayed, a manager clicks a button that pushes back the tasks of other subcontractors, who receive alerts.

Besides modestly speeding construction, the program can let a manager oversee about 25 projects simultaneously instead of 15, estimates Jonathan D’Urso, an executive for K. Hovnanian Homes.. Last year, it let the company build perhaps a few dozen more homes, he says.

“We're making fewer mistakes,” D’Urso says.     



Builder: Inside Entekra's Innovative Framing Process

"Early one morning in August, veteran California carpenter Patrick Johnson showed up for work with two fellow crewmen of varying experience, Barry McKenna and Benny White, at a site in Northern California’s Eastern Valley.

Three working days later, after starting with nothing in front of them but a bare slab poured level by Merced, Calif.–based Central Valley Concrete and Trucking, the three stood back to look at what they’d accomplished: a fully framed, two-story weather-proofed enclosure for a home that would retail in the low $400s in Stonefield Home’s Mission Village in Los Banos, Calif., 80 miles east southeast of San Jose...

Entekra also engaged Whelan Advisory CEO Margaret Whelan, a leading investment banker to the housing industry, who is leading a capital raise for Entekra that would provide liquidity for two immediately planned factory expansion projects to support the five-year business plan.

The company’s strategy is to scale like there’s no tomorrow. The Ripon plant is in continuous production mode, and McCaughey and his co-founding COO Bran Keogh expect it to reach its 500-home annualized run-rate in mid-2018. Revenue for Entekra gets its rocket fuel if and when the firm can tap enough growth capital to open a second, 175,000-square-foot factory in Northern California by the fourth quarter of 2019, capable of delivering 3,000 homes annually on single shifts of production.

Building Magazine: Change Is Necessary To Propel Housing Forward

"...Go to manufacturing environments today, and women on the shop floor and in production management are not rare.

I was on a panel recently at ULI with Margaret Whelan of Whelan Advisory. She noted that Buddy Raney of RCI Construction in Orlando, Fla., employs more women than she’s ever seen on a factory floor, as they deliver their Vertically Integrated Total Solution (VITS) to the national builders in their markets. Raney estimates that VITS reduces the typical framing cycle by 10 days; allowing for their builder customers to close 10% more homes as a result.

If more of housing production is able to move to factory environments, that data seems to indicate that there is about a seven-times-higher probability of attracting female labor into the industry than currently exists. That could swell the number of people available to build homes and, most likely, the total number of homes produced.

How many homes per year might that mean? What would it mean in terms of new thinking, new management, and new blood into a stale industry?

By changing the methods that we use to create housing and the gender composition of those doing the creation, might we get better results than we do currently?"

Builder Magazine: Why Disruptive Innovation, And Why Now?

"George Casey, principal at Stockbridge Associates, Gerard McCaughey, founder and ceo of fully-integrated offsite solution platform Entekra, and capital advisor Margaret Whelan, founder and principal of Whelan Advisory LLC, joined me for an hour to focus on this topic...

Some guess that 2018 and 2019 are going to be pivotal years for the emergence of integrated factory fabrication of major portions of houses prior to assembly on home sites. Many counter that it's still too soon, and that all the focus on Katerra, Clayton, Entekra, Blueprint Robotics, Unity Homes, Buddy Raney Construction, Blokable, Kasita, Blu Homes, and other players in the modular, compontent, panelization, offsite construction models is mostly hype that gets amped up because of current labor capacity anxieties.

At the same time, so many of us can feel almost viscerally that--despite the numbing overuse of those words--it has to happen. And the first, most likely opportunity area for disruptive innovation to happen would involve taking what does not produce value out of the architecture, capital, construction, engineering, and real estate chain of processes that generate new or improved housing.

Simply, too much time, and too much money, and too much effort get lost, spent, wasted in the way people match up to their homes. The net effect of this is that this inefficiency shrinks the universe of people who either choose to or are able to participate as customers."


Directors & Boards - 2017 Directors to Watch

I was thrilled to be included in Director & Board's 2017 list of 'Directors to Watch'!

Uncertain times call for board refreshment:  

          “Board structure and refreshment have never been more important. With uncertainly at all-time highs, boards need to leverage diverse perspectives to effectively see around the corner and protect the interests of all stakeholders.” M. Whelan


CEO & Director Perspectives on the Evolving Global, Business & IR Landscapes

At NIRI's annual conference this year Rebecca Corbin of Corbin Advisors moderated a thought provoking panel about leading in times that are changing quickly. I was delighted to join Jim Loree, President & CEO of Stanley Black & Decker for this discussion.

My summary on the subject:

"We are in an era where shareholder engagement has never been higher and investors have an increasingly large range of investment opportunities, as such it’s incumbent on IROs to understand and clearly communicate their company’s strategy. Perception becomes reality very quickly, IROs need to stay ahead of that."


Equilar Board Leadership Forum

I appreciated the opportunity to discuss M&A from a director's perspective at the Equilar Board Leadership Forum in Dallas this week. A unique feature of the panel was that the moderator and all three of us panelists were female!

To Acquire or Not: The Board’s Role in M&A

This panel will explore common challenges and potential missteps companies make in acquisitions and share tips boards can take to improve deal execution and value capture.

Moderator: Catherine Bromilow, Partner, PwC’s Governance Insights Center

  • Gina France, Board Member, CBIZ, Huntington Bancshares and Cedar Fair
  • Maribess Miller, Board Member, Triumph Bancorp and ZixCorp.
  • Margaret Whelan, Board Member, TopBuild


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