Episode 23 - John Geary, Abodu

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Prefab Review

Hi, my name is Michael Frank and this is The Prefab Pod presented by Prefab Review where we interview leading people in companies in the prefab housing industry. Today, we're very lucky to be speaking with John Geary of Abodu, an ADU builder that's, I think, primarily on the West Coast. John, welcome and to start, can you tell me about how and why you started building Abodu.

John Geary - Abodu

Yeah, hey Michael. Thank you so much, I’m excited to be here today. We started building Abodu back in 2018 when the conversation around ADUs was beginning to evolve here on the West Coast, so I actually got into this space. I was born and raised in a homebuilder household. My father has been building homes in California since the late 80's and you can imagine being raised in that household, you get quite a bit of exposure to the home building process, to the entitlement process, and the general challenges of building housing, particularly in Northern California. I think that the challenge and that process has always fascinated me which is why I ultimately ended up in what I would call the home building space with ADUs. We started working in 2018, literally with the goal of making the experience of adding an ADU painless and easy for homeowners, while delivering an exceptionally well-designed, kind of architecturally stunning, product behind it. It's funny we didn't set out to build a prefab company. We set out to solve the problems of homeowners that were trying to build an ADU and it actually turns out that prefabricating ADUs makes a ton of sense given that the majority of homeowners are seeing their challenges and just getting one of these ADU projects done. So you know here we are, fast forward three and a half years later, having you know a couple hundred projects underway at this point across Northern California, Southern California and the Pacific Northwest and Seattle in particular. We've really expanded that ability to bring ADUs to homeowners as quickly and easy as possible.

Prefab Review

Awesome! Thanks! That's really cool to hear. So I know a little bit about the company. So maybe you can provide some more color. But basically you have 3 models right now, right?

Abodu

Yep, we have our Abodu Studio, our Abodu One, and our Abodu Two. The Studio is 340 square feet, the Abodu One is a 1 bed, 1 bath that's 500 square feet, and then our Two is 610 square feet with 2 beds and 1 bath.

Prefab Review

Cool. We've done a lot of ADU projects with clients and our community and I think in California more or less, though you know these rules better than me. It's pretty reasonable to go up to like a thousand Square feet based on the ADU laws. So 610 is obviously right 61% of that. Why only 3 models and why only up to 610 square feet when you can theoretically permit 800 square feet or a 1,000 feet

Abodu

Yeah, great question Michael and it's one that we spent a lot of time thinking about as a company and as a business here at Abodu. We really see ourselves as a product driven company and our product is physical space, right? The Abodu Studio, Abodu One, and Abodu Two, but also the service attached to that right? So the experience of working with us from soup to nuts on your ADU project. I think one of the biggest things that prevents us from going much larger at least currently is just the amount of homeowners that can actually receive that big of a unit. But there's quite a few properties across California that can take, call it a 750 - 800 or 1,000 square foot unit but it's actually a lot smaller than you'd think. And so when we started off, how do you get really good at what you do? You narrow your focus on a few core products and get a lot of reps for those products and then expand from there. Our Abodu One with 500 sqft was our first product and really the goal there was or how we kind of settled on that sizing was looking at permit data across California and said, “what is the average size ADU that people are permitting across the state and you know, what is the rough dimensions basically like what are people building right now and how do we gain exposure to that segment? And you'll notice our studio gives us an ability to serve folks with a little bit smaller backyards and our 2 bedroom gives us an ability to serve folks with slightly larger backyards that are just demanding more and more space. You know I think over the course of this year, you'll probably see us come out with a product more on that larger square footage section like you're talking about, probably not all the way up to 800 or a 1,00 and the reason being there, is once you get over 750 square feet you're just subject to impact fees right? So really the sweet spot in terms of max size is right in that like 740 to 749 spot there if you're trying to maximize your overall value.

Prefab Review

This is specifically in California that you're talking about right?

Abodu

Specifically in California, yeah. And what we've seen is that people want the process to be easy. They want it done quickly, and you know if we've got a five hundred square foot, oftentimes that wins out against a custom build that's 750 sqft.

Prefab Review

That makes sense. Are you doing these modularly or as panelized? How are you actually building these?

Abodu

Yes, we use modular, which you know, the kind of key distinction within prefab is you manufacture or you factory build the housing. We're not going the manufactured route. We're building to local building codes, you know, in California that's Title 24 energy requirements in Washington, that's including the very heavy snow load requirements depending on where you are in the state of Washington which has made things a little bit more operationally complex on our side, but we think that leads to a significantly better end product for the homeowner.

Right? They walk in, they feel the sturdiness of the floors. They know they've got dual pane windows with six inches of insulation on their exterior walls and it really helps overcome a lot of that stigma that can often occur within the prefab space.

Prefab Review

Yeah, that makes sense. We have done reviews of, I don't know, 50 ADU builders. One of the distinctions I try to understand is what do you do right? Because on the minimal side, essentially there's like the marketing companies which basically have some predesigned, non-engineered plans and then you buy the plans and basically everything else is built third party and then there's some people who do everything and I don't actually have a strong. I think different varieties make sense for different people. But what part of it do you think about from like design all the way through like local utility hookups etc. What part do you do? What do you outsource etc.?

Abodu

It's a really good question. So when we really looked hard at this space back in 2018 we wanted to back solve the issues that homeowners were seeing right? So what? We've always said we built Abodu from the customer back. So instead of building a solution in search of a problem we really understood the problem and built the solution to solve that. So I think the key pieces that we're really good at are the key pieces that homeowners think about for their given project. So hey, I can go buy this prefab box. But, shoot, how do I do the site work? What does installing a foundation mean? What does an installation mean? How do cranes work? How do I deal with utilities? What are the cities looking for from me? And I think frankly five- plus years ago that's how the prefab space just primarily worked, not a soup to nuts view but rather we'll sell you this box then you have to figure out the rest. So we took a bit of a different view, and said, “in order to deliver an exceptional customer experience we can't leave our customers high and dry or tell them to figure it out” We really have to own that in order to deliver that. So what does that mean? We're a licensed general contractor in California and in Washington, which allows us to own the prime contract for that site work.

Prefab Review

Great.

Abodu

So we work really closely with install teams in each market that play in to own that foundation, that utility connection, right? Sewer, water, and electric, in a build.

Prefab Review

That just means you're the GC and you just sub out or cost plus or the contract with whoever, the foundation person is, etc.

Abodu

Yes, we actually own that. So we provide homeowners a fixed price upfront and then we have deep relationships in each market we serve that basically gives us flat rate pricing you know, based on, call it like a menu of pricing with our install partners right? But yes, we don't have the plumbers, the Electricians, or the tradesmen on our physical team.

Prefab Review

Okay, that makes sense.

Abodu

And then you look at what do homeowners really stress about - it's the permitting side right? Each city is different, homeowners typically aren't well versed in you know, the comments and plan reviews that come from building inspectors and planning inspectors and you name it, and so we developed a really powerful in-house operation around what we call our planning function and there's kind of 2 big pieces there. 1 is working directly with cities before we've necessarily built a project in that city. Hey, you know we're getting a lot of inbound demand, we'd love to talk to you about and how ADUs work in your city. What are the process things? How do we make sure we get it right to save your team time? But also working really closely with cities that we've done 5, 6, 10, 15, 20 projects in and saying, “hey, let's build a little bit more of a relationship here, right? We're talking to each other every single day. How do we make your life easier? How can you make our life and our homeowners lives easier and in really getting to a lot of the symbiosis? And I think the planning function is one that's often overlooked within prefab, within home building. Within 8 years in particular it's seen as just like this friction point that, oh god we've got to get the permit, instead of how can we use the permitting process as an advantage and a differentiating factor for our clients. I think that often leads to us having to kill projects before we even take them on because we say, “hey, just so you know there's this weird thing within your city that you know is going to cost you a lot more money or is going to you know, be very challenging to overcome and we want to put this on the radar before you sign any contract with us. We would rather have those pieces known ahead of time to homeowners than get into 2 - 3 months of working with them and having to raise that challenge. And so a lot of that is a really developed planning and permitting function. But then you know when it comes to the building piece, we said, “hey we don't need to reinvent the wheel here.” So we don't own any factories. We don't do any kind of you know 3D printing or any of the sorts of like you know, new modern building processes. We've said, “you know cities understand how traditional construction work turns out, there's a ton of modular factories out there. They've been building for decades and they want to work with us and so we've really built these fantastic partnerships with factory providers across the western US that build units in their factory and handle that entire kind of procurement to final touch ups to delivery for us and so I'd say you know where do we index is an exceptional customer experience and the front end of things.

Prefab Review

That makes sense, I don't know if you can say this or not but can you say what factories you're working with these days?

Abodu

You know, we actually keep that pretty close to the chest. The reason being this a pretty competitive space.

Prefab Review

Yeah, it's fine. I know some other companies in Seattle work with Champion. It's fine if you guys can't say but just curious. But you work with a few factories?

Abodu

Yes, so we work with quite a large and growing network of factory partners and really, you know what we're trying to do there, is provide them a great experience as well. We look at our factory partners and our install partners as customers. What can we do to make their lives easier? How can we work better with them? And I think that's actually a more differentiating piece on the supply side, right? One of the really interesting things around ADUs is there's a ton of demand right? This market is growing really quickly not only in California but across the nation and actually the bigger challenge is how do you maintain the right amount of supply to serve that?

Prefab Review

Yeah I mean the customer stuff we do is like a year plus wait just to get into a factory.

Abodu

And I think especially in a construction environment where yeah, just yeah, just to be able to get in, I mean the backlogs and these factories are crazy and that's just the global construction scene right? Just the demand outstrips supply and so I think one of the approaches we've taken a little bit differently, is how do we make life as easy as possible for our factory partners? That means you know having a really open conversation around pricing and margins with them. But also, hey it turns out when we submit our orders we really hate it when you guys do this. Awesome, we'll go ahead and fix that for you. Being open to learning how to change our ways of working to fit within their mold as best as possible because frankly, factory partners are you know, it's a capacity constrained space right now and we want to make sure we earn their respect.

Prefab Review

Got it. Okay, but that's interesting, you guys haven't thought about vertically integrating? You think using third parties is the way to go for now? Just because, I guess what, with only only a few like I understand so some of the custom companies we work with I totally understand why there wouldn't be tremendous benefits because it's like okay, everyone's unique, but where you guys basically have 3 frames and right they're all fifteen feet wide, it's not the most complex thing compared to some setups.

Abodu

You’re spot on, Michael. The case for us owning the factory side is pretty strong with 3 models. You run them down the line over and over and over. I think the way that we looked at this today is starting a factory from the ground up is relatively capital intensive and at a pretty large fixed cost right? Now we've got this huge factory that we’ve got to maintain as well as learning how to staff it but also learning how to think about factory operations and as well as you know, still growing our footprint across the western US from a sales perspective. And the way we've stared at that is saying like maybe one day right? Maybe we get to the point where there's just too much margin we're leaving on the table or we don't have enough control or you name it but where we are currently as a business we have fantastic factory partners. We love working with them. They fill our needs. And we can put all of our focus as a business on growing our geographic footprint, our ability to permit things quickly, our ability to work really closely with customers. And I think the factory piece comes out of that once we've proven even further that customers love working with us, that we can deliver on what we say, and that we can serve a big swath of the US.

Prefab Review

Got it that makes sense. In terms of the end user experience, again I I love that you and a couple others are starting to bring more transparent pricing or like easier to grasp pricing. In terms of like this is, like it's not it that you understand the line items within it but you at least understand kind of, to get this box on this piece of land here's the all in number. This is the request we get most, walk us through a standard-ish project. So maybe you said you're in the Bay area, say we're on a flat-ish lot in like Redwood City or some other town like that. And you can pick any of your models.

Abodu

Absolutely, so let's take the city of San Jose - that's where we've done the most of our work to date and have a pretty high knowledge of what those costs look like and let's pick our Abodu One, our 500 square foot,1 bed, 1 bath. So that pricing, actually you're catching us right as we're flowing through a price increase, because I don't know if you've heard, but Lumber is back up quite a bit and commodities across the board are up quite a bit. And we've done our best as a business to absorb as much of that as possible but there gets to a point where it just you know it's a confluence.

Prefab Review

Yeah I get it, it's March 14th 2022 and yeah there's a lot of energy and geopolitics all sorts of fun stuff now.

Abodu

You have to adjust. So anyway, our Abodu One pricing has actually just shifted up to $242,000 as our starting price. And that starting price includes the unit build and factory, that includes delivery of the Abodu One, that includes standard craning up to a hundred feet of that Abodu One, and that includes the foundation and utility connections up to fifty feet of run for each of those utilities, so electric, water, and waste, are what we typically do. And that includes all the services of permitting. So what does that not include? We pass through permit fees at cost. So a city says here's your permit fee bill. It's $6,000. We provide that line item cost to the homeowner and say hey here's what that is. The reason we don't include that in our standard pricing is because cities are vastly different in what they charge in permit fees. It can be $14 to $15,000 in the city of Santa Clara or it could be less than $2,000 in the city of Millbrae those cities are twenty miles apart but that's a vastly different permitting amount and if we tried to build our pricing around that, we would just end up being more punitive to the city or the homeowners in cities that don't have high permit fees. And so we try to say that is something that we can control for, but it's passed through at cost. The other things that we typically see in terms of a site work piece is you know a bit more trenching. So hey, actually in the city you're working in you have to connect up to the front of the sewer line instead of underneath your main home. Or hey, the electric run is actually coming from the front left corner of your property you're putting me Abodu in the back right corner of your property so you've got to run that one hundred feet which means there's fifty additional feet of trenching there. So anyways, we try to build this in a programmatic way, right? How are our costs associated with us and how can we make that super clear to homeowners of where their costs are coming from. So let's say that $242,000 project in San Jose, let's say the average San Jose permit fees are roughly like $6 to $7,000 we have that noted on the proposal up front. Hey in our previous project in San Jose this is what we've typically seen. But it's just an estimate and then we'll say, “hey, actually your property has an extra ten feet of craning. It's that ten feet of craning is at ten feet times the craning cost and then you know an extra twenty feet of trenching for the sewer. That's twenty feet times the sewer trenching cost and provide this estimate for a homeowner. That's like, here's your final number based on everything we've learned about your property. So I'd say like right now in a San Jose flat lot, 1 bedroom, we're seeing property or projects come in all-in with permit fees and trenching all that fun stuff right, around $260k. Now the hard part is…

Prefab Review

Got it. And would that include like solar and Title 24 and all that stuff?

Abodu

Yup, all in. Now the hard part with that is, that $260,000 was probably $230,000 a year and a half ago right? Maybe even less. I mean we're doing projects at sub like $200,000 just a few years ago and it's just the state of the world where not only is site work gone up, but factory building has gone up, all the material inputs have gone up, permitting timelines have extended. You name it, like everyone across the industry is feeling it right now.

Prefab Review

Yep, that makes sense. But I mean you're still at least, I don't know we'll talk about use cases in a second but like you're at least, you are higher than $500 per square foot, which seems crazy. But you're still in the, like if you wanted to rent this unit out, $2,500 or more a month

Abodu

Yeah, oh yeah. Yeah, like our 1 bedrooms are renting out between $3,000 and $3,500/month for the 1 bedroom.

Prefab Review

If you do a 30 year mortgage on this. You're at what, $1,500 a month or maybe a little higher? I don't know.

Abodu

A bit less. Like 1200 ish exactly so I mean you've got a pretty compelling case for cash flow there.

Prefab Review

Okay, okay so you’ve got some room. Yeah, nice. That's cool. And then, um and then like what -I Know that one of the things you've talked about a lot in your website is being able to really condense the timeline, which is awesome. Do you want to talk a little bit about sort of what you've done to do that and what a normal timeline for sort of a fairly standard project is. Like what we're talking about as a project might take?

Abodu

Yup, absolutely. So I think you know one of the one of the biggest headaches we've heard from homeowners across the board with any construction project or renovation project is just it took forever and we had no idea when it would be done and it was so opaque. And you know just like if you're not in the construction space, it's really tough to grasp. You know what do you mean the windows are delayed by a week? What do you mean the cabinets? It's like that's just construction right? It's this crazy supply chain that exists and obviously the past year and a half hasn't made things any better. But I think you know, we've taken a hard look at that and said, “how do we make things easier? One is just building the entire unit offsite. Right? So building that in the factory, you get to control a lot of the timelines. Our factory builds right now take three to four months of actual build time. Now that obviously is post procurement of everything and and you know you’ve got to make sure you have everything in stock there but that's a significant improvement of what an onsite build time is, right? An onsite build time when you're waiting for materials to arrive and whatnot, especially for a five hundred Square Foot ADU, we've heard horror stories of those being 2 years of backyard time. I think the more you know, the average is probably closer to nine months to a year. But still obscene, so one is just like building in a factory. You get a little more control. What we've started to do as a business is say, how can we pre-buy inventory of our supplies? So can we go buy a bunch of windows? Can we go buy a bunch of doors? Can we go buy a bunch of long lead time things so that when we're ready to press order, those are actually already in stock with our factory partners instead of you know waiting six months for the windows to arrive before you can even start construction.

Prefab Review

Right.

Abodu

I think number 2 is taking that one step further and saying, why don't we pre build entire units right? Why don't we just build this the way that car dealerships and car manufacturers think about inventory? Or you know a homeowner wants this siding or this paint color great. We can do that in the last three days of production.

Prefab Review

Right. And then you just customize the siding and the appliances or whatever.

Abodu

And homeowners can start just picking these either fully completed units or units that have like a month left in production, and so that's through what we've called our Abodu quick ship program. In the most insane use case of the quick ship program, we've delivered a home in less than twenty days from contract to keys. An investor in San Jose bought the property and permitted it the next day through our San Jose preapproval program, and started site work about ten days to get the foundation, utility connections in, and delivered a fully completed 2 bedroom unit. It took another ten days for final inspections and kind of final touch ups and here we are twenty days post contract, keys in the homeowner's hand, ready to rent out and I think that was a like

an unbelievable use case of our quick ship plus our San Jose pre-approval. But our standard project right? Let's talk about that normal flat lot. You know in Redwood City, all the standard kind of permitting timeline, we're seeing that right now be about six and a half to seven months and I'd say that's the average right. Sometimes we're hitting that like four and a half to five month timeline and sometimes you know if you've got a particularly challenging local jurisdiction to work in, that timeline can be can be 7 to eight months but I I will say we've done a fantastic job of maintaining really tight project timelines despite the world throwing everything it can at our space to make that really challenging.

Prefab Review

That's awesome. That's great. I’m sure your customers are very appreciative of that. A couple of questions about your products. So all Abodus are designed by Koto right?

Abodu

Yeah, Yes, our 3 units right now, we've worked really closely with Koto design. They're a UK-based architecture firm that really specializes in Scandinavian influences and the goal there was to marry, you know, the Scandinavian simplicity of small spaces with a kind of California coastal architecture. And that's where you see this kind of iconic design space that has a diagonal gable roof. So a funky roofline, but this really striking presence and the goal there was to give homeowners a piece of art for their backyard right? And really we can match very closely to their home or we can do this very striking, you know cedar siding or Corten steel siding that looks very different but give homeowners that opportunity to have an ADU in their backyard that they're proud to have on their property.

Prefab Review

That makes sense. Yeah, and I really do love your design. One of the things that again, we have a couple hundred thousand people come to our site every month, so we get a lot of feedback on hey, I want this, I want that etc. People oftentimes choose based on the design right? They're like, I like the way this looks, so your design's great, but right it's like again, you have 3 models and they're fairly similar. With as you said, a bunch of configurations. Do you think as you sort of start to branch out to new models, you're going to continue this as you said sort of iconics specific design or do you think that is also something where you're going to have more breadth as you scale?

Abodu

Yeah, it's a really great question. I think, you know if I'm thinking about our product roadmap right now, over the next 12 to 18 months, the core of what we're thinking about is design, right? How do we design a space that is fantastic to live in and built to be lived in for our homeowners - either their loved ones and family members or their rental tenants. I think we will begin to push the boundaries of that design. You know, what does that mean? Does that always incorporate you know xyz design elements or how do we rethink that? Especially as we go, you know say bigger or smaller. But I think that's a very great question of like will a boat always look like their current state, likely not. It's just a business that will need to continue evolving and as we serve different markets they have different design tastes and I think what we're really stretching as a product and design org right now is how do we continually iterate what we provide to homeowners to make sure we're meeting their needs across the board. So I'd say long story short, we're always evolving our thinking about what our structures need to look like in order to win.

Prefab Review

Yeah, got it. And then when you sort of talked about this sort of investor use case before, is that what? What are the sort of the different reasons you see people actually building your homes typically?

Abodu

Totally. I'd say we have 2 primary use cases. There's a long tail of interesting ones after these 2 but typically it's housing for a loved one or a family member or for rental income. And I'd say the housing for a loved one or family member really sprung up a lot during covid where multi-generational households are at an all-time high. You know people maybe felt pinched on their wallets here or there and you know children are back living with their parents, grandparents are moving in with their parents, aunts, uncles. Either way, there's this need for more space and if you look at the kind of California housing stock, we're talking you know 3 bed one bath homes that were built in 1965 or 1975 and haven't really been updated. That's a tough living environment for 3 generations to be under. And I've seen you know a lot of our customers come to us saying we just need more space and it turns out a detach ADU is one of the easiest ways to do that. You're not blowing out your kitchen or adding a bathroom or living through 9 to twelve months of renovation in your primary home. You've got a couple weeks of construction in your backyard and then this unit just arrives. And it's a pretty magical experience to them right? So I'd say that's one of the biggest use cases and then the second one is obviously kind of the return on investment. I'm looking to rent this out full-time to you know a member of our community or traveling nurse or you know there's so many different use cases for rental. But, I'd say about 50% of our units are currently rented out which is that homeowner you know either the homeowner lives in the primary home or is an investor and already rents out the primary home. It is just looking to add another door to their portfolio and is coming to work with us because we provide a lot of benefits there right? Our quick ship program can deliver units really quickly. Time is money for the investor. To set each month is not collecting rent but paying debt service on their loan is hurting them. So if we can deliver that faster and allow them to see that return faster is a huge benefit but also that upfront pricing - hey build this into your proforma if it pencils for you? Fantastic! Let's get going and if it doesn't pencil for you. But I think those are the 2 biggest use cases. We obviously see some of the home office uses or you know recreational gym uses but I would say those are sub 3% of our total project stack right now.

Prefab Review

Got it. And then one of the things you talked about was a sort of investors and time is money, and I'd say one of the most structurally challenging things we found for ADUs is this sort of financing piece. It seems like almost all financing comes down to I know there's a few like Rentify are doing sort of interesting things that take a while, but like a lot of times, it seems like you're basically either saying this person is wealthy enough to pay out of pocket or this person has a lot of equity in their home and is going to pay for it that way. Is that essentially what you're seeing?

Abodu

Yeah

Prefab Review

Which again it works for certain types of people and certain types of use cases. Is that essentially what you're seeing or are there other ways of financing outside of this too?

Abodu

No, I mean for better or for worse Michael, those are the kind of the key pieces, right? Someone has a stock portfolio that I guess as of the fall was up quite a bit but maybe now not so much anymore or they're yeah where they've got their home equity right? and they pull HELOC out and it's a no brainer.

Prefab Review

Right, but they have some kind of liquid asset they can sell.

Abodu

I think early last year in late 2020 we saw a lot of cash out refinances. It just made a ton of sense. Interest rates were very low and I think we've seen those off a bit more and so the folks that are around in that bubble of financeability right? Maybe they don't have the full equity in their home or they don't have a stock portfolio worth hundreds of thousands of dollars, we've seen some starting to go more towards construction loans, right? It's a little bit older form of financing and it's definitely a little bit more expensive form of financing but it's a short-term form of financing right? Hey let's go ahead and get this built. Let's get it done as quickly as possible and let's convert that construction loan to a 30 year mortgage or 15 or you know whatever someone wants. And I think we've seen the rise of construction loans. You know, I'd say this time last year. Maybe 5% of our projects were construction loans. I'd say where we are right now maybe that's closer to 10 to 15 so it's going to be interesting to watch that. You know for folks right on the bubble there of financeability. You know, having the right amount of equity in their home or call it cash equity proceeds elsewhere. Construction loans are definitely becoming more in vogue right now.

Prefab Review

Are there specific things like we’re constantly getting requests for lenders? Are there specific lenders that you like a lot for your projects who you’re referring people to?

Abodu

That is a fantastic question. I would say, you know right now we're not a certified financial lender so we don't have a brokerage In-house. We kind of just say hey, here's a list of Lenders we know that our customers have worked with in the past feel free to give them a ring. And I'd say that list is growing. We want to give our homeowners options but I would say there hasn't been like 1 or 2 or 3 lenders that all of our customers have congregated towards, right? It's been a little bit of you know we've had people use groups like rentify we've had people use traditional banks like First American. And I know Umpqua plays a lot within the ADU and just general prefab financing. Yeah, there's definitely banks that understand it exactly.

Prefab Review

I wouldn't say they're fast, at least in our experience. What are you all seeing in that just because I can imagine the awesome thing for you is like these homes are pre-engineered, I assume are you I assume you're probably looking at like forty five days or sixty days to get these completed?

Abodu

Yep, that's about right? And you know how we've addressed that Michael is the very first conversation we have with any prospective Abodu homeowner, we bring up financing, “hey how are you thinking about financing, “you know, we want to give you a range. It can be x to y you know? How are you thinking about paying for this? Is it cash out of pocket if it's financing?” Oh you're thinking about financing great. We recommend getting on that as soon as possible and maybe you don't end up using it but like you need, this is a process that takes 45 to 60 days and the sooner you think about it the sooner that pulls out of your kind of ah call it the thing you're waiting for in order for your project to get running.”. I'd say we instituted that into our sales process maybe about a year ago and we've now seen folks being more proactive about financing and being ready at the kind of contract phase with financing in hand versus ready to sign a contract and oh wait financing is going to take two months, well let's let's put this on hold for two months.

Prefab Review

I think this is hard, which is why no one's done it yet. But when you guys write in terms of thinking about the user facing experience and all the pain points and stuff when I like I think there actually is like a lot of benefits to sort of having heterogeneity in like a number of loan options. But I feel like when you all are able to say like here are 3 or 4 of our fast track partners, fill out this form right? There's going to be expedited appraisals because appraisals itself are our nightmare now. Like I'm just thinking about things that would make the customer experience a lot better. It feels like that was definitely one that would be cool.

Abodu

Yeah, Michael, what would it be if you could offer integrated financing and build? I mean that just becomes much more like the car buying experience right? Hey, I want this car. Oh I can get approved for a loan in 4 minutes here at the dealership. Fantastic, I think. There's a couple you know structural things that make that challenging but we are continually chipping away at those. And you know with the end goal of being able to make this as easy and clear from point a to point b for homeowners as possible.

Prefab Review

Yeah I assume that some companies are just going to end up buying some small bank, like what's happened in a lot of the other banking stuff, so you get all licenses and all that stuff. But I'm not an expert on this part of yeah like or not not like the sort of pain and user experience. But I don't know all the things preventing different people from owning. Moving into we have a quick next section called the fire round, this is when we get to ask a few questions that are probably kind of similar to FAQs you get all the time. So you know do your best to answer each of these in 1 minute or less. So anyway first question, what's what's the difference between permitting in Washington versus in California.

Abodu

Oh great question. California has a statewide permitting framework so we know going into any city exactly what we're allowed to build. Washington doesn't. So each city is a little bit different. California has standardized four foot rear inside property line setbacks and standardized kind of height requirements and square footage requirements Washington is not as standardized. Let's say. And so there's a little bit more leg work upfront to understand what we can do in each city and what we can't, but frankly, other than that it's a very similar process, right? You’re still required to have a planning check which is typically pretty easy to use, require building review, you require public works review kind of all the and fire review the groups that check it and I'd say like we've actually been able to scale our planning team. The team that handles our permitting across states really easily right? The people that handle our California permits are the same people that handle our Washington permits because the core pieces are similar. I would say a lot more of that upfront work is what's different between the two.

Prefab Review

Got it. Can you talk a little about site evaluation. It's a sort of an anecdote here. It's like we had a user we were working with the other day right? And they're honestly not even that steep of a hill but had sort of slightly funny access to their house in Marin County in California and it basically died pretty quickly right? We couldn't get a crane adequately and kind of drop a modular box on, so we're going to go another route. But what are the things that you look for in trying to figure out site evaluation?

Abodu

Totally. We have a really robust process in-house. The second that lead comes in, so someone submits information on our website, we actually have a team in the backend here that's evaluating their property against the key criteria. So the baseline is: can you fit an Abodu in your backyard? Do you have space for the required setbacks and fire separation requirements from the main home? After that it's do you have a clear craning path? So that can mean power lines aren't in the way, big Redwood trees aren't in the way, you name it. We have a 3d mapping software that we use to kind of spin a property around and get a good view for that and those are kind of the 2 biggest ones they have. And can we install after that if you know the access roads. And that's been really interesting as we've expanded into new markets like Sonoma and Napa counties, you know, we take for granted how wide the roads are in San Jose and suddenly you get up in Sonoma or Napa counties and some of these more remote properties and you actually can't bring a fourteen foot wide unit down the road because of the widths of the road are only 10 to 12 feet and so those are some of the more the deeper access things that we've been evaluating. But typically, you know we give a really good deep scan that gives us 90% confidence. When a lead comes in and then we have a feasibility study process whereby a member of our team comes out and walks the property with the homeowner. They understand what they're looking for and build a proposal to their exact needs but also are looking for that final 10% of yes we can get this project done or, hey here's a deal breaker and we want you to know that now instead of three months into your project.

Prefab Review

That makes sense. Next question, we've gotten a lot of interest in, I think it's called law SB-9 in California which basically it allows most lots to theoretically split into two. Have you had an interest or experience and people using ADUs for that and do Abodus work for that because I guess technically it will be like a single family home versus an ADU at the end of this.

Abodu

Yeah, Michael we've had unbelievable amount of interest in that and I think you know we've been tracking sb-9 for a couple years now it used to be sb-1120 that did not pass back in 2020 and then sb-9 passed in 2021 and I think that the theoretical promise is really large, right? Theoretically Abodus can absolutely be used in building an adu and separating that out, I think the reality challenges are still quite large and we've already seen cities taking a very I might call hostile approach towards the law. If you think about how ADUs rolled out and 2018, 2019, the 2020 adu changes. It was a city by city patchwork of adu legislation that in 2020 was able to be patched up and made statewide. I think we're going to need something similar with SB-9 over the next two years otherwise it's really challenging to serve multiple customers at scale. I think what's really challenging is homeowners are relying on companies to just handle this for them. Kind of like wave your hands and make my property sb-9 eligible is really challenging because you know, certain cities are requiring different landscaping or different size requirements or you name it around how to approve one of these projects without guaranteed timelines right? It could be that neighborhood comments are required and it could be you know this is a twelve month sixteen month eighteen month review before this is approved and I think the way that we've taken how we've approached sb -9

Prefab Review

Does ministerially approved apply to ADUs?

Abodu

In theory, yes. I believe the law actually has ministerial approved language in it. But cities are finding interesting ways around ministerial approval. I believe it was the city of Los Altos…

Prefab Review

We've heard setbacks as an issue. I don't know if that is,. but again we haven't looked at this very deeply just sort of anecdotally with a few people and…

Abodu

Totally. I mean there was the city of woodside that tried to say they were a mountain lion habitat and thus couldn't do this period and obviously that was a big uproar. A couple weeks ago that was reversed and I believe as the city of Los Altos Hills said if you're going to do an sb-9 project it has to have this size, trees shielding the home from the main street. It's like you know 10 five gallon trees or whatever. And I think when you look at that and try to serve customers in multiple jurisdictions at scale, it's really challenging and so our approach as a business has been let's let it develop a little bit. And let's watch how cities continue to evolve and you know be parts of those conversations with cities but let's not go make a bunch of promises to homeowners that we have no idea if we're gonna be able to keep, especially in a new market and especially we consider ourselves a relatively new business still at you know, three and a half years old. We don't want to promise the homeowner something we can't keep and I think that's a big worry with the state of sb-9 right now that we’re watching really closely.

Prefab Review

Got it. I know like the city of LA and I think the city of San Jose they've done these as pre-approved plan programs that I think you're a part of. Obviously those have been written about a lot, do you want to talk about how those that have sort of materially helped or not helped your business and the customer experience process.

Abodu

Absolutely. yeah.

Prefab Review

Because some of the plans I've seen seem okay from you all, those are being built and some of them especially in LA looks like oh you know this architecture firm probably had a fun hack day but I don't believe these are actually being built as sort of presented on the site.

Abodu

Yeah, I'd say that's a pretty astute view there and I think, taking a step back right the concept of a pre-approval program is a fantastic idea. Hey, if we're building the same design over and over why should we go through a deep plan check. I think in practice is where the proof is in the pudding. In a city like San Jose where we've been working with them for almost three years in their preapproval program that is still like the golden child of ADU permitting, we can be out of San Jose in less than one day with a permit from start to finish. Outside of that pre-approval program, that's a 9 to 12 month permitting process right now for ADUs in San Jose. So that right there is a massive impact. Not only to our business but to our homeowners to the customer experience. The city of San Jose right now they're getting more units in the ground. I would say other cities have a little work left to do. Even cities that established pre-approval programs you know, it's a little bit more of in theory this should work but then they get into the nitty gritty of like well you know fire review and public works review and building review and planning review and those reviewers aren't talking to each other so you know fire takes a week but building takes six weeks and really the concept of pre-approval just gets eliminated. But we've worked really closely with cities across the state and counties across the state on that pre-approval in the ones where they've figured it out. Cities like San Jose have a fantastic outcome. I mean absolutely what I would consider close to magic in the construction space. But I do think you know even some cities that have announced pre-approvals have some room. Left to grow and continually iterate on their program to actually make it impactful.

Prefab Review

Thanks so much for providing all your insight. Final question, and we ask everyone this, what are you most excited about for your company or for the industry in the near future?

Abodu

That's a great question. I mean it's tough not to be excited about ADUs as a whole right now. I think you know they're solving a lot of really core problems for homeowners and investors across the state. And they're adding meaningful units. What was the last tally something like 20,000 ADUs in California last year. That's a meaningful dent in the number of housing units being built and I think as a whole we're really excited to just be a part of that and being able to deliver quite a few units for homeowners across the western US, I think that's kind of like from the industry side from our company side we've seen unbelievable growth. Over the past year we 5X our business in the past year we've grown our team and we're almost at 60 total employees now serving all of our markets really making sure that we have the right level of support for our homeowners across the board. You know we're beginning to look at new products. You know some of the stuff I alluded to a little bit earlier but also new markets, right? Where else geographically does the ADU concept make sense and how do we scale our business to serve there and I think it's all to say like it's a really exciting time to be at Abodu but also just to be in prefab right? The strides being made, the efficiency being made, even despite this crazy supply chain shortage, prefab is one of the shining lights really finding their way through. And II think it's really tough to point at a time over the past twenty years where it's been this exciting to be in the construction space but it's something that really drives our team's energy and excitement level and we've built a team of folks that just love solving these hard problems together.

Prefab Review

Awesome! Thanks again, John. For more information about John and Abodu, visit Abodu.com and you can always visit us as always at prefabreview.com. Thanks again

Abodu

Thanks Michael.

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