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Are Direct to Consumer Sales in Real Estate More Than Just Marketing?

One of the hottest trends this holiday season is a new business model: direct-to-consumer sales. Once limited to simple retail items like clothing and household goods, a world-renowned architect and former WeWork executive are teaming up to bring direct-to-consumer products to the property sector, cutting out brokers and agents in a bid to alleviate the housing crisis. Is the new housing company a better way of doing business or a marketing ploy?

Former WeWork Executive Roni Bahar, former Sidewalk Labs executive Nick Chim, and the international award-winning architect Bjarke Ingels together launched Nabr, aiming to disrupt housing markets as a “consumer-first housing company.” The company recently announced its first project, an apartment building dubbed SoFA One, bringing 125 units in San Jose’s South of First Area. Set to break ground in the summer of 2022, residents will be able to lease-to-own a unit directly from Nabr with a 1 percent down payment. Nabr says the company can reform the real estate industry’s fragmented, inefficient process that creates a lack of transparency. Brokers and agents that make the industry possible know it’s not that easy. Cutting out the middleman is a by-product of a new way of doing business that aims to tackle the housing crisis by increasing supply. 

“The U.S is currently experiencing the worst housing crisis since World War II,’” said Roni Bahar, Co-Founder and CEO at Nabr. “Part of the problem is that there are three times the number of single-family homes built each year than there are apartments, and the vast majority of the latter are rentals. This leaves consumers only two options: pay high rent for a tiny apartment in the city, or buy a home in the suburbs. We started Nabr to change this trajectory.” 

Nabr’s solution is to turn housing into a consumer good. Technology and ‘productization’ lower overhead, by digitizing the design process and streamlining supply chain communication, the hope is Nabr can deliver more units to more people. Residents use a software platform to select their unit’s design, layout, and financing package. The company claims at scale Nabr’s business model will facilitate 100,000 new units a year, turning the company into a national multifamily brand. Nabr will sell buildings that are Nabr-branded but the company won’t own any real estate or operate its own factories. 

“We founded Nabr to build a high-volume, integrated housing production system, developing the product in partnership with strategic supply chain partners from start to finish. We are starting in the Bay Area, where residents face an incredibly expensive real estate market that few can afford to buy,” said Nick Chim, Co-Founder and CTO at Nabr. “Our long-term vision is to deliver projects in less than half the time and at price points affordable to middle-income households nationally.”

The productization of housing is not a new trend. In 1927 the famous French architect and designer Le Corubsier said “a house is a machine for living in.” In the 20th-century companies were selling homes in a box, precut lumber that an owner assembled like Ikea furniture. Modern efforts revolve around modular construction. IndieDwell, S2A Modular, Blokable, Factory OS, and other manufacturers are busy working to change how homes and apartments are built, prefabricating domiciles on the factory floor that get pieced together like LEGO on-site. Those companies typically work with developers, selling themselves as a better way to construct housing. For all their progress, modular builders have struggled to find a significant place in the gargantuan residential market. Operating a factory is a fundamentally different business than property development and construction, fusing the two together has confounded even the best business minds. 

The builder may view a home as an assembly line product but owners typically do not. A home, whether single or multifamily, is an investment for most residents. In sales and lease-to-own deals, it’s also a financial investment. Construction is site-specific and typically requires a good general contractor to sort through the mountain of details. Construction takes place on-site, not at some mega factory a company is paying to operate. Contractors can keep fixed costs low, bouncing nimbly from project to project, even at scale. Assembling and paying construction crews and subcontractors is far easier when done house-to-house. Treating each house as its own individual product also helps the owner feel better about the investment, working with a point-person to get their perfect home. Multifamily modular construction operates differently, while each unit is less complex than a house, there are far more of them, and each needs to be transported to the site. The actual building of the domicile may be easier but in construction, assembly is rarely the most difficult part of the process. Contractors spend most of their time dealing with local building codes, permits, inspections, and customer demands. 

The asset-heavy nature of manufacturing gets ground down quickly by the cyclical nature of the housing market, burning through cash to keep factories running. When you own the housing supply chain through vertical integration, carrying elevated levels of inventory is deadly. Small bumps create major problems, and in the roller coaster that is residential real estate, there are plenty of bumps. Katerra is a prime example of end-to-end asset ownership attempting to revolutionize housing. Founded in 2015, the company raised nearly $2 billion, starting 700 housing projects before folding earlier this year. Katerra’s approach was described by one executive as “trying to boil the ocean,” speaking to how difficult it is to change a market as big as housing. 

 “The biggest mistake [Katerra] made is that they tried to be vertically integrated, but they had no product platform,” Daniel Hall, Assistant professor of innovative and industrial construction at ETH Zurich, told Architect Magazine. 

All of those issues combine to create major housing supply problems. No amount of changes to zoning, regulations, or policy will fix the issue. Building more housing is the only way to bring supply and demand together. Speeding along the home building process in both single-family and multifamily construction is quickly becoming a national priority. The worry is that the desperate need for more new housing is at risk of lowering the overall quality of the product being delivered. Real estate history books are full of property developers building shoddy structures at a blistering pace to capitalize on demand. Figuring out a way to build tens of thousands of new homes hardly matters if no one is lining up to buy them, as Katerra quickly learned. 

Can a new business model solve that? There’s reason to believe direct-to-consumer sales can help, even if it’s just a marketing ploy. Nabr is steering clear of assets, emphasizing the company will not own real estate or operate its own factories. Nabr’s business model isn’t about changing or controlling the process, focusing instead on ushering customers through the process with greater ease through trusted branding and design. 

If quality is one of the major consumer concerns when deciding to lease or buy a new home constructed like it’s on an assembly line, it helps to have a trusted brand behind the product. Attaching Bjarke Ingels to the company is a step in that direction. Ingles and his firm, Bjarke Ingels Group (BIG), have a proven track record, winning numerous architecture competitions on multiple continents. BIG is currently working on some of the world’s most high-profile projects, including Google’s new HQ. Through his work and media, Ingles has established himself as a zealot for sustainable, high-quality design. Nabr homes are in line with that philosophy, offering high-design, low-impact apartments with all-electric designs and energy-efficient facades that make each unit carbon neutral in operation. 

“Our goal is to pioneer a new sustainable urban lifestyle. At SoFA one, residents have access to a Scandinavian standard of quality of life, yet they are still in the hub of Silicon Valley, America’s greatest innovation ecosystem. Residents get the best of both worlds,” said Bjarke Ingels, Co-Founder and CCO at Nabr.

If you’re getting a new home designed by one of the world’s top architects, do you really care how it looks? Is quality still a major concern? It’s like Ferrari building a commuter car or Gordon Ramsey making breakfast. Consumers are more likely to trust a brand when they have a history of quality. That can go a long way when making major purchases. Prices for apartments at SoFA One start at $700k. 

Applicants join a waitlist, when a unit matching their specifications opens up, they go to Nabr’s design studio to finalize their finishing touches. Applicants can purchase the unit through traditional means, bringing in a lender or paying cash upfront, or they can pick Nabr’s Lease First financing option. Nabr’s unique financing route lets applicants lock in the price, pick a maximum five-year period to pay down the debt, and sign an initial two-year lease that goes towards the price. At the end of the two-year lease term, residents can use the accumulated payments towards the final purchase at the original price or move out. 

In concept, Nabr sounds innovative, but there’s a major difference between offering 125 units and the 100,000 plus units a year that could actually fulfill the promises of housing security preached by the company. Nabr may have found a better way to sell apartments, but it’s not clear they’ve found a better way to build them. That many units will require major land plays in several major cities to secure construction sites, especially if Nabr isn’t buying the site themselves, requiring deal-making at a blistering pace, locking down buyers, lenders, and builders all willing to operate under the Nabr brand. Each tower may be impeccably designed but they must all be built, running headlong into the same problems that plague traditional contractors and builders. A national multifamily brand with aims to construct tens of thousands of new affordable units every year sounds like the Boogeyman of NIMBY nightmares. The political backlash could be severe on a local level. 

Fixing housing shortages cannot be achieved with marketing or new business models alone, no matter how clever. Nabr may have found an innovative solution to sales and financing, but that’s only one piece of the puzzle. Changing consumer behavior can only do so much if construction methods and regulations remain the same. Katerra proved that building housing like an assembly line is not viable. Construction and manufacturing aren’t as similar as many think. But selling housing like an assembly line? There may be something to that. Disconnecting construction from sales allows each to become more streamlined. The home gets built faster through productization and a buyer is found automatically via the waitlist. Nabr is more akin to Salesforce than a construction company. One of Katerra’s biggest problems was they didn’t have a clear customer. Establishing a brand backed by an internationally respected design firm already has potential customers lining up. 

If Nabr can find willing partners in the property and construction sector, the platform has the potential to achieve what no company has yet by successfully combining innovative design, efficient construction, and steady demand. Marketing new forms of design and construction are as important to their success as devising and executing them. Direct to consumer sales won’t threaten traditional real estate transactions any time soon, the size of the property sector means it will take years for direct to consumer models to gain a foothold if they ever do. Software making the real estate purchasing process more convenient is nothing to be afraid of. Similar direct-to-consumer sales efforts in the automotive industry have yet to seriously threaten dealerships. Both the real estate sector and automotive industry have middlemen with a death grip on the marketplace while problems that plague both purchasing decisions persist. This might be an instance where loosening things up may finally do us some good. 

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