Developing the Next Wave of Modular Residential Communities w/ Quartz Properties Management [podcast transcript]

Welcome everyone. My name is John McMullen and I'm the Marketing Director here at MBI. Today I'm talking with Joanna Schwartz, CEO of Quartz Properties Management. Joanna is here to talk about her company's development of modular-based residential communities around the country.

Joanna, welcome.

Joanna Schwartz

Hi, John. Nice to be here. Thanks for having me.

John McMullen 

It's my absolute pleasure. Thank you. So, tell me about yourself. What's your background and how were you introduced to modular construction?

Joanna Schwartz

Well, it's a little bit of a circuitous story. And the short answer is, in about 30 years of working, I've spent about 20 of those years in various forms of real estate, mostly on the finance side. TI was in the mortgage business for many years, I've dabbled a little bit in the equity crowdfunding world, but I was never developer and I was never doing the project. And about five years ago, I moved up to Boston and I said, “Well, I'm going to change that.” Because I'm always every couple of weeks analyzing a deal. I always jealous of the people actually on the ground, doing the deal, making the project building neighborhoods, changing communities. And so I decided that I wanted to be a developer.

I started doing a few projects with a few different groups of folks up here in the Boston area. And they were fine. They went well, but nothing really stuck. And subsequently, I decided to partner up with an old mentor and boss of mine, David Quint, who is now partner, you know, primary partner at Quartz Properties. That's how we got our fundamental name, Quartz: Quinn and Schwartz is Quartz Properties. Its a little secret.

Anyway, we decided that we wanted to do something interesting in the real estate sector together. But what we weren't exactly sure what. Separately, I was doing a renovation on my house up here. And we were struggling to find people to do the work and couldn't get a good deal. And all these amazing houses being built in my neighborhood, and they were going up like one after the other super quickly. And they were gorgeous. So, I reached out to the guy who was building them. I asked, “What is this? What are you doing?” And he was the one who told me, “Oh, these are modular houses. And I can build you a brand-new house in eight months, start to finish.” Now, that wasn't what we needed to do. So we didn't do it. But I was completely enamored right from then.

We started researching the potential of modular and as you know, you know, it is still a very underused form of construction United States. Only 2-3% of single family homes are done through modular, which is crazy to me as it's, as we know, more efficient, more green, more cost effective, it works better for the labor market. There are so many benefits to it. And so, we just decided today what we are going to figure out how to make modular a bigger component of the single-family housing market, we're going to try to do our small part to address the chronic housing shortage in the country. And we're going to use modular as a primary tool to help us do that, and so Quartz properties was born.

We were originally called Builders Partner in the first year or two, because initially, we're not builders—well we are now but we weren’t then—so we thought, “Well, let's go find builders and give them the financial strength and capacity to build more and to focus on modules and grow their own businesses.” We found out a lot of resistance in the market for people they didn't want to transition to modular, they didn't understand modular. And finally about a year and a half into our effort we said, “Okay, we're going to really decide and not only are we going to become developers, but we're actually going to be builders, we're going to go in and buy land, build communities and see how we can take this.

That was in 2018 and then we were off to the races. We bought our first development, which is called Padgett Place in Black Mountain, North Carolina. And we have just been on an incredible ride, growing and expanding,

John McMullen 

It sounds like. It sounds like it. Those are some very ambitious goals that you touched on. I was wondering if you could dive into that a little bit more. And tell me about your how you're working with builders and forming those relationships and really making it possible to achieve everything you want to achieve?

Joanna Schwartz

Well, so our goal, we are to the best of our knowledge, the only modular-centric home builder, that is a, you know, seeks to become a top 100 home builder in the United States—which is defined, I know the last time I looked at the list, it's kind of like 1100 units per year. So, we're nowhere close to that. But we fully expect to achieve that, you know, sometime in the next several years.

And so yeah, we do have very lofty goals. We are now building communities that are for sale, and we target our sales prices to be at kind of the midpoint of the range for prices in a certain market. We are now also starting to do projects that are what are called “build for rent.” So, they are purpose-built communities. Same process as building a community for sale: we buy raw land, we develop the land. But then when we build the houses instead of selling them, we rent. And that is becoming a very large segment, an important segment in the housing market. And so, we're doing projects that fit both of those business models right now.

John McMullen 

Gotcha. So, when you're buying the land you're planning in designing these communities. How do you go about that? Are these planned unit developments? Are they something different?

Joanna Schwartz

So, we have a library now of home designs that we are very comfortable with. They are they range, you know, inside from about 1300 square feet to 2300-2400 square feet. We have branches, we have some case. We're now finalizing our first townhomes. And when we go in, you know what we're doing smaller communities, smaller sized communities, typically, we're not competing with the large tract builders, we are not doing anything custom.

So, we go and we have a few floor plans, we have a few exterior designs, and we have a few interior packages, we make all the decisions ourselves. And one of the kind of mantras is like it's like attainable luxury. So, everything we have all the features that somebody would really want. In a beautiful home, we have the countertops, and the appliances that the beautiful showers and all of that, but no one has to pay extra for it and all just included in our base price. And, you know, we tend, because modular has to be built on a foundation, it can't be built on a crawlspace. We already know we're paying more for foundation. So, we actually look for projects, that while it's nice when the land is flat in the areas where we are, they tend not to be and then that just gives us a little bit more flexibility. And again, we're not competing with attract builders. So, you know, some units have basements and garages, some have a walkout in the back, they all usually have a big deck so that each house can be a little bit different in each neighborhood. And it really is dependent on the topography of where we are.

John McMullen 

Besides the land itself, is there any other criteria that you look at when choosing where to build?

Joanna Schwartz

Well, we have really fallen in love with a few areas and communities in particular western North Carolina. And our model down there is that we are now starting to vertically integrate our business. So we were a construction company. We're a general contractor in North Carolina. We are about to actually build out our own transportation capabilities for actually hauling and setting the modulars. And we have found that the more resources you actually have on the ground that you fully control, the better the outcomes are.

So, we originally started out saying oh, we're going to go everywhere really quickly. And we have retreated from that because we really see the benefit in going deep in a market and really getting a lot of capability. So that's what we're doing in western North Carolina. In Colorado, we have an excellent partner in a company called feeding West. They are our factory and our general contractor. And we are almost finished with phase one of a four Phase project with them. And we're very, very pleased with how that's going.

John McMullen 

And then you guys are in…?

Joanna Schwartz

So we have some land in Idaho that's still in pre-development. And we are working on finalizing the project team for that for, for those, those lots as we speak. And, you know, every time you go into a new place, you have to kind of start there is a lot of starting from scratch. So while we are excited about expanding into new markets, we're also excited about going deeper into the market that we have, there's so much opportunity and where we already are operating, that we're planning to go a little bit deeper in those markets as well.

John McMullen 

That's very exciting!

I want to loop back…You mentioned your first project a few minutes ago, it was called Padgett Place. I was wondering if you could tell us the genesis of that, and what lessons have you been able to learn from there and apply to your other projects?

Joanna Schwartz

Okay, sure, I've had to say it was, honestly such a great first project for us. And we've learned a tremendous amount. And I have taken all of those lessons with us everywhere we've gone.

So, number one, the way we got that project actually was a lead from a modular factory, who knew that we were looking for our first project, and they called us and said, Listen, we know the person who owns this land, they are struggling to actually turn it into a finance project. And maybe you can jump in and help them. And that was the genesis of how we got involved with that project. And it happened very, very quickly.

I think one of the thing that was very interesting from the beginning is that we realized that while yes, modular has its own advantages, and being, you know, faster and more efficient…once you get them to the site, it doesn't, it still doesn't change all of the other components that need to go into creating a development from scratch, meaning all the planning, the engineering, and the actual just land development, right, like clearing the land, building the roads, putting the utilities and that in for us on this project was really the long pole in the Tech because we were particularly inexperienced in that area. And it was a very steep learning curve for a bunch of, you know, honestly, pencil never been on the ground floor. It was a pretty steep learning curve for us, but we got through it. And fortunately, we had some good, you know, third party to put an exit plan in place, and we just had to implement it. And that's that development is has been incredibly successful for us.

We were able to, you know, once we dove into the modular piece, we were able to create our, the beginning of our design library, and of our finished packages. And a lot of the features that have met that now we're really known for. And the people who live in our community are extremely happy, they love their homes, they love their community, you know, it's only going to be 43 homes. So they're very tight knit group, smallish, smallish lots there. They're very friendly. They socialize all the time. And it's definitely very satisfying to kind of go through there and see that this was once just a field and now it is a thriving community and happy people living in a beautiful location.

John McMullen 

That's awesome. That's awesome.

I have a follow up question. You mentioned a learning curve a second ago, and I have to imagine there are several one of them I'm really curious about is how your manufacturing capabilities have changed since you started. You described yourself as a pencil pusher, but I'm sure you're more than that. But going from, you know, an office setting to manufacturing houses is a big leap. You mentioned Fading West was a partner of yours. How has that evolved?

Joanna Schwartz

Yeah, so we actually do not own our own factories. Everything else, all of the houses are manufactured by third parties. Fading West is the only partner that we have that manufactures and actually also serves as the general contractor. On the East Coast, we are the contractor for our projects and in North Carolina, we're the contractor for our projects and we get everything from factories. But there was a huge learning curve with that. And we have bought home from at least five different factories at this point, we have our favorites and we have forged very strong relationships with that factory and they are now supplying all of our homes for the two projects on the East Coast that are under construction right now.

So, there is a big learning curve, and the factories need to learn who you are and what you are. We're at a point now where we can tell them, you know, “we want an extended porch (Willow), elevation C, with a shell-finished package. And they know exactly what that means. And we’ll get the order approved pretty much immediately. So that's pretty powerful.

But to get to that point where you can order your house like you're ordering your dinner on DoorDash. You know, that is a pretty steep learning curve, not just for us, but also for the factories, because they don't typically work that way.

John McMullen 

So, all the manufacturers that you're working with, are working from a shared set of plans? You give each factory, you say, “I've got these three plans.” And that's what you've got? It's not three plans per manufacturer? It's three plans.

Joanna Schwartz

Yeah, I mean, you have to know that we have plans for our development. So, in the Fading West project, that those are actually plans from that camp that originated from their factories. So those are technically their plans. For the East Coast, we had plans for each of our developments and so we could switch factories and go to a different factory to produce those plans. But we're choosing not to. We've done a little bit of that, but we're now very happy.

John McMullen 

What factors do you consider when you're when you're designing and building these communities? Are there other trends or regional influences that you pay attention to?

Joanna Schwartz

Yeah, sure. Well, we, you know, we definitely keep track of lifestyle and what people are interested in and kind of the mega trends that everyone's following now with work from home. And you know, that term “digital nomads” in our communities in North Carolina, and in Colorado, you got a lot of people who have who are flocking into those areas, because they no longer have to be tethered to a desk somewhere in some city.

So, we definitely consider, you know, everyone loves a modern open floor plan. But at the end of the day, when you live in a house, you also kind of need private little spaces to be and to work and to, you know, do all the different activities and a family, you know, a family or a group of people we're all living together needs to be able to do. And so, we really consider that in our design.

For example, in a 1500 square foot home at Padgett Place, every single one of those homes also has a built-in work area desk, that's just you know, such a simple thing, right? But it's got drawers, it's got legs, it's got cabinets. And even though it's not in its own private office, it's a place where somebody can sit and work and actually do a job for all day. And that is not something that you would normally find built into a 1500 square foot moderately credit. So, we have things that we do things like that, because we really tried to get to their lifestyle, we were considering also kind of people's willingness to spend extra time and money on their home. So, we're trying to do things that are very low maintenance. Very beautiful, but high quality and low maintenance.

For example, we don't use wood floors in our homes, we use luxury vinyl plank floors, and they're gorgeous. They look just like wood, but they function much better. They don't scratch, they don't stain. They don't get ruined if a little bit of water, you know, get thrown on them, they can dry out. They're just incredibly durable. And they'll last for 25 years or something like that. Those are the types of things we think about when we're building the app. People really appreciate it.

John McMullen 

So walk me through the typical development of a new community. What's the first step? And how long does the process take from you deciding, you know, we want to build on this piece of land to having friends and neighbors moving?

Joanna Schwartz

Oh my god, it takes forever.

John McMullen 

[Laughing]

Joanna Schwartz

So, honestly, if I had to summarize my biggest frustration in the business is that, because what happens is we have a team of folks here who are very talented, and they go out and they find our land, they work with brokers, they work, they do all sorts of stuff. And we walk them, you know, to roll, they'll go walk in a real walk, and we'll put an offer, and we'll fall in love with people land. So real realistically, you know, it's at least a year or two before you can build anything. And if it's raw land, sometimes we're lucky, we can find lots that are finished, and then it's very quick.

But if it's raw land, and you have to go and get sites platted and approved, and then built out with infrastructure, that is a multiset is a two-year process. And there's not really a lot of ways to accelerate that, especially now, there are such backlogs at all of these bureaucratic boards in all of these counties that you know, combination of COVID staffing, you know, interests of so many people doing new projects, and the delays are actually staggering and very frustrating.

So, that’s just kind of par for the course. If you want to play in this market, you either have to do that or you have to be lucky enough and willing to pay enough for finished lots. Or, you know, developer who’s already done that process for you, and you combine to finish a lot. And there's a lot of that out there too. But you're gonna pay out for it a lot.

John McMullen 

You alluded to some of these: Have you found that there's any challenges that recur from project to project and they be approvals or waiting or, or does each project present sort of its own challenges? And I was wonder if you can give me an example.

Joanna Schwartz

I mean, there's obviously a lot of similarities, there's also a lot of us doing better, you know, as we become more experienced, or coming up the learning curve, there's certain traps that we don't fall into it more.

You know, I think, for us, because we don't have our own factory, making sure that for each project, we're selecting the optimal factory for that project. That's definitely something that, you know, we are, we're really focused on, and, you know, making sure that our budget is in place, and then it matches with where we're trying to finalize the transaction at the end of the day, whether it is for sale or for rent, you know, the, all the big titles of the challenges are the same for every project, but the details stick, depending on each project, right? Because something will come out of left field and you're like, oh, but you just, you know, you just kind of deal with it. And I'm a big believer in our company that I always like, you know, we're going to make mistakes, you cannot be afraid to move forward, you know, at the risk of making a mistake.

However, the challenge that I always present to all of us in our company is that let's only make the mistake once. And then let's learn from it systemize a way to avoid it. And, you know, that gives us room for that we find a different area that maybe we just don't make the same mistake twice. And so far, I don't really think we have which is which is encouraging.

John McMullen 

That is encouraging. I'll make a mistake at least three or four times before I learn from it.

Joanna Schwartz

[Laughing]

John McMullen 

So, have you run into any trouble with the supply chain or labor issues? You mentioned that before. How have you been navigating those

Joanna Schwartz

real instead of real challenge? You know, what, on the days where we get frustrated, and we're paying for delay, and we've had things for example, you know, the middle of COVID we had a house closing that got delayed I think it was three weeks because we were missing a particular bolts on the you know, bolts on the fan on the on the patio fans, and we couldn't get her feel because we didn't have enough. And it was just like, “Oh my God,” but we couldn't get the bolt. You know what I mean?

So, there are things like that, that you just are unavoidable and so minor and you just realize how many pieces go into the puzzle of finishing the house, whether it's modular or not. But I do feel better when we get frustrated when I hear really experienced people in the homebuilding industry have been in it for decades and they've built 1000s and 1000s of houses and they say they've never seen a more challenging time to be home building business. Which is a little bit counterintuitive, because if you're just a regular consumer in the market, you see the prices going up and it's an amazing time to be in this business. And certainly, it's fun when you see the prices come in on the contract. But to get to that point, it's unbelievably challenging.

So, the answer is a very big yes, we do have supply chain issues, we do have labor issues, we just aggressively manage them on a day-to-day basis. I mean, on the ground, we, we focus on being a very good employer, to our both our employees and to our subs, we pay very well, we practice what we preach, you know, we create a really nice work in a safe and nice work environment. And then we when we deal with the factories, the one good thing I can say is that because we're still very small, the factories have buying power that exceeds our own. And we've benefited from that.

So, on the East Coast, our factory is now you know, pre purchasing for us in advance, because we can very well predict what we need for the rest of the year and beyond. They are pre purchasing a lot of the hard to secure items for us and for our homes. So, it's not a perfect solution. But it is helping a lot and keeping us much closer to the schedule that we want to be on in terms of finishing.

John McMullen 

Yeah, good. So, what's next? Of course, you had mentioned doing some work in Idaho…What's coming up in the rest of the year and beyond?

Joanna Schwartz

Well, we're very excited because we own the land for what is going to become our first build-for-rent project. So, I mentioned that is a big piece of our strategy, we haven't built one of those yet. And so, we are really focusing on that sector of the market for to get our feet wet there. And we're pretty excited about the pipeline that we have in terms of expanding that side of our business. We're pretty excited about some of the vertical integration that we're doing on the East Coast. And we just want to we just want to do much, much more of exactly what we're doing. Because we finally feel like we've figured out how to do it.

John McMullen 

You’ve hit your stride!

Joanna Schwartz

Yeah, they call it the flywheel as they call it, trying to get that time to fly. We've been working for four years to get the flywheel moving, and it is finally moving. So that's very exciting.

John McMullen 

That is exciting. And I just want to thank you for your time. Today. Joanna, this is all very exciting. I look forward to keeping up with you guys. I really appreciate your making the time for me today.

Joanna Schwartz

Absolutely. Thanks for thank you and all you do for the industry. We appreciate it.

John McMullen 

My name is John McMullen. And this has been another episode of Inside Modular, The Podcast of Commercial Modular Construction. Until next time.