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Beti Cung, Corporate Strategy, Microsoft 5 PARTICIPATING COMPANIES CBI Councils bring together experienced executives to accelerate their success through the sharing of experience-based insights that inform business decisions and help solve complex strategic, organizational and growth challenges. If you are a C-level, EVP or SVP level executive at a company doing $1B+ revenue, request an invite by emailing councils@cbsinghts.com. LEARN MORE HERE events.cbinsights.com/councils councils@cbinsights.com cbinsights.com Alex Paci Alex Paci is an intelligence analyst at CB Insights covering startup and venture capital trends in real estate and financial services. His research has been cited in Wired, The New York Times, The Financial Times, and The Wall Street Journal. @alexander_paci | apaci@cbinsights.com Intelligence Analyst A B O U T T H E A N A L Y S T 7 Contents 1 1 Housing & construction trends 1 6 Startups & new construction techniques 2 7 FAMGA initiatives 8 9 Driven by a convergence of technology development and market need, entrepreneurs and technology companies alike have drawn aim at the residential construction industry. Insurgent startups are testing a variety of construction techniques, while big technology companies are participating through direct development projects. T H E B I G I D E A B A C K G R O U N D & T R E N D S Housing & construction trends S T A R T U P S Startups & new construction techniques F A M G A P A R T I C I P A T I O N Big tech's real estate initiatives H O U S I N G O F T H E F U T U R E F L A S H B R I E F I N G 1 2 3 10 B A C K G R O U N D & T R E N D S Housing & construction trends S T A R T U P S Startups & new construction techniques F A M G A P A R T I C I P A T I O N Big tech's real estate initiatives H O U S I N G O F T H E F U T U R E F L A S H B R I E F I N G 1 2 3 11 What's driving this trend? A national housing shortage The US has a housing shortage of 7.3 million units. Home prices rose 6.2% in 2017, two times more than income, and three times inflation. One in four Americans is "severely rent burdened" (paying more than 50% of their monthly income on housing) as a consequence. Lack of labor, as well as limited land supply and strict zoning regulations are inhibiting construction of new homes. In Seattle, for instance, single-family accounts for 49% of all "developable land mass," with 8% devoted to multi-family, and 8% for commercial real estate. The majority of new housing is focused on multi-family. 12 Source: WSJ, Sidewalk Labs 13 "No matter what we do to deliver more value to customers, the fundamental problem is that there aren't enough homes to buy." M O R E H O M E S N E E D E D Glenn Kelman President & CEO, Redfin 14 The US construction industry invests 0.5% of annual construction value in R&D. This compares to 3.7% for automotive, and 8.8% for computing & electronics. This makes the economics of housing innovation hard. O N E B I G R E A S O N F O R T H E L A C K O F N E W H O U S I N G I S T H E C O S T O F C O N S T R U C T I O N Source: Sidewalk Labs 15 "It's shocking how poorly things work. There's a lack of quality processes throughout the system." Michael Marks Chairman, Co-Founder, Katerra B A C K G R O U N D & T R E N D S Housing & construction trends S T A R T U P S Startups & new construction techniques F A M G A P A R T I C I P A T I O N Big tech's real estate initiatives H O U S I N G O F T H E F U T U R E F L A S H B R I E F I N G 1 2 3 16 Offsite: modular and prefabricated Factory production I N N O V A T I O N S I N C O N S T R U C T I O N T E C H N O L O G Y Companies are investing in repeatable processes for the construction of modular units or component parts. Supply chain & BIM design Companies that own both the design and construction process have developed standardized design to maximize materials efficiency and procurement. Energy & Sustainability Builders are turning to carbon neutral and sustainable materials like tall timber and mycelium. 17 Blokable manufactures structured building systems for developers to bring small format residential, retail, and mixed-use projects rapidly to market. S E L E C T I N V E S T O R ( S ) Borealis Ventures, Jason Calacanis, Kapor Capital, Urban.us, Vulcan Capital S T A C K A B L E H O M E U N I T S Total Funding $6.08M 18 Katerra's integrated technology offering connects Building Information Modeling (BIM) tools and computational design directly to an ERP global supply chain. Materials arrive at construction sites just-in-time and ready to install. S E L E C T I N V E S T O R ( S ) DFJ Growth Fund, SoftBank Group, Foxconn Technology Company O W N I N G T H E C O N S T R U C T I O N P R O C E S S Total Funding $1.16B 19 Katerra expanding via acquisitions and factories Katerra is expanding its capacity. Recently the company acquired Fields Construction Company of New Jersey. Field's will rebrand and adopt Katerra's technology practices. The company plans to open six manufacturing plants in 2019, including a timber factory in Spokane, Washington. The plant will produce CLT, or cross-laminated timber. 20 Source: Inman, Building Design + Construction The potential of tall timber construction The T3 building, pictured below, is one of the largest timber buildings in North America at seven stories and 220,000 sq/ft. Tenants include Amazon. 21 Canada pushing timber forward in construction Given the abundance of lumber in Canada, much of the development of timber construction is occurring there. In October of 2017, Canada's Minister of Natural Resources, Jim Carr, announced a mass timber program called Green Construction Through Wood which encouraged timber construction in tall buildings. This is the second such timber program, the first being the Tall Wood Building Demonstration Initiative, a program which resulted in the 18 story Brock Commons Tallwood House at the University of British Columbia, the tallest majority wood structure in the world (right). 22 Source: Canada.ca, NRCN.gc.ca pushes co-living as a way to repurpose space Starcity is an example of a company in the growing coliving space. The San Francisco-based startup is a graduate of Y Combinator and has raised $18.6M to date, most recently via a $16.4M Series A from Alrai Capital, Bullpen Capital, Invest AG, and Y Combinator. 23 Common offers flexible shared housing connecting vetted members to private rooms in furnished properties. S E L E C T I N V E S T O R ( S ) Maveron, Norwest Venture Partners, 8VC A D U L T D O R M S Total Funding $65M 24 25 "I'm not looking to change the way people live. I'm looking to solve a housing need." S O L V I N G F O R A M A R K E T N E E D Brad Hargreaves CEO, Common Collections Construction tech collection Construction tech Not a customer? Get access today. D I G G I N G D E E P E R The following links will enable you to directly access some of the platform capabilities highlighted during this briefing. Trends Prefab trends search Reports & Research Construction tech market map Offsite Construction Companies WeWork report Profiles Blokable Starcity Katerra Common B A C K G R O U N D & T R E N D S Housing & construction trends S T A R T U P S Startups & new construction techniques F A M G A P A R T I C I P A T I O N Big tech's real estate initiatives H O U S I N G O F T H E F U T U R E F L A S H B R I E F I N G 1 2 3 27 28 In addition to insurgent startups, some of the largest technology companies are driving innovation via partnerships, paid projects, and developments. + While not the most significant foray into construction, Amazon has recently formed a partnership with Lennar, Shea, and Brookfield Homes, some of America's largest residential home builders and developers. The terms of the Lennar partnership call for Amazon experiences centers in California, Florida, Georgia, Texas, Virginia, and Washington where customers can tour Lennar homes and interact with Amazon's suite of smart home devices. Amazon's smart devices will be physically implanted into every new residence Lennar builds. 29 Source: Amazon, The Information developing a presence in multi-family Separately, Amazon has crept into multi- family real estate as well. In October 2017, Amazon formed partnership with landlords including AvalonBay Communities Inc., Equity Residential, Greystar, and Bozzuto Group, to place package delivery lockers in buildings representing over 850,000 units in the US. Greystar, for instance, which manages 415,000 units, will install the Amazon locker hub system in 125 communities, and offer the service to all of its buildings. 30 Source: WSJ plans for Willow Campus Facebook has plans to expand its campus in Menlo Park and add residential housing. The company will construct 1,500 units housing, of which 225 will be at below-market rates. Additionally, the plans call for mixed-use retail, including a grocery store and pharmacy, in addition to 8 acres of plazas, parks, and biking/pedestrian paths. 31 Source: Facebook + build 300 homes Google's largest foray into residential construction to-date has been its development plans for Moffett Field in Mountain View. The company ordered 300 modular housing units, spending between $25-$30M on the order. Factory OS, based in Vallejo, California will fulfill the order. Factory OS claims it reduces cost by 20% while building 40% faster. 32 Source: Mercury News, Factory OS In 2015, Google restructured as Alphabet. Sidewalk Labs is dedicated to urban innovation efforts. 33 and a bold plan to rewrite the city Source: Sidewalk Labs Sidewalk Labs lays out a vision for a highly sophisticated neighborhood in Toronto, measured by a sensor network and served by progressive approaches to residential, retail, energy, and transport solutions. 34 Expansive plans tied together by a digital layer The neighborhood's digital layer will be achieved via a net of sensors and cameras that will provide an "unprecedented degree of insight into the physical environment." The digital platform will have four main components: Sense Model Map Account 35 Source: Sidewalk Labs A blend of cutting edge construction methods Modular or volumetric construction will be complemented by "one and two- dimensional" components, similar to the kind of construction a company like Katerra performs. 36 Source: Sidewalk Labs Designing the 'Loft' for multipurpose building usage 37 Sidewalk Labs is developing a building product called Loft that integrates many of the construction techniques discussed here. The product's thesis centers on the assumption that "ongoing and frequent interior changes" will be demanded of each building, and therefore an interior unit that can be reconfigured within a "strong skeletal structure" is optimal; reducing the cost of future construction. This is termed 'radical mixed use,' where residential, retail, office, and parking might occur within the same buildings. Source: Sidewalk Labs 38 Will large technology companies and startups collaborate further on campus housing initiatives? Will big technology companies seek to partner with existing construction players (e.g. Amazon expanding its partnership with Lennar)? Will Sidewalk Labs' Toronto project lead to larger urban planning projects in major US cities? Are any startups in construction or coliving potential acquisition targets? L O O K I N G A H E A D Questions? Twitter: @alexander_paci Email: apaci@cbinsights.com 39 The CB Insights platform has the underlying data included in this report W H E R E I S A L L T H I S D A T A F R O M ? CLICK HERE TO SIGN UP FOR FREE 40 cbinsights.com @cbinsights 41