February 3, 2022

42. How Zebel is providing developers with pre-construction feasibility analysis in minutes

The Apartment Rebels Podcast
The Apartment Rebels Podcast
42. How Zebel is providing developers with pre-construction feasibility analysis in minutes

Show Notes

The Apartment Rebels Podcast
The Apartment Rebels Podcast
42. How Zebel is providing developers with pre-construction feasibility analysis in minutes

During this episode, Hamid Hajian CEO & Founder at Zebel, tells Jude about his journey into pre-construction and how his love for technology eventually led him to build Zebel. Zebel is a powerful tool that allows developers to get accurate conceptual budgets in minutes, instead of the manual back and forth that usually takes weeks.

In case you prefer to read, here’s transcript of the episode:

Jude 00:00:30 Welcome to the latest episode of, uh, Flamingo’s apartment rebels podcast. So on today’s podcast, I am really, really excited to introduce Hamid Hajian, the co-founder and CEO of Zebel. So Zebel is a really, really cool company all about data. So this Zebel software offers data analytics, uh, tools to multifamily developers on general contractors to really run visibility analysis during the early stages of design. Uh, the technology really enables developers to leverage historical data on other things to create better cost estimates and from our initial conversation at, uh, NMHC, you mentioned that typically without your software, it takes maybe 2, 3, 4 weeks for a developer to really create a back of the envelope estimate for new construction, but with what you guys offer, they can get a really, really good estimate in just a few minutes, which is really incredible. So really excited to have him on the call on the webinar, on the podcast. So welcome
Hamid 00:01:52 Thanks very much. Thanks for having me.
Jude 00:01:54 Welcome would really love to kind of dig in a little bit on your background. So I know you, uh, spent some time on a few really cool universities from Shiraz to UCLA to Wharton. And I even heard that you are a PhD dropout. Tell us a little bit more about, uh, your educational background.
Hamid 00:02:17 Sure, of course. Uh, so, uh, I went to Shiraz university, studied civil engineering, um, because of my, my family background in construction. My dad is a retired real estate developer in Iran. That’s where I was born and raised. And, uh, I went to civil engineering program, um, to get into the family business basically. And, uh, later moved to the U S for the, for my master’s program in construction management, went to USC and, uh, I finished at the master’s program. Uh, at the same time they started a new PhD program in construction management, and I became the first PhD student. And I guess, uh, it’s a, it’s a requirement to be a dropout of some educational degree to become a successful entrepreneur.
Hamid 00:03:17 Maybe this is the degree I should drop out. Just joking. So that was not the plan it happened because of other reasons, but, uh, yeah, uh, finished the, uh, spent it for a few years, uh, did a bunch of research, but my focus was on construction technology. USC was my door to the technology side of construction. And that’s where I learned about, uh, building information, modeling, laser scanning, those kinds of technology things. And, um, after school graduation, I joined a company in New York. It was a small civil engineering consulting firm. And, uh, I joined their small beam team, uh, working with, uh, general contractors, architects, and developers, uh, on their, uh, 3d modeling projects. And, uh, and then moved back to California, uh, to join a multi-family company called Western National Group and worked there for five years while I was there. I attended the, the executive MBA program at the Wharton school, which gave me other ideas about how to run a business and, uh, kind of opened my view, uh, and, uh, saw the opportunity to do something in the industry.
Jude 00:04:41 That’s really cool. So the one thing that I’ve picked up from all of this is that you never went back to help your dad. I’m like, is it a construction business?
Hamid 00:04:52 Yeah, I’m still in the same industry, but, uh, uh, I just, I was just so fascinated with the opportunity to stay under control the technology side of it. I remember when I was at school, I did an interview for an internship position at a large construction company, but it was a technology side of it. And I remember the hiring manager telling me, um, are you aware that the carrier path you’re picking is a very narrow carrier path that technology and construction versus like a traditional carrier path. And like, you go, you become a project engineer, superintendent, project manager, and you just follow that path, become an executive at a company. And a technology was new. What? I just, I would see the potential and I was just personally interested in it. It was exciting and it is still very exciting and now I’m very happy to be on the forefront of it, uh, creating new technologies. Yeah.
Jude 00:05:54 So for Zebel, like how will did it all come to be? So given your path, you have been, um, in every aspect, part of construction. So at what point did it kind of resonate in your head like, Hey, does this current process, but estimates doesn’t make sense.
Hamid 00:06:17 They say necessity is the mother of all innovations, right. And that’s what happened to me. Uh, I was in the pre-construction team at Western national and, uh, we, we had a need for quick conceptual cost estimates. We had some tools and templates for our regular, like detailed cost estimating for our cross projects, but didn’t really have a dedicated tool for conceptual cost estimating. That was quick enough. And I surveyed the market, looked at all of the tools that are out there available off the shelf. None of them really work the way we wanted them to do. And I ended up creating a tool, uh, working with my teammates, uh, in, in the construct, the pre-construction team. And, uh, we called it a quick estimate tool. And of course, you need an acronym for everything we call the QET QET 1.0, and we kept working together on it and kept improving it 1.0 2.0 2.2, 2.3.
Hamid 00:07:21 And, uh, so, uh, and the idea was in order to create a quick conceptual cost estimate, we need to leverage the historical data we have from previous projects in a very systematic way. If you talk to any construction company and ask them, do you use your historical data? Do you have a historical database? Everyone says, yes. What, what most people mean by that is a collection of spreadsheets and PDFs scattered throughout their shared drive. And, um, it’s not really used to their fullest potential. And, uh, what I did was, uh, gathered all of that historical data. Firstly, it was all just in one spreadsheet versus multiple spreadsheets and we called it the database.
Jude 00:08:10 That’s a very creative for the names you come up with.
Hamid 00:08:14 It was really our database. And then I started creating these dashboards. Uh, imagine it’s a spreadsheet. And then you have another tab that allows you to look up stuff from the first tab, the database, but it gives you some sort of a user interface instead of scrolling up and down and left and right in a giant spreadsheet, you can just click on a drop down menu and select. I want to see project X and I want to see how much we spent on cabinets, or I want to see the acreage of that project as it started, as simple as that, just looking up stuff from the database and then people in the pre-construction team, they kept asking for more and more. And, uh, it was a really unique opportunity to innovate within the pre-construction team. And I was really, uh, privileged to work with, uh, like-minded professionals or forward looking professionals within the pre-construction team to support that whole project. And, uh, so we kept adding more and more, uh, tools to it, including the quick estimate tool, which basically would let you plug in a few key metrics for your new projects. And then you would be able to select a one or multiple comps from your historical projects, and then it would just generate a cost estimate for you instantly.
Jude 00:09:43 Oh, so I want to think a little bit of a step back. Can you, for the listeners that are not as educated on the construction or multifamily construction side of things, can you kind of give a very high level overview of how it works? So how do I, as a developer go from, I want to build an apartment to it’s not alive. How does that all work?
Hamid 00:10:10 Absolutely. So if you are a developer and the first thing is you would identify a piece of land to build a building on it. Once you identify a piece of land through your internal team or a broker approaches, you say, this is a great opportunity to buy this two acres piece of land and this address, and you can build a four story building on it. And the first thing they do is they would go and hire an architect to do a conceptual design. That’s like a site plan of give me to show me some boxes, uh, that this is the kind of thing you can build. And you can probably fit 120 apartment units in the, and here’s how much land you can you’ll have left outside of your building footprint while you comply with the codes about the setbacks and things like that. And then, and that process usually takes a few days, maybe a week or so then they take that go to step number two, they go to a general contractor or their internal pre-construction team and ask them, how much does it cost me to build this thing that the architect drew and, uh, that that’s what we call the conceptual cost estimate.
Hamid 00:11:23 You have maybe a site plan, some drawing, some hand drawn stuff. Uh, and though you still need to come up with a, with a number. This thing is going to cost a hundred million dollars or $15 million. This is a really large project that we are dealing with and they take that number, but it would take him around like two to three weeks to come up with that number, even back of an envelope, they go to the step, number three, uh, running their proforma, which is the cashflow projections for that project. Here’s much, it’s going to cost us to build it. Here’s how much rent we can. We estimate to get out of it. And here’s how much money, how many what’s the net profit we can make off of the, this project. And then they can see if it makes sense to move forward with that project or not, if it’s profitable enough.
Hamid 00:12:10 And if it’s not, they go back to the architects step number one and tell them that design didn’t work, change it a little bit, make it bigger, make it smaller, make it taller or shorter, do something with it. And they go through that whole process iteratively until they find a design that makes the project financially profitable. And they go through that again. And again, really, and that’s, that’s the most time consuming part. And a lot of times the, they look at so many deals and it just, none of them work and they just move on to the next project
Jude 00:12:44 That was it on the site itself, or they, um, abandoned the project itself,
Hamid 00:12:50 The abandoned that whole project site let’s move on to the next one, uh, after spending thousands of dollars and just weeks and months, uh, on that project. And, uh, and that’s very inefficient. That’s how we felt it because I remember in the pre-construction team, developers would come to us with a piece of site plan and ask for a conceptual cost estimate and we would deliver it. And then, uh, three months later they would come back with a slightly different design on the same land. And they were like, so what’s going on? We did some research and we figured we are part of this cycle that the developers are going through and it just takes months and they’re spending so much money on it. And a lot of times they just lose the deal and without really finding a design that works and we figured step number two, the cost estimating is the bottleneck of the whole process and the most important part because construction costs makes up around 70% of the total development costs. And that’s the biggest exposure they have the, the, the, the biggest risk for their decision-making for investment and
Jude 00:13:59 Pre Zebel how are, is the construction cost calculated? So if someone doesn’t have like, how does that work? Now?
Hamid 00:14:08 It’s either they just go off of a gut feeling per square foot number. And people try to just look at, okay, we, this project looks like a project X to be built two years ago. That project was 300 bucks per square foot. And, um, so maybe this one is costing us is going to cost us 320 bucks per square foot. But, uh, that one was a little bit bigger. This one is a smaller, it’s going to cost us a little bit more or because of this or that this was in a different location. Um, and people trying to triangulate that in their head. And sometimes they work a spreadsheet to come up with a number, but, uh, there is no hard science really behind it. Uh, it’s very kind of gut feeling based on experience. Uh, and, uh, and that’s why it’s too often. It’s very inaccurate.
Hamid 00:15:00 And, uh, and inaccuracy at that stage means developers kill a lot of deals on necessarily because they thought it would cost them too much, but it wouldn’t really cost them that much. They were just too conservative with their initial cost estimate. And sometimes they move forward with the project until they realized that it it’s going to cost them a lot more than what they thought. And, uh, they’re already too deep into the project. And, um, they, it puts them in a very, in difficult situations and what we thought, if we can come up with that number quickly and accurately, it would change the whole game. That means you can try so many different design scenarios very quickly and get to that optimal design, uh, in, in a few days and use that as a starting point and go to the architect and say, can you design something to these parameters? You are the architect. You make it look beautiful and functional. What, as long as your design stays within these parameters, um, then I already know how much it’s going to cost me how much money I’m going to make off of it. And if it’s going to be profitable or not. So I’m going to be the big game changer. So,
Jude 00:16:20 So from what I’m getting, there has to be a ton of data that’s utilized and a ton of inputs that have to be utilized in order to get an accurate estimate. So can you kind of give us an overview of the platform? So what are the inputs you all look at to come up with estimates in minutes?
Hamid 00:16:41 So there are two major inputs, basically for any estimate. The, the first is, uh, about a dozen key metrics for a multi-family apartment development project. And those are various the project. What’s the product type. Is it a podium? Is it a wrap or regardless style walk out project. What’s the acreage of the land? What is the unit mix? How many, one bedrooms, two bedrooms do you have? How big is each of the units? What’s the gross square footage of the building. Um, what is your parking ratio? How big is your parking and what are your amenities and or retail square footages in your project? Some key basic programming numbers for your project. That’s the first input. And then the second one is, uh, picking the right, uh, the relevant and recent historical projects as your comp. It works just like how, uh, appraisers for a mortgage work.
Hamid 00:17:40 They, they look at your house, they will not appraise your, the value of your house, but what they do is they look at similar, uh, recent sales in the neighborhood and they try to triangulate between those and adjust it to, uh, to fit your houses specific, like number of bedrooms and bathrooms and the school footages. That’s basically what we do. We do that very similar fashion for construction costs. So that’s the second input, but the nice thing is instead of looking up costs for cabinets and concrete and steel, uh, from different projects, you just select which project you want to use as a comp and the system looks up all of those numbers for you instantly. It looks up like hundreds of line items from concrete to steel, to cabinets, finished carpentry site work, anything you have in your budget. It does all of that.
Hamid 00:18:34 Instantly. It already applies the, the cost escalation, uh, because of the historical projects are historical by definition. You want to bring those dollars to today. Maybe you want to apply some premium to it. It just automates all of that number crunching. So the estimators don’t have to spend time copying and pasting numbers from one cell to another in spreadsheets and managing spreadsheet, but they spend most of their time analyzing the estimate rather than number crunching and, and, you know, doing some of, some of the mundane work that doesn’t really add much value to the estimate.
Jude 00:19:11 So let’s say I was your first customer, and I wanted to work with you all. Where does that historical data you just mentioned come from? Did you all have to go out to find like volunteers provide you with that data? So how did you get like that first set of data that things are based off of?
Hamid 00:19:32 So when you want to create an estimate, you have two options for selecting your comps. You can either use your own internal historical data, or you can use what we call the market data, which is the data you’re aggregating from our other customers and anonymizing it. So even if there is no other company on our platform, which there are, you can still use your own. That’s the primary value proposition we have. You can just tap into the power of your own data, uh, that is, uh, locked in spreadsheets. Um, but as we get more and more customers on our platform, our database is getting richer and richer. That means now you have this secondary source of data that you can tap into. If you don’t have the internal data, uh, from your own projects.
Jude 00:20:23 That’s what I love the most about the platform is that as you get more customers, you get more data and everything just becomes even better and more accurate over time. It’s like how Google grew so quickly is the more inputs they get, the more accurate and the better it becomes. So very curious, have you looked at, I’m sure you have already done this, but what is the accuracy? So after you provide an estimate, have you done the analysis to look at how, how many hits you have after construction is done?
Hamid 00:21:00 So I can give you an, uh, anecdotal, call I received recently from one of our customers. So they, they are general contractor. They received the request for an estimate from a developer. They put together a number through Zebel. It came up at $313 million. The developer got another estimate from a different general contractor. And it came out at $315 million through the traditional process that takes a couple of weeks. And after that customers saw that like accuracy, how close it gets to other ones, but they spent maybe 30 minutes versus like two weeks. Uh, they became an investor in Zebel. Oh, wow.
Hamid 00:21:49 So they really believe they already believed in it. Uh, they were use it, uh, but now they really believed in it. And I, I saw some of those things too. Like, uh, when I was at best a national, we use this for a project for, uh, Lenore multi-family communities. It was a project in, uh, in Irvine, in Southern California. It was 280 some condos. And the first they came to us ask for an estimate based on about nine pages worth of design. Um, it was very like basics to site plans. We put together a numbers, sent it to them. Few months later, they came back with more pages of design, more detail. We updated our estimate and they ended up hiring Western national as the general contractor to actually buy out the project and, uh, and do the work. And, uh, when they bought all the project, people are so curious to compare that bought our budget.
Hamid 00:22:49 They get the GMP number with the initial budget that we put together a year earlier. Uh, one, one key thing you have to, uh, keep in mind is you have to adjust those numbers for the time that has lapsed. And some of the design changes that developers make, uh, throughout the design process. And after we normalize for those changes, uh, the two numbers were within 3%. It was very close. So, and we did that. We saw the same thing over and over again on different kinds of projects. And, uh, we got really convinced that this is accurate. It is working over the course of two years. I use this system to create more than 200 estimates for the ride. You have different projects for different developers, different kinds of projects. And I made sure it works before I quit my job and start
Jude 00:23:44 This. That’s a very important step.
Hamid 00:23:48 Yeah. Usually when the, my customers ask me how accurate is this? And I tell them, I made sure it’s accurate before I quit my job, and I had a one year old at home.
Jude 00:24:01 I guarantee, yes, I put my family’s livelihood on. Yes. And then, so if I’m a developer, what is the big advantage outside of speed? Is there a cost differential for using a platform versus going to a traditional estimation route? So,
Hamid 00:24:21 So the, like you said, the primary one is the time you gained the, the, the time savings. Um, also, but the biggest advantage here is you get to optimize your design before you, even, you find different, you get to evaluate different design options for your project parametrically, and really understand what seems to be the most optimal design metrics for this project in this particular area for this particular size of land, uh, that seems to work for my project. And you can really optimize your project. You might have heard about this concept of generative design, which is basically the idea of let the computer create thousands of different design options for your design, for your project. It could be designing a bike, could be designing a car or anything, or it could be a real estate development project. And let the computer report back to you.
Hamid 00:25:23 This one seems to be the most efficient based on the criteria that you set here and the constraints you have there, that’s where we are headed. And then the, the other big benefit, uh, that would you would otherwise not have is just access to this intelligence about the market. Uh, interestingly, when, uh, developers want to understand how much other developers are spending on their construction projects, or just, they just want to get some market intelligence, the main and only source is just picking up the phone, asking their friends and asking them, how much are your podiums costing you these days? And it’s a, it’s a kind of like, tell me, tell me your secrets. So I’ll tell my secrets. And, uh, and no one, no one wants to openly share their most sensitive information to their competitors or even to their friends in other companies. And that’s where we thought there is really a great opportunity to become the Switzerland of construction costs And work with everyone and become that kind of central hub of construction cost data. So everyone can just look it up if they want to, uh, search, uh, for different pieces of construction costs. Uh, they wouldn’t, uh, Google it. They would Zebel it.
Jude 00:26:45 Yep. Nice. I love that. So the thing that I keep going back to is this just has a lot of data. Like it requires a lot of data input, and you’ve mentioned that, uh, when developers come to you for some of them, they have all of this historical data. And a lot of that could either live in spreadsheets. It could leave a live in like PDFs. So someone’s had, how do you all, what’s the process to get that data into your system? I imagine it has to be for some of it, at least a fairly manual process and could be very error prone.
Hamid 00:27:25 Great, great question. So, uh, it is, uh, it is a big task. We have, uh, established a semi-automated process to do that because we have done it for multiple clients by now. And we have figured a way to, uh, to do it relatively fast and certainly very faster than I know how the developer would do it themselves. We can do it faster, even though it’s their data and what we are moving towards automating that a hundred percent. We are going to use AI to completely automate that and make it just seamless for, uh, for companies to collect permission. But now there is an, a, there is a manual element in there, but the, because our team, you know, comes from pre-construction world, we understand how to deal with those numbers. And it just minimizes the, the error, uh, possibility of error in the whole updating data uploading process.
Jude 00:28:26 Wow. And then how would all this like data, I imagine there is a slew of insights you all see as you get more and more into the system. So what are some surprising insights you have said?
Hamid 00:28:43 So interestingly, um, I remember people were always interested in how much S cost escalation has been in the market in the past. Let’s say a year ago, the past two years. And there’s no consensus even on that, the things that happened in the past, you will think of the things that happened in the past. They’re all just hard data on it, and you can just look at it, but there’s, there’s no really such thing to, to look at that and, and let alone predicting the future. You know, no one really has that crystal ball, but the, one of the first things that we try to focus on was to even report the prior year’s SQL cost escalations that we have seen in the market through the lens of data. And a lot of companies just use a 5% per year escalation. And that’s just a number that everyone uses now, the inflation.
Hamid 00:29:43 Yeah. But no one really believes in it. Like, how did you get that number? Just nothing, because everyone else uses the same number and that there’s no hard science behind it. So what we are trying to do is to kind of regenerate those numbers or validate those numbers that everyone is using through the lens of data and, and offer that as like extra kind of insights that we are, you’re getting from, from our data points. But as we get more and more data in our system, there will be more opportunities to extract those kinds of insights.
Jude 00:30:15 Wow. No, I love that. I can imagine you guys will get a lot, the more data comes in and the more variety of customers you work with, and you can really see across the board, like the differences between garden style versus like, high-rises just like an amazing slew of insights.
Hamid 00:30:34 Yeah, absolutely.
Jude 00:30:35 What kind of feedback do you get from your customers?
Hamid 00:30:39 So they love the, how quick they can create these estimates. And it just makes it a lot easier. They don’t have to go through all of that copy and pasting in spreadsheets. And also the fact that they have just one central repository of all of their historical data, especially we see that interest from, um, executives at these companies, um, nowadays in a typical construction or developing company, if an executive wants to know how much we spent on windows per apartment unit on project X, they have to ask the report who asked their report, who asks someone who knows exactly what, which spreadsheet to look up in which folder. And, uh, by the time they get that number, uh, it’s like a week later and it’s just too old. Um, but now like anyone on their team can go on their account with a few clicks, get to that number.
Hamid 00:31:36 You spent $3 million on windows. Here’s how much the cost was per apartment unit, her bedroom, her windows per slice, and dice it really quickly get to that number within the same meeting that they’re talking about that rather than, rather than, let me get back to you on that. And we even went above and beyond. We have added the call, text messaging interface with your cell phone. So if you want to look up that number, how much you spend on the windows that to get to that $2 million, you can go on the web application and for the few clicks, get there or texts. Zebel, how much was the cost of windows on project X? And you get an automatic text back $2 million. And so we thought, even if you don’t like to log in or sign up anything, you don’t have to download an app on your phone, you know how to text, and you can text the English. You you’re already connected to our system and you can access your data
Jude 00:32:36 Nice then on, are you all going back on 100% of projects that have been done with your estimates to confirm the accuracy and then input that as additional data into your system?
Hamid 00:32:50 Not all of the projects, because one thing to keep in mind is, uh, the focus on conceptual, like earliest stage conceptual estimates. Most of those projects that developers run ads on, they get shelved. They don’t, they never gets built. So there’s no chance to verify how accurate that those numbers, but the ones that do progress and become an actual project. We try to follow with our customers and ask them how, how accurate was that from the, from the beginning? But like I said, I made sure it is accurate before I quit my job,
Jude 00:33:30 Then, uh, what’s next for you all? Uh, what are some of your big upcoming milestones or new features?
Hamid 00:33:37 So we, we are constantly adding more new features and capabilities to the staffer, but, uh, our kind of next big milestone is to expand outside of multi-family sector and go into office retail in a warehouse development. And, uh, because we have, uh, you know, crack the code on, uh, one of the most complicated sectors in terms of estimating a number of variables involved. Uh, we are going to have an easier way getting into other sectors like retail office, they’re simpler structures to estimate compared with the multi-family. And, uh, we w we are going to expand it to those markets. Uh, we are already, we have made some good inroads. Uh, we are already talking to, uh, Google’s real estate development team. They, they saw a product at a conference and, uh, like on the spot, they said, you know, we have been working on an internal project, but your tool is just way more advanced. And, uh, and now we are negotiating, uh, actually a contract with them, for them to become our first office developer customer to use our system, uh, for them. So that’s, uh, we are very excited. I didn’t, I didn’t really see that coming like this fast. Uh, and, uh, yeah, so that’s, that’s kind of like the main, the next big project for us to, to get outside of multi-family and, uh, and grow from there.
Jude 00:35:10 Wow. That’s amazing. So, I mean, this is awesome having you on my last question for you is looking at the multifamily industry. What are some of your predictions for the next 1, 2, 3, 4, 5 years?
Hamid 00:35:26 Well, like, because my focus is on the technology. I’m the, you know, take my answer with a grain of salt that it’s so focused on the technology side. Um, of course I do see the importance of, uh, the, the, the role of data in decision-making, uh, not just for new development, but also for apartment rentals for the operations of those buildings, even for the, the transactions in buying and selling the multi-family properties. Uh, you know, companies are really understanding that the value of technology and data that they can leverage to, uh, gain a competitive advantage in the market and, uh, become better at their game versus their competitors. That’s something that I definitely see, um, coming up, if you look at the level of, uh, use of technology in apartment communities these days, compared to like, yeah, just five, 10 years ago, it’s just mind blowing, uh, how, how, like, uh, kind of usual it is considered to have, you know, community wifi and, uh, smart thermostats and a lot of smart things in the, in the apartments, which was not the case. Uh, uh, years ago, everyone had those five keys to ax to enter their apartments. And nowadays everyone is talking about those like access control systems. And then the conversation is about which access control technology is better than the other, rather than something forward. So, yeah, and, and that’s all, all exciting. It’s, uh, uh, it’s difficult to innovate in our industry because it’s been operating in traditional ways for such a long time, but at the same time, it’s a blessing that, that means there’s lots of opportunities to innovate around.
Jude 00:37:26 Yep. And exactly why, uh, it’s really always awesome. Rebels like you who are looking to really push the industry forward. So you are our latest rebel.