With Martin Muoto — Founder, SoLa Impact & Model/Z
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Martin Muoto, founder of SoLa Impact and Model/Z, joins Taylor Avakian on No Vacancy for a wide-ranging conversation on affordable and workforce housing in California.
Martin Muoto, founder of SoLa Impact and Model/Z, joins Taylor Avakian on No Vacancy for a wide-ranging conversation on affordable and workforce housing in California. They cover the realities of building in Los Angeles, the shift from acquisition-rehab to ground-up development, and how modular construction is being used to change cost and timeline math in one of the toughest markets in the country. The discussion also explores investing in historically underserved neighborhoods, working with Section 8, the role of Opportunity Zones, and how technology (including AI) is being applied to design, permitting, and operations. Martin shares his personal path from West Africa and Wharton into real estate, the lessons from scaling a vertically integrated platform, and why he believes driving down the true cost of housing is central to solving California’s supply crisis.
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Chapters:
00:00 - Introduction & Martin Muoto’s background
01:55 - SoLa Impact origins and the pivot to ground-up development
09:34 - From private equity to personal investing in South LA
14:49 - The decision to go all-in on real estate
17:21 - Raising capital and operating with integrity
20:25 - Investment thesis in underserved LA communities
22:15 - Section 8 realities and tenant support infrastructure
25:00 - What’s working and broken with current housing programs
28:36 - Upward mobility, vocational programs, and community impact
32:23 - Launching Model/Z and the modular housing approach
37:51 - Factory model, standardization, and cost reductions achieved
42:18 - Using AI and software to cut soft costs and timelines
43:22 - Vertical applications of AI in real estate development
47:19 - Where the industry could be in 10 years
49:29 - Biggest threats facing multifamily in Los Angeles
50:37 - Handling criticism and staying focused on solutions
52:12 - Personal resilience and what keeps him up at night
53:41 - Advice for young people entering the space today
55:36 - Proprietary data, AI, and competitive advantage
01:02:28 - Future vision for SoLa Impact and Model/Z
01:04:39 - Challenges in LA and reasons for optimism
01:07:58 - Where capital should be deployed right now
01:10:07 - Closing thoughts
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Everything good about California and the country and everything concerning about California and the country is one degree of separation from housing. Martin Muoto is the CEO and founder of SoLa Impact, the largest private developer of affordable and workforce housing in California. Martin co-founded Model Z as the most innovative and scalable way to address the housing crisis in the US. My house was affected by the Palisades fire. Lost my home and everything I own in the Palisades fire. But I'm a pragmatist. I'm a realist. I think that we have to not succumb to the
You know, my wife tells me the only people that don't get criticized are people that are doing nothing. If you do the right thing for the right reasons, often the universe conspires in your favor. We can't create a world in which the rich continue to get richer and the poor continue to get poor. That ends up in very bad outcomes. We've got to drive down the cost of construction. It is one of the major issues facing California and the country. When the prices are getting to $700 to a million dollars to house someone that barely has an
This is the uh the first time I was telling you before that I've had a guest on that we've sold properties for already. We're we're in a business relationship. We're already in a business relationship that Yes. Exactly. Disclosures there.
it. I really appreciate that. Thank you. It's uh which I will tell you before we started working together I had not done a lot of buildings in South Los Angeles and so I want to kind of start there. Walk me through
Yeah. This Solar is really a family of of uh real estate funds that we manage um that invest primarily in underserved communities across Los Angeles now San Diego. We got started in acquisition rehab. As you know, we acquired over 150 buildings in the course of 2015 to 2019. Um, it's a lot of buildings. A lot of buildings. We were buying a lot. Um, and it own about 1,500 units in that portfolio. Um but o also realized sort of right around 2020 that despite having built and and rehabbed and and improved these buildings, we had not added one unit to the housing stock of Los Angeles. And what has been a throughine of uh you know the last 15 plus years is how do we solve the affordable housing crisis?
Um and so in about 2020 we pivoted to do um you know groundup development. Um it was around the same time that opportunity zones came and that really facilitated that. But over the last uh five six years we've been very focused on adding to the housing stock and and while preservation is incredibly important really you've got to increase the supply to be able to drive down costs and so that has been the evolution.
Was that a driving factor from obviously the thesis like you mentioned of adding housing, but yeah, opportunity zones is a tax incentive. You have investors who you're raising money from. Yeah. Like was there a pivot because the investors said they wanted to go into this and you had the infrastructure in the area or what was
the less so um less so I mean in fact you know many investors um do don't care for groundup development. it's a much more challenging to some degree more risky but but in many respects you know you get better riskadjusted returns if if done right um so certainly wasn't driven by the investors I think the the other underlying theme that you know we are committed to is doing well by doing good and so more broadly you know when I looked across Los Angeles look there were um incredible uh developers well cap lies, smart, good-looking investors that were investing in Brentwood and Santa Monica and West LA and and and other parts of Los Angeles. And there were very few that were investing
in communities like South LA, in communities like Watts, in communities like Compton. Um, and so that's where we um we chose to focus. In many respects, it was also driven by the fundamentals, right? in in in in that the metrics, the cap rates, the gross rent multipliers, the cash on cash returns that you can get in underserved communities can be better, right? it it comes with its own unique um you know attributes and sometimes some headaches um but but really I think that the as we've often spoken about the central investment thesis has always been for the last 15 years that even in low-income communities even in underserved communities the vast majority of people are good hardworking people that want a safe place for their kids and that continues to be the
thesis today. Um, so that was really the through line, the the pivot to groundup construction. You know, for for many years we um avoided government programs and we avoided um historically we've avoided things like low-income housing tax credits because very complicated, incredibly long timelines and to some degree drive up costs. Mhm. Um and hence the you know the headlines of of affordable housing being built for 700800 you know a million dollars a unit. Um but but opportunity zones was was different. It was a it you know despite some criticism it really has led to uh the creation of a large volume of affordable housing very cost-effectively. Um we um focused on basis and we still do today.
We have built over 24 groundup buildings in Los Angeles and and a few in San Diego um over the last three three and a half years. And as you can attest to, Los Angeles is not an easy place to build. Not at all. Um and so so we have the scars to prove it. We have the receipts to prove it. And we've built the vast majority of those for under um $300,000 a door.
Do you feel like um your thesis before of LITC and government subsidies and things like that has that changed at all or do you still feel that's the case?
It's a great question. It's evolved, you know, and and I think that um uh we have found more viable ways to use those tools more creatively. It's certainly today affordable and workforce housing is a euphemism for creative financing and and and more unique um financing. And so therefore, you have to use all the tools in the toolkit. And so um over the last 12 months um you know we applied for uh six litec um projects and got five you know approved. And so we've begun to figure out how to use that tool um you know the way we think it was intended and and and for us again it's about driving down the cost basis. And so even for our low-income housing tax credits, and
I don't know how many of your um listeners are familiar with the low-income housing tax credit program, but it is historically been the main tool for building affordable, right? And and and um it gives um tax credit buyers, which are typically banks, insurance companies, and so on. It gives them certain tax um you know tax advantages. they buy tax credits and use conventional debt. But it allows you to um build if you can build with a low basis um avoid some of the historical headaches of LITC. Um again there are others that have done this before us and we've learned um and we're still learning to be honest. I I I you know I'm still learning but but but it is um as you point out I think we are become much more diverse in how we structure projects.
Three years ago it was just private equity and and and um and construction commercial debt. Today we're doing a lot of public private partnerships. We're doing litec. We're doing um some interesting projects in and around student housing. Um so uh you know the the uh necessity is the mother of in invention and you've been uh responding.
So yeah it's been a interesting evolution. I want to take a step back really quickly because I always find it fascinating how people get into the real estate business there. Everyone always asks me like how did you get into the business? Yeah. And uh typically it's you know someone grew up around it or they saw someone who was successful in the business and they're like hey I want to do that. Um you did not grow up here. You're not from here right? Um, but you have a pretty prestigious background in terms of the schooling you went to and then I think you were in private equity before. So, how did you pivot or how did the path for you to get into real estate actually happen?
Yeah. Um, it's a it's a great question. I'll try to keep it to a shorter answer, but as as you know, I grew up in West Africa. I grew up um I came to the United States to go to university. I was very very fortunate and blessed to get a full scholarship to go to the Wharton School University. I was I was when I was a a teenager. Yeah. The the truth is I've I've always been um one of the hardest workers in
the room. I'm not often the smartest person in the room, but I go into most rooms and I go I'm going to outwork everybody. Um so I I got a full scholarship to go to uh Penn's Warden School. Um I was spent the first half of my career in private equity and so very far removed from real estate and and I um but but then you know we had sold a couple companies and and I was looking at ways of creating passive income. It's never as passive as you think though, right? Um but I had bought in Venice. Um and and you know that has done very well multif family for your personal personal personal using you know there's there is no more honest way of learning a business than using your own money.
Right. So before you go ask other people for money you better have committed your money. So I was using my own money. Um I bought an Echo Park. Echo Park did very well. And this is the you know 2010 to 2015.
great time. Um, and um, and and and so, you know, Venice and Echo Park were I'd owned multif family. Um, learned the business and then, as you point out, the real story is I spent a long weekend downloading the MLS and running a bunch of queries against the data. Today, I would have used a bunch of AI algorithms and it would have been a lot easier and faster. But but looking at every metric that a seasoned real estate investor would look at, price per square foot, rent per square foot, cap rate, proform cap rate, gross rent multiplier. You look at all of these metrics to go where are the best deals in Los Angeles. Yeah. And it led me to about a dozen properties, most of which were in South LA in in Compton, in Watson. I go, well, these numbers are good.
Well, you you can guess the reasons. There's a lot of stereotypes that that came out of the Rodney King riots, that came out of the history of of the crack cocaine epidemic. People overlook these areas and and until today continue to be stigmatized by a lot of that legacy, right? And and as I said, our our thesis, my thesis at the time was, look, most people were good, hardworking people, wanted safe pays for the kids. if you could give them a good product, they would work with you to keep the building safe, to pay rents on time, to, you know, keep the music down, all the things that we're required to do as adults. Um, and and and in 97% of the time, that has been true, right? Yeah. Um, and and so I ended up uh buying um about 10 buildings using my own money.
Um, I um, you know, did everything myself, meaning that I oversaw the rehabs. I did open houses myself. I screened tenants like a knucklehead. I would come down to South LA on Friday or Saturday to collect rents. At the time, I was collecting them in cash, [Laughter] right? I'm driving back to to where I lived in Venice. I remember I must have had about $6,000 in cash and in in relatively small bills, right? Yeah. And I'm driving and I'm I'm I'm getting off the 90, right? And and I see bunch of cop lights in my back and I'm going, "Oh boy, was I speeding?"
They're like And and then the guy asks, the police officer pulls me over and goes, um, you know, license and registration. and I open the glove compartment and all this money spills out and he's like, "Do you always carry around this amount of cash?" So, true story. I I know and over the years we moved to money orders and now it's all mostly online and so on and so forth. But but but it um but but what you do learn is, you know, intimately is I I got to know my residents. I got to know the community. Yeah. You know, before I bought my first building in South LA, I walked over a hundred properties. I knocked on doors. I spoke to residents. I got to know the community. People would invite me to have a barbecue with them. And and they would tell you everything about the building. Yeah.
Right. They would tell you whether what condition it was in. They would tell you what whether the landlord did the maintenance or not. Um a and uh unfortunately what you did see is a lot of very absent ma landlords that you know weren't putting a lot of capital into the buildings and and sort of um all of that. So anyway, um that was my my the the predecessor to getting into the um in into the fund business and uh you know, our first fund was $10 million mostly sort of people I had worked with, people that knew me over the years and and um you know uh that that was the how I got into real
estate. Do you remember the moment where you thought there's something here like I'm going to pivot from the private equity, I'm going to go all in on the real estate stuff? Was there a moment? Was there a conversation?
You know, it it it evolved. I think that, you know, once you start to raise third party capital, it's a very different mindset and and you go, I I wonder if anybody will, you know, send me a a wire transfer, right? you got, you know, um and and I remember um one of my early mentors um who who who recently passed away was on the private equity side and and um I worked for him at Generalic and I called him up and um and said, "Look, would you meet with me?" He was in San Francisco at the time and so we go have I fly up to San He goes, "Yeah, Martin, I haven't seen you in a while. I wonder what you've been wondering what you're up to." Okay, I go up there and and and I had been at a firm called
General Atlantic and it had done it has done some of the biggest firms in the world, Uber, Facebook, Alibaba, right? At the time we had done Erade and and Price Line and and so I go out to see him in San Francisco at breakfast and I'm explaining to him that I'm investing in Compton and Watts at South Central and he's like, "What happened to your career?"
you okay man do you need and and um and uh I asked him to invest and um and I think he he he he was worth a lot but but he goes Martin my life is already complicated and I and I I said to him listen if I lose you a penny I will come back and intern for you for the same rate that I did 10 years ago until I I make it up and he goes well Martin that's a win-win [Laughter] and So, so he was one of my first investors. But when you say, you know, was there a pivotal moment in which, you know, somebody bets on you and you go, okay, maybe this might work. Um, it was very meaningful and and I think it, you know, it's a throughine as a professional that, you know, always operate with high integrity.
the people that you work with in one, you know, decade may be people you're dealing with in another decade, you know, um and and and that has has fortunately um been an advantage, but but it you know, it's a long
It was difficult. It's no longer difficult. Yeah. Yeah. [Laughter] I may ask you for the time the podcast is over, which you how much you got in your 401k. Yeah. You know, look, I think that um initially you get, you know, uh for folks and and and you do this very well because you are out there hustling and you're trying to convince people to bet on you. One of my rules is that my confidence is based on evidence, right? Proof. you know, I I I've got the receipts and I did it with my own capital and I knew the ins and outs and I and I and I was very very meticulous and and and intentional and hardworking. Sometimes you get some lucky breaks and I' I've gotten a lot, sometimes you don't, right? Um so once you have built that, you then have the platform
at which to tell I ask people, look, you know, I'm going to be a good steward of your capital. I'm going to be a fiduciary. there are no guarantees but I'm gonna work extra hard to make sure that you make a good return but similarly do something that is impactful. Yeah. And and I think um you know it's been what what I'm very pleased about over the years is we have invested heavily in communities but we've also created tech centers. We've created the beehive which you may be familiar with. We've we have built a social impact infrastructure around what we're doing voluntarily. We didn't have to. We didn't do it for PR reasons. We did it because we deeply believed that it would be a creative, it would be additive to the community and um ultimately pay both social and financial dividends.
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coming up with the thesis of Southlay, when you were thinking about that, when you were going and putting your own money in there, did you have like what did the strategy look like? What were those steps that you thought, okay, I'm going to do this, I'm going to do this, I'm going to do this, I'm going to do this. Then the first fund, 10 million. Okay, we raised that. Then the next step, I'm thinking fund two, fund three, fund four. like did you have a strategy in mind of what you wanted the business to look like when you initially started it?
Um yes and no. I think that look um you know you get to rewrite history and make yourself sound very smart, right? And when they write the book I hope I sound like I had this you know 17st step um strategy but but you know some of it is is guided by intuition. A lot of it is guided by values. Um you know I certainly try to always skate to where the puck is going. um and and have tried to do that repeatedly and and and again, but but when you make mistakes and you you just correct, you know, um and and you're very diligent about working through the issues. Um and so I think that uh while we have a very good track record, we also, you know, have gotten a lot of things wrong and and you just simply, you know, continue to adjust
and and many times it's simply based on things that are outside of your control. LA has not been in an easy uh market to build in. Um you know uh the interest rates have have have been punishing.
Um and and so you work through those issues um intently and with with with integrity and and often you end up getting the the break and and a lot of this and I don't mean to over proitize this at all. But if you do the right thing for the right reasons often the universe conspires in your favor.
That's what I continue to believe whether you're a spiritual person and believe it's God or whether you're you you know but but it's there is um something to be said to doing the right thing for the right reasons repeatedly and and and letting you know let letting the cards fall where they may
Um you know true and false. True and false. I think that it's not so much a secret. I think we became one of the largest private landlords of section 8. Um for many many years, uh landlords would turn away section 8, uh you know, tenants whe whether they were legally allowed to or not, they found ways to to to say no. We look for ways to say yes. Yeah. But it comes with the requirement to ensure that the the the residents stay successfully housed. And so you have to invest more to support the residents. And over the last 5 years, you know, um, a lot of folks getting section 8 vouchers have a higher acuity score, which means that they are more desperate. It means that they have been formerly homeless. It means that they have experienced trauma. You know, that those scars of the past um, you
know, don't stop simply once they get housed. Yeah. And so we've built a lot of infrastructure um a lot with partners, nonprofit partners that come alongside of us to ensure that our residents stay successfully housed. We can get a new resident four years of free internet. We can get them, you know, bus voucher for two years. We can get them a free laptop. We can get them furniture. We can get them diapers. We can get them silverware and sheets, right? And so those are things that we do um not not simply because that means they're more likely to pay rent. Yeah. But that means that you've got to support them through the transition. Um but it often very challenging, right? And and and it's an operationally intensive business. We're in the headache business. Um and and we, you know, we have the scars to prove it.
For sure. And we get criticized whenever we get it wrong. And I always just say, look, I take the critics, you know, for what it's worth. You know, how can we improve?
that. Um, I think a lot of people feel like the section 8 program has been broken or changed and the rules have been adjusted. Um, what's wrong with section 8 right now? What's I I had um Lordis who the CEO of Hackqua who I know manages um she was on the show and we were talking about it and she's a little bit frustrated because section 8 obviously is a governmental program which you know federally is is something that then the the city gets grants and and that's how it works through that there's been some governmental federal statewide issues programs TLS which was time limited subsidies was a big push and then it got taken way like what's broken with section 8 that makes it so difficult right now?
You know, there's a lot of tension around um subsidizing low-income families and and individuals at the federal and the state level. Um unfortunately, we live in a time where everything gets polarized, right? And I think that this has its own polarization, but at the same time, um it is an incredibly bipartisan program. It's supported by the left and the right. um the Democrats and the Republicans. And so there becomes a lot of drama in how the budgets are set. But at the end of the day, in 2025, the HUD allocation to section 8 grew by um 9% in the in the most recent uh budget, right? And and so it continues to get funded. There are things like work requirements and and and we've spent a bunch of time with the folks at the federal level
and and we had um Secretary Scott Turner down here um and I've known him since you know my involvement in the opportunity zones um and so while there are certainly philosophical some philosophical differences at the end of the day what we it is a critical program to get people through very difficult transitions. Um, it shouldn't be a lifetime program. And so some of the new regulations that have been introduced, for example, encourage a or or encourage or or require a work requirement. So after a certain number of years, able-bodied folks on section 8 are required to seek employment. And I fundamentally believe in that, right? We should be encouraging our residents that are capable. Now again there's a section that are handicapped sometimes physically sometimes u mentally in other ways.
Um so those are going to always be folks that need to be supported but there are those that are capable and should be encouraged to move off of the program after a certain amount of time. And again that requires real intention in creating um work programs. Right. We've invested incredibly in vocational opportunities. We have at that at at the Solo Foundation, we have a I think a world-class um culinary program that teaches people to work in the restaurant industry, kids from very challenging backgrounds, right? To to to get access to that. In in Model Z, we have a vocational program that takes literally people off the street and teaches them how to be assembly line workers making $26 an hour plus. Right.
So these are things that you know ironically become very there should be no controversy around this. We want folks to to move forward. Um so it's a long- winded way of saying that there are ways to improve the program. We continue to advocate for a very balanced approach and I know Lordes has worked tirelessly to do that. Um and and and really but it does require reaching across the aisle which is for somehow again I'm I'm not a politician. I avoid politics but but but but but I am someone who always wants to hear what the other side has and really work towards that common goal which is to to get people out of poverty to create opportunity to incentivize them encourage them and look at the unintended consequences of certain policies. A lot of good programs have a lot of unintended
consequences. What do you think people need to do to close the gap? Like I think what it feels like when we go down to South LA and we're we're touring these properties and we're exploring them, right? We understand the conditions people are living in and there's great renovated product that we're able to give and provide to people, which is awesome. But there also feels like there's this stigma of like I'm from the hood, I'm in the hood, I'm staying the hood, right there that doesn't feel like this upward mobility. So you're doing everything you can with with vocation and training, but like is there another problem that needs to be addressed? Is it is it education? Is it schooling? Is it possibilities? Like how do you think about actually moving people upwards? Well, I mean that is a uh it's a fundamental societal problem, right?
And and look, I think that um you know, and especially in the age of AI, um it will continue to really change society, right? And and I think one of the things that we all should be hyper aware of is that we can't create a world in which the rich continue to get richer and the poor continue to get poor. that ends up in very bad outcomes as the French Revolution and the Bolevik revolution and and history has taught us time and again. And so, you know, America has been very clever and and resourceful about ensuring
that there are opportunities. And so, yes, it's a combination of all of that. Um, this is may sound like a shameless plug, but tomorrow, May the the the 7th, maybe by the time we air, we it won't be we'll we'll be past that. But we're opening our second tech center focused on AI and entertainment funded by Live Nation. Wow. And I say that because, you know, as a as a kid who grew up in in some respects the rural parts of northern Nigeria, right? I grew up in the north, which is very unusual. Um it's it's predominantly Muslim. I come from a Christian family. Okay. But but but you understand the gravitational pull of poverty and and and so I have firsthand experience in living in it and and working desperately to overcome it. Um and therefore what we have to do
is provide access and we have to provide access to tools like technology. Technology has always in my mind the reason I got into private equity investing in technology was that I believe that it could be the great equalizer, right? And so a kid from South LA with access to AI and the tools can compete with a kid from Palo Alto with a trust fund, right? And and so it can be a great equalizer, but we have to provide access and training and opportunity and encouragement to those kids. And I will tell you, um, in our tech center that's located in the Beehive, we have touched probably close to 10,000 young people now. And and I have spent time with them and I will go there every once in a while in the afternoon when I'm trying to fight through a deal and fight
with the city and and LWP or so SoCal Edison and I will watch the kids being, you know, the the light bulbs going off. You can almost see it going off in their heads and it's creating curiosity. It's inspiring, you know, a sense of purpose and and um and I, you know, look, I want to give credit to an incredible team that works on the nonprofit side of our business that has worked tirelessly to make that happen. I just happen to be, you know, affiliated and in some cases a fundraiser for them. But, but really, um, it, you know, it continues to be, um, one of the most meaningful things that we have ever
done. Yeah, that's amazing. It really is. Um, let's talk about Model Z. Yeah. So, um, most, I would say, operators, private equity, real estate, whatever you want to call them. Um, they stick to one, you know, Yeah. thing, right? They're they're adding value or they're building or they're they typically don't go and say, I'm going to start a vertically integrated construction company to go and build modular housing. So, like, [snorts] what inspired that? Yeah. Why did you do that?
You know, it is um it's a great question and sometimes I I ask myself that. You want to explain what it is first? Yeah. So, Model Z, you know, takes a unique approach to creating what we refer to as radically affordable housing. For us, it's all about basis. You've got to drive down the cost of construction. It is one of the major issues facing Los Angeles. It's one of the major issues facing California and the country, right? and and and when when the prices are getting to $700 to a million dollars to house someone, you know, that that barely has an income, it just is not sustainable. Um and so we learned and and and people ask, well, how how are you able to build it under $300,000 a door? The truth is we've built a lot of buildings using ED1 around um close to public transport
and so on for $275,000 a door. all in land cost, hard cost, soft costs, direct costs, indirect costs, and so on. And and that is not good enough. Yeah, we've got to drive it down. And so our goal is to get to 200. And so after building many projects and looking at the process and studying the process and we are hyper focused on dissecting what we did right, what we did wrong, where it costs could be taken out without compromising quality. Um it's never our fault. It's always the GC's fault. [Laughter] Yeah. Right. It not true. But we've made our but but we dissect all of that and we realized that really there was no way to scale this and and to get to the economies of scale without Volutric modular. And so we went around and we visited over 20 different modular
Right. We were like in, you know, and we used two different modular companies, both of whom ran into all kinds of issues and headaches and quality and one went out of business halfway through our project. Yes. And so we, you know, like knuckleheads, decided to start our own modular company in Los Angeles, which um, you know, 99 out of 100 people would say that's a tough place to start a manufacturing company. Yeah. Um, we did. It's in the historical Watts district. um we raised a bunch of capital from um you know investors and and that that wanted to go long with the thesis that we could continue to drive down costs and continue to drive down timelines. So we we also used a very different approach. Um most modular companies you sort of take a group set of plans to them. In fact, those plans came from architects that often
aren't that familiar with modular and what its strengths or limitations are. And so they sort of went, you know, 3/4 of the way through a project. The developer goes, it's too expensive. They go, "Oh, maybe we should try modular." They reverse an engineer into modular and they give it to a a vendor that says, "I can try to build this." Um, but but it, you know, we took a different approach, which is we standardize on a one-bedroom, on a two-bedroom, on a three-bedroom. We use that same chassis. I use it I I I explain it as if it's a 2x6 Lego block, a 2x8 Lego block, a 2x10 Lego block. Right. You can build very sophisticated structures as somebody with a 5-year-old. Yeah. You can build on very cool things with Lego, but you are limited to the dimensions of that. And so given that we used the a
repeatable process and therefore you can get economies of scale like the example I use is that you know a lot of today's volume um modular vendors it would be like you'd go to their factory and today they're building a Subaru and you go a month later they're building a you know an SUV and then next week they're building a a Honda. It makes no sense. No manufacturing company would be structured that way. Yeah. And so what we do is we build the Honda Civic or the Toyota Prius maybe of affordable housing we can build at scale. It's repeatable. We were very fortunate um to hire a bunch of SpaceX SpaceX engineers and and people from the automotive industry that came with an incredible amount of manufacturing discipline. They set up the factory. They run the operations. They have done incredible things um to drive down the cost.
We've produced over 500 units in the last two years. Wow. Driving we've driven down the cost by about 30%. Um and we are about to in the next, you know, knock on wood, we're about to deliver our first fully Model Z building. Um and you know, we will have completed that project on 62nd and Broadway from groundbreaking to certificate of occupancy. again provided the city works with us to get it done in in in 12 to 13 months. Wow. Our average across the 24 stickuilt or the 22 stick built projects has been 26 to 28 months. So half the time it will break the land record in Los Angeles, right? And over time we're driving the cost to be below conventional um bricks and sticks.
Um, so our our goal is 200. How uh how do you get there? Is it is it you have enough third party people who want to use you guys to do that so you get the cost, you know, supply um economy to scale?
Is it um the city has to make it quicker, easier? Because I know it doesn't cost $275,000 to build in Texas, right, for instance. So people are like, is it a California problem? Um how do you actually get it to 200? Like what what has to happen?
Um it's all of the above. Um, you know, one of the things that we did, which again was a fortunate evolution, is that we started to to look at ways to drive down the cost of permitting, entitlement, all of the soft cost, fairly material, right? It's probably about in a in a in a $300,000 project, it is almost a third of the cost.
Right. and and so um we've built um AI enabled software that can take any lot in in Southern California. It can tell you whether it is amenable to modular because you've got to have, you know, a relatively flat lot. The dimensions, you know, you can't have a triangle, right? Doesn't make sense. Um there can't be power lines in the way. So, it looks at dozens of public and private sources to look at any lot to say, what can we build there?
It's all done using software. At the end of the day, the algorithms are better than most of us. Yeah. Right. It does the proforma analysis. Um and then it will get you to almost 70% of fully completed plans without any human or architectural intervention. Wow. Right. It it will give you the optimal configurations. You've got to make decisions along the way. Um so that is driving down the soft costs,
you know, the on-site costs. We continue to work with GCs to drive that down. That has been challenging because many GCs um are not as as modular literate as we would like. Um and so you know really getting to the subs and getting to that whole ecosystem. So I could go on for hours on this. It is certainly very challenging. I think that Buffy Wixs has done a lot in regulatory reform to support manufactured um you know uh uh manufactured housing. Yeah. Um industrialized and but but I will say the following having really studied this over the last several years set up a factory you know continue to scale it getting a lot of third party um interest and and and clients in there is that um it requires you changing a whole ecosystem. you know, the mindset of the city and the state, the regulators,
the mindset of the GC's and the subs because their work is in many respects cut in half and they're going, "Well, I want to make the same amount for, you know, for half the project." You know, the financing of continues to be, you know, requires a lot more innovation. Unfortunately, we're we've chosen to be disruptors. Um but but it is also one of the most important things that uh we've done and but but more importantly I think in light of where LA is in light of where California is right u meaning that people are finding it really difficult to sustain a living here and and we have employees that have moved to Arkansas because they go look there's no chance I'm ever going to own a home in LA.
That that that that a a young family would have to leave California because they, you know, and and I think that it's incumbent on everybody in the political ecosystem, in the in in, you know, in the housing ecosystem to really think about this and go,
and and and honestly having done this for the last little bit over two and a half years, we believe that 200 all-in is achievable if the government would support and and and enable this um
Yeah. Sometimes either one simple as that, right? You know, and and and and but we continue to work with wi with LABS, we continue to work with, you know, uh the the regulators. we HCD um to to find ways to you know to to to change policies to really promote this.
Walk me through AI for you. Yeah, I'm nerding out. Yeah, I know. Vibe coding. I'm uh and I'm excited to show you I'll show you what I've been able to build. Um because it's a it's a sellerf facing client-f facing in like portal effectively that I'm trying to do because I think in any course of real estate it's kind of an opaque industry, right? It's like your word, my word, trust. Here's what we're doing. Here's this kind of stuff. I'm a big believer and like you said, proof over promise. So, I want to show proof at the minute, on the minute. Like, hey, I'm doing what I'm saying I'm doing. Here's the numbers. Here's the emails. Here's everything. Like, go look at the offers, what we're doing, how many buyers we've reached out to. You can't question that I'm not the best marketer in in real estate.
And so for you, you're a bright guy and I know you're connected very well with private equity. If you're you're talking to the right people, they're probably telling you certain things like how are you thinking about how AI is going to change our industry, real estate?
You know, look, that's a that that's a multi-billion dollar question. Um, the good news is we're in the physical business, right? We're in the atoms business. we move atoms around and therefore you know often what's used as an example of jobs that are not going to be AI the plumbers and electricians and and and uh you know cable installers and so on and so for a while I think that there are going to be actually more opportunities in the broader real estate ecosystem especially on the construction side but AI does change everything and and today it's a very horizontal application so what does that mean it means that it's being used very broadly across Ross, legal, accounting, you know, white collar work, customer service, and it is making profound changes. I I, you know, I I studied um um advanced technologies when I was at Gartner.
It was my first job out of uh college. I for for the first three years I was in the advanced technology group. We were writing about AI. We were writing about supercomputers. We were writing about uh you know application specific gators back in the mid 90s. I was geeking out. I was geeking out, you know, I really I studied neural networks and and so on and and saw the promise. So I don't want to pretend I mean I you know getting it right and being too early and you're both both times you're wrong, right? um but but now seeing its full life cycle the first phase of AI will be horizontal applications but eventually what um happens with most technology applications is how do you apply them to vertical problems and um construction and real estate has been one of the slowest to adopt
technology and so um in our case what we're using is for optimizing designs for for for massing for proforma analysis as you alluded to um and increasingly for um AI enabling the plan check process. We think this is one of the most applicable areas, right? If you've worked with developers, you know that you submit plans to one plan checker, they come back with a series of corrections and then they happen to go on vacation. I don't know why it always happens and then they you submit it and it's a different plan checker and they have a whole different set of corrections. It should never be the case. You know, we're using the same code book. It should be consistent. It should also be instantaneous. These are all binary rules. A lot of boolean logic.
Yes or no. So these are things that that AI can do better, faster, cheaper um than a lot of the CH process that is as you know in Los Angeles takes six to nine months. So these are multiple examples of where AI can impact at least the way that we've looked at how AI and the way that we are actively today working on how to apply AI to the real estate development process to drive down costs dramatically particularly for affordable and workforce
housing. We have a sponsor for today's episode and that is AI for Siri Collective. 25 listings at the moment. We're closing four or five deals a month. It's been incredible. So, if you want to learn, if you're in commercial real estate, how to use AI in your business, whether you're a property manager, a broker, an investor, really anyone, we have a huge group, over 400 people in this community. And the website, if you want to go check it out, is a forcollective.com. So, appreciate you guys. Now, back to the episode. If you had to guess, 10 years. Yeah. What do you think the industry looks like in 10 years?
boy. Um, you know, I've gone down many paths, but but I do think that if we're unified in how we sort of take advantage of AI, I think there is a very um positive future, right? There will be jobs disrupted, but there will be opportunities created. I'm not the first in saying that. I think in real estate, you know, I I think that everything good about California and the country and everything concerning about California and the country is one degree of separation from housing. If you're concerned about inflation, the biggest component of inflation is cost of living. If you're concerned about climate change, one of the biggest drivers of climate change is housing, right? Um and transport. So, so all these things have to do with innovation in housing and there has not been a lot of innovation in housing and what
AI does is allow you to really approach various aspects of of construction, development, entitlement, you know, property management using innovation. And so we're trying to be ahead um and and investing and and and to your point, you know, personally, I've been been a huge fan of OpenClaw. I use it daily. We have programmed a number of applications internally to do to proof our loan draw process to do tenant you know to to to look at tenant applications to um speed up a lot of the workflows in internal to to the company. Our proforma analysis is radically u more real time. Um, so the these are a handful of things, but we're still learning and we're still sort of um, you know, looking for creative ways to apply it and we're, you
know, certainly um, and I think, you know, the the large AI companies I hope will realize the profound societal um, opportunity by by working with, you know, forward-leaning um, companies in in construction and development to
you know, overregulation and and and and um policies that might be um well-intentioned but have negative consequences. I don't need to talk about ULA. I'm sure a lot of your uh your uh your guests have um and developers and landlords are not a protected class. Often they're vilified, right? Um and and sometimes justifiably, oftentimes unjustifiably. But as I said, I think
that um everybody realizes that affordability is the central issue facing the economy. Um it's the central issue facing politicians and a large component of affordability that can be controlled because we can't do anything about gas prices. I I well above my pay grade. But but the thing that we can do is be much more intelligent about um how we and and and intentional about how we construct and how we you know affect that. Um and and uh and and so I think that's where um the rubber needs to meet the road
cuz you're pushing the boundaries in a lot of things, right? You you went where people I went when no one goes, right? Yeah. Which uh naturally draws a lot of criticism and you guys have gotten a lot of criticism. How do you deal with that? How do you deal with people questioning everything you do and poking at everything that goes wrong and challenges and stuff like how do you deal with the criticism?
You know, my wife tells me that if you're the only people that don't get criticized are people that are doing nothing, right? and and so we've taken our fair share and m much of it we feel unjustified but but sometimes you know we've learned from it and and corrected and I'm willing to meet with anybody at any time and we're very you know to to whether it's community groups whether it's you know regulars whatever it might be because fundamentally look what what um what allows us to sleep well at night is we continue to try to do the right thing for the right reason and and we don't always get it right we make mistakes and we stub our toe toes often Um but but um it's it's with that sincerity in which we operate and with that integrity in which we operate
and and I believe that the arc of you know affordable housing bends in the direction of of of that you know underlying intention. So, so it's, you know, as I said, my wife does have to remind me from time to time that, uh, look, there'll be haters. And, uh, Taylor Swift's, uh, you know, famous lies, you know, let them be haters. Yeah.
individuals, you know. Uh, I think what what um I I'll answer the opposite of that question, which is, you know, I've got a great family and I've got a five and a and a nine-year-old that I want to see um really, you know, thrive in in in in California, in the US, and and I'm a big runner and and uh meaning that I I try and work I I run six days a week and and that keeps me sane. Um but but you know there's so much going on in the world that you can go down these rabbit holes and you can go sort of doom scrolling and I think it takes real discipline to maintain a positive outlook.
And and I remember I think it was Arnold Schwarzenegger I remember an interview um he did many years ago where he was like being positive is a discipline. You have to choose it. You have to adhere to it. It's like running. you know there mornings I wake up I go ah I don't want to run I feel sore you know I'd rather get another half an hour of sleep but but it's a discipline and I um I tried to have a positive outlook and I think there's a lot to be positive about you know it's just you know there's so much promise even in things that are concerning um so you know may call me polyana but uh I I continue to be an
optimist if you were 25 years old today Yeah. Where would you be focusing? Where would you be spending your time? Where would you be looking for opportunities?
Yeah. Um, in no uncertain terms, it's in the field of the vertical application of AI. Okay. Right. I read the statistic the other day. I can't quote quote the source because I can't remember it. Um, but it was that $3 billion a day is being invested in AI. $3 billion a day. I go, boy, if we could invest just $3 billion in housing in in in in the housing the most vulnerable members of society, right? Where could that innovation drive? And so taking horizontal AI, agentic AI and applying it to specific problems and and you know where where you know folks like yourself you understand the real problems and where you know not the theoretical problems but really what keeps you know what breaks the model where where you
know how to to to to um error check it right and how to so if I was 25 I would be really and we interview a lot of young people and I say well what are you personally doing you know with AI and if you stumble to the answer often tells me that you're not so folks like yourself that are inherently curious that you know are experimenting you know beyond you know the the the generally large platforms in in claude and and chat GPT you know we've used open claw a lot I think it's it's transformational um and it provides that meta layer so so there's just there's a lot and and the truth is look we a lot of this has only been in the last several months where the technology's gotten to a point where it can can really impact things.
And um I tell them all the time I'm like if you're not messing around with this stuff you're not playing with it and trying to explore and how you can think about it like you it's just so fundamentally changing the way because my whole job like you right we we're looking for opportunities. We have to put deals together and we have to solve problems all day long and unc unclog bottlenecks. So the capabilities of these tools to be able to actually implement that at speed and to solve problems that previously took so much more time. It's really incredible what you can unlock when you have the creativity to think about okay if it can do this then and and this is my current process and it can streamline that from a week to 15 minutes and then I can do this and then these are the steps.
It's understand the whole process like horizontally like you said in the steps in there and then vertically integrating with this technology like you said up the stack that I think if that combination starts to actually become reality there'll be businesses there'll be people and I I I firmly believe this there's going to be small teams 2 three four five who are going to run and manage billions of dollars of real estate I genuinely believe that with how we think about all of the data it's just data Right? At the end of the day, how are you thinking about proprietary information? Because that's the one thing that I am so focused on because people could say brokers are commodities at this point, right? Okay, this broker, he knows the buyers. These are the the 100 buyers. We're going to buy it. Like, what's the difference between this broker and that broker?
I disagree with it, but I understand where they're coming from. You are certainly not a commodity. You're not you are differentiated and and uh in many ways. No, you you do really good work and and and uh you know, look, I commend you on the podcast and a lot of what you've been able to achieve.
data. Yeah, we we do. And and I think you know I I saw a demo from a company the other day that was claiming to use AI and and their examples were so generic, right? And and I go, but how are you feeding your models real world data on the cost of the subs? And you know, and and everything that they were talking about was sort of a very sort of 1990s metaphor where it's a lookup in a relational database and and a you know, price per per linear foot of of lumber, right? And the fact is we have, you know, dozens of projects and hundreds of bids that you can feed and go, let's look at what time of year you should be buying your wood. Let's look at what, you know, manufacturers you should be sourcing your wood from. Um, let's look at how the plumbing quotes
are different, right? And why they are, right? and and and and AI does an incredible job of of finding inferences from that that you can um error check and and test in the real world. So I I think that there is a tremendous amount of value to applying proprietary real world data to it. Um at the same time, look, it is it is really about um I can't emphasize this enough. It's like getting into vertical industries, knowing where the bodies are buried and knowing how to solve those specific problems, right? In the plan check process, we're feeding it all of the corrections that we've gotten across all of our projects and going, okay, what are the patterns? And the first thing we found is that about 65% of the errors were due to sloppiness, right?
A a table was referenced that didn't have the right reference. you know, things that could have been fixed. 65% of the corrections were due to sloppiness and and and and just human error that that computers can can catch. So, when you feed it tremendous amounts of data, you're coming up with these patterns to say, "Okay, now let's set up the rules to make sure that when we submit plans, those errors never happen, right?" Because the the algorithm is checking for those errors before we submit it to plan check. By the way, again, we I don't know if you saw this, but um there's a new executive order 19 recently recently released that talks
about something that we have been advocating for with with LBS. Um you know, for for for months if not years, a AI enabled plan check. Yeah. You know, um third-party certification. And I don't use self-certification cuz it sounds like, you know, Taylor, you're going to go certify that your building is. No, let's use third-party plan checkers that have been trained, but let's really use the technology where it can dramatically reduce time and costs and take get us to that $200,000 a door allin. Um I I will say you know this and I I don't mean to sound so um you know as a pontificator but but but AI is going to test us as a society of how we treat our most vulnerable members, right? And so what does keep me up at night is what happens to those without access.
um you know because because the kid from Palo Alto that whose parent is in technology is already doing this and I remember we had a graduation of a cohort of young people that went through one of our our our technology programs in the um in the solar tech center. Our first tech center was powered by Riot Games and and and uh they have been great partners. It is we we asked it must have been 50 kids. How many of you have a know somebody making over $100,000? Less than 10%. Less than 10%. You ask that to a kid in Palo Alto, 99%. Yeah. How many of you have a parent that is in and around technology? I think it was two hands, right? And so we have to create, you know, those opportunities as a
society. we have to address that gap and and AI presents a threat and an opportunity to do so. Um so you know look I I I hope um folks really think about that because we cannot you know we cannot live in such an unequal society. You know what ends up happening is you know folks continue to build higher walls and then they eventually put barb wire on those walls. It's it's not the world that we want to live in. Um, and so I think a as real estate professionals, we have to think about sort of, you know, the broader environment and how we play a role in keeping um, California viable and competitive and and innovative.
You know, uh, it's a great question. I think that we're um, we continue to broaden our geographic scope. um maybe a little late, [Laughter] but we're um you know, one of the things that's been most exciting is we're working with a lot of municipalities now um outside of of Los Angeles. Sometimes you're never a prophet in your own backyard. Yeah. Right. Yeah. Um and so other municipalities have embraced us and and and and really encouraged us to come out to areas in the Inland Empire, Anaheim, Long Beach, um Santa Barbara and so on to to take our model of innovation into those communities. Um you know, we are moving more into workforce housing. I think there's a huge opportunity in the missing middle. So, uh, affordable tends to be sort of under 60% of area median income or under 80% maybe.
But that 80 to 120% of area median income, you know, these are nurses, these are firefighters, these are police officers, these are government civil servants, you know, that is critical because they are commuting an hour and a half to get to their jobs because they can't live in the in the urban core, right? Um so that missing middle is something that we're um focused on you know as I mentioned you know doing m much more with with um public private partnerships and and being innovative there um so it is it is a strategy that is created by necessity right you know we've it's been you know it's been candidly a challenging 18 to 24 months I I think anybody who is in LA real estate Yeah and and doesn't do that is is hiding under a rock or just simply not not not doing anything. Um but I think that
um you know the pendulum always swings and then swings back. I've seen it and and we've seen it time and again and California is not dropping into the ocean. We have um the Olympics coming up as a great sort of um eyes on on all of the things that are good about California and I'm you know encouraged by what I see um in and the opportunities
here. Isn't it kind of sad though that the city that you've built businesses on, supported, tried to provide housing to it's not the place where you can go and actually make stuff happen. It makes it like almost impossible to actually invest and it feels kind of sad to
Yeah. So, I think one of our one of the few superpowers that I have is that I'm an incredible pragmatist. I'm an incredible realist. And so, yes, it on one hand you you know, look, I I've shared this. You know, my house was affected by the Palisades fire. I lost my home and everything I own in the Palisades fire, right? And and it took me a couple days to get over it, but you know, and and I look, it doesn't take anything away from the community that was deeply impacted and and thousands of lives that were traumatized and really, you know, and people that are still recovering in Pal in Aladina. We put up two um ADUs uh free of charge in Aladina recently. We wish we could do more even but I'm a pragmatist. I'm a realist and and said okay that's done and how do
we move forward and and you know and and when you look at that on a personal level um we all work very hard to for a lot of material things. [Laughter] We we we like those things. Um I grew up poor and so to me I came from very little and once you know that several days where I literally had nothing m of material wealth nothing. I had the shirts on the shirt on my back and and and barely a suitcase and my wife and my kids we moved seven times in six months. And yet through that I I I said there's a reason for this and it we will come out stronger and we grew closer as a as we grew closer as a family for for many weeks my kids were sleeping in our bed. Not great for the marriage, but [Laughter] Yeah.
But but but you grew physically closer and and and you you know you I I I used to tell my daughter because she wants to always be a princess and I'd say princess and and right after the fire since that point I say you're a warrior princess and and she is so tough, right? And and and and the kids are so resilient. um and my wife has been an incredible source of support um through such a you know challenging period. And so I think you know I I I I I think that we have to not succumb to the negativity that is there are groups in society that want us to do that including some of the algorithms out there right they they it's the clickbait I've been on on the receiving end of the clickbait right
and and yet I think you know they are there's so much to be optimistic about but it requires the discipline to commit, go all in, to go long and um you know, we we remain uh we remain
I'd put it in Model Z. I double down. I would triple down. I would quadruple down. Um because I you know I've studied the problem and and and look I we are painfully close to cracking the puzzle.
We're painfully close and and it you know meaning that I see the improvements that are being made in the factory. They can't be replicated in the field because every time in the field it's just it's controlled chaos. Yeah. Right. and and the factory and and to the credit of you know Pablo and Aman and the team that run the factory they just study how do we we've taken 1,200 screws out of the unit we've taken 6,000 pounds we have you know found better suppliers right and and so you can study and improve and and tinker through that we have made process improvements we've made product improvements and and as I mentioned we have made some incredible breakthroughs in the technology technology that runs the factory that designs the buildings. Again, you know, um we're scrappy entrepreneurs, but the future of workforce and affordable housing.
I'm not talking about I'm not talking about luxury. I'm not talking about high-end. I'm not talking about, you know, is in in in pre-fabricated volutric modular some jargon but but but it's it's taking it into a factory setting building it everything that we that has been done cost effectively in in in globally right you don't wear a custom shirt you don't have a custom car you don't have a customdesigned TV right and so I think that um underlying industrialization is the is is a huge opportunity um and and is critical to the future of
California. I'm excited to see where you guys can take it cuz it's uh it's changing the world and I really do hope that we can succeed and you know I'm a big believer in supply and demand. So if we increase that if we can allow it to be fundamentally make sense which it should make sense