The tour guide soon addresses my unspoken curiosity: the owner of the house, artist Donald Judd, used to spend hours on that bed, contemplating his art arrangement and making changes over time. It often took him years of reflection to finalize the precise placement of objects in a given space.

This experience left me surprisingly touched. It accidentally relieved some pressure from a stress I commonly experience at work: the need to make terminal design decisions. Working with real estate, I often struggle with making fast and definitive choices. I prefer to take my time, meditating for a while on how a space makes me feel. At times, I feel a bit embarrassed by my indecisiveness, worrying about an inadequacy in experience, training, or imagination. This visit to Judd's home and studio felt like a deliverance of sorts. A liberation not to have all the answers upfront.

If Judd, with his decades of experience, needed years to live with a space to understand and refine it, more projects would benefit from the same approach than not. Every new building brings about a lot of surprises: some lucky ones, others not so much. How it feels, how it sounds, how it smells, how it shakes, how a breeze passes through it, how the daily rituals change it…

The projects that are treated as rigid upon completion have a higher chance of running into issues that ultimately undermine the original plans. Like the desire lines cutting through grass next to the “permanent” paved paths.

Ironically, it’s the spaces that are initially treated as impermanent that have a shot at arriving close to a lasting equilibrium with how people actually live.

This may be one of the reasons why the homes and studios of architects and artists attract so much reverence. They are a rare window into how designers evolve their environments when given an opportunity to live with them long enough.

Among my favorite discoveries from Judd's home in Marfa, TX were the bookshelves he designed using the local pine stock. The top shelf was extended to protect the books from the hangar's leaking roof, and the bottom — to act as a splash guard from the puddles that formed on the floor. This is so endearing to me, I don't know how one can design a bookshelf with a splash guard without first losing a few precious books to a storm.

It would be wonderful for the “design oversight” to be extended past the construction stage into occupancy as a standard industry practice. Unfortunately, having designers continuously refine a space after it’s built, rented, or sold is rarely possible.

The nature of the real estate business requires a certain finality in most creative decisions. Permits, budgets, and procurement schedules embalm the space in its final form long before it rises from the ground. The iterations happen early on, based on the team’s experience, virtual tests, and other explorations. Once a building is complete and the furniture placed, the design control is relinquished almost entirely. In the absence of living and changing with the space, the best alternative is to pass at least some of the learnings to the next projects.

Personally, the ability to improve design over time has long been attracting me to work on repeatable or similar buildings. Samara started with a pursuit of a reconfigurable kit of parts that eventually settled on a limited set of plans; Apt looked at standardizing low-rise multifamily walkups; Neutral is working on a flexible yet repeatable building system for mid-rise multifamily; and American Housing builds exclusively three-story rowhomes. On the surface, it may look like a pursuit of quantity, cost efficiency, and scale. For me, it’s an incremental search for harmony.

I left Marfa with a renewed sense of joy and lightness. Working on buildings will always require a lot of finite decisions with limited information, but it’s much easier to do with a humble stance of “doing what you can and come what may”. Making our best effort and then letting the spaces surprise us.

— FN

P.S. special thanks to Jeff Wilson for helping me get into the tour group at the very last minute.

This article may be too long for some email clients: click here to read online.

In just a few weeks, a new beautiful building will open its doors in Madison, WI: 517 W Main St by Neutral.

Chances are, dear reader, you won’t find yourself in the Midwest anytime soon to explore it firsthand. This letter is meant to be the next best thing. Let me take you behind the scenes of how this unique project came together.

Neutral is a real estate developer that originally primarily focused on developing large scale sustainable multifamily projects with hundreds of units. These took years to secure approvals, finance, and build. The company started to look for a way to create housing at a faster clip, setting its sights on middle-sized urban infill.

I first met with Neutral after Daniel Glaessl (Chief Product Officer) discovered a case study I wrote on my standardized low-rise development project in LA. By the time I joined Neutral team, they had already started working on their own unique way to productize and scale low-rise housing.

Building System

The product team led by Yue Shao, in collaboration with design consultants SALA HARS, set out to create a building system standardized just enough to simplify engineering and construction, while being flexible enough to create different building shapes and integrate with the city.

The team based the system design on a 12’ x 12’ plan grid. All individual rooms, building shape, and structural elements would need to conform to the same dimensions.

At first, I was suspicious whether a grid with a 12’ wide step would be fine enough for infill sites of various shapes and sizes. Specifically, I was concerned that there may be too much space left unused from the maximum allowed building footprint by zoning.

To test that, we partnered with spatial analytics team at Habidatum to identify all underused sites eligible for this product system within Madison zoning rules, along with an automated back-of-envelope financial viability check.

Out of approximately 13,000 sites zoned for low-rise multifamily, we found over 2,000 underused by-right properties where the system fits well, and over 9,000 properties feasible under conditional use approval.

With a viable path to scale, the team further detailed the construction system. The approach assumed that any project would require a bespoke site-specific foundation/parking podium that cannot be productized. Above it, the buildings will be using standardized kit of parts following a consistent grid and set of rules.

The structural system has the least flexibility: it follows a strict architectural order that is based on a 12’ plan grid optimized for CLT decks, very clean stacks without any transfers and a very limited optionality for openings etc. The grid is considered with multiple standard CLT panel sizes, we ended up using 4’ x 24’ and 4’ x 36’ panels.

The walls are made of large cold-formed steel sections prefabricated offsite. Bathrooms and kitchens follow the same logic with only 2 bathroom and 2 kitchen types allowed.

At the same time, the system is designed to allow for custom facades that can adapt to various neighborhood contexts. In the case of 517 W Main St, this was accomplished by partnering with local masons on a handlaid brick facade.

Proof of Concept: 517 W Main St

With the system broadly defined, the team had to move quickly to test it in real life. Unlike venture-backed startups, Neutral finances product R&D from the development fees and couldn’t afford to spend years behind closed doors. The company needed a feasible real estate development project that could show the initial capabilities of the concept, even without the system being fully fleshed out.

Neutral bought two adjacent properties with an old fourplex and duplex in downtown Madison, WI. We designed a four story (+ underground parking), 33 unit apartment building using the componentized building system.

You can easily notice the consistent plan grid a typical floor layout. It becomes even more vivid on the construction site. The “lego like” assembly approach allowed the construction team to build the above-ground structure in just over 20 days.

You may have noticed that this building has a noticeable carveout in one corner. This peculiarity is my favorite example of both the system’s inherent flexibility and the team’s commitment to fit the projects within the neighborhood context.

Early in the design stage, we found that the maximum allowed building footprint can only be achieved by cutting down a lush mature street tree. It didn’t sit right with us and we shaped the whole building around that tree. It created a green urban plaza in front and inspired addition of a small neighborhood coffee shop on the ground floor. All that despite loosing a lot of rentable area.

In the 517 project, we ended with 6 unique floor plan types stacked consistently across the building: from studios to 2 bedroom homes. If not for the building irregular shape, we could easily simplify the layouts to just 3 unique apartment plans.

The rigid plan grid doesn’t get in the way of creating a comfortable living environment with generous ceilings, ample storage, and large windows overlooking greenery from every unit.

The design and engineering team worked hard to protect the fully exposed mass timber ceilings: the mechanical and electrical were routed through the walls and consolidated in compact vertical risers. The sprinklers were also placed on the walls to avoid running plumbing across the wood ceilings.

Neutral’s in-house design studio acted as the architect of record on the project, going to great length to provide very detailed guidelines for the builders and ensure the end-product quality.

Value engineering

One of the methods preached by Daniel Glaessl is: “design a great building first, then get to the target budget”. The logic is that it’s too easy to self-censor before creating a great experience and having a full picture of all the cost drivers.

After the first bid cycle, we had to find close to $2 million in cost reductions. Some things had to go:

• One-off apartments: reduced the number of unique layouts (i.e. a two-story loft);

• Outdoor terraces: less waterproofing and masonry complexity;

• Bathroom pods: we couldn’t justify the cost for the number of units in this project;

• Designer stairs: the initial design featured a beautiful staircase with skylights;

• Passive House: the original plans targeted Phius performance.

In the end, we also managed to keep some important design features. The mass timber structure. The brick facade. Kohler WasteLab sinks. Large triple pane windows. Wooden interior finishes and select built-in furniture in larger units.

The project’s estimated hard costs ended up under $250/sf, with all-in costs (incl. land, soft, hard, and carry) under $415/sf.

Funding 517

Neutral developed 517 W Main St as a market-rate rental project. It’s a fully private development, funded by a mix of equity and debt financing.

The team opted for a very conservative loan-to-cost ratio (<55%) with senior financing from Fist Business Bank. The equity came from dozens of individual investors with checks starting from $25K. The project is practically fully funded, and is nearing completion in a few weeks, with minimal room for incremental investment (for extra lease up reserves).

Investors who are interested in this or similar future projects are welcome to connect directly with Nate Helbach, Neutral CEO, by scheduling a call or emailing contact@neutral.us

Learn more

(For the avoidance of doubt, this article is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities).

Surprises along the way

From the original purchase of the first property in the Fall of 2023 to completion in the Fall of 2025 - the project is expected to take almost exactly two years.

It wouldn’t be a construction project if things went exactly according to the plan:

• First, months after starting entitlements with the city, the owner of an adjacent property decided to sell it to Neutral, and we redesigned the whole project;

• The ship with our first CLT load caught fire. Thanks to the standardized plan design, we managed to switch it with the third floor in the next shipment and resume the construction. Unfortunately, still loosing a couple of weeks.

• Finally, a prolonged rainy season slowed exterior masonry and site work.

• These issues combined contributed to the revised completion timeline, missing the prime academic leasing season.

Still, the project remained largely on track and viable.

The road ahead

This October, 517 W Main St will open its doors. Leasing has already begun, and we’re eager to welcome the first residents.

In hindsight, I can’t stress enough how critical it was to start this first development in parallel to refining the low-rise building system. With learnings from this project, the next one can be 10% better and faster, followed by an even better one. Gradually compounding the improvements and driving the costs down. Creating beautiful and healthy homes that gently step into their new neighborhoods.

Sincerely,

Fed

Project team

This letter is written with profound gratitude to everyone who made, and keeps making, this project real. In the spirit of “movie credits for buildings”, here is a partial list of project participants collected to the best of my recollection:

• Development: Neutral

  • Nate Helbach

  • Daniel Glaessl, AIA

  • Daniel Ibric

  • Fedor Novikov

• Capital Markets: Neutral

  • Storm Murphy

  • Sarah Larson

  • CJ Fermanich

  • Noah F Salmeri

  • Jonatan Schumacher

  • Zac Dettinger

  • Brent Madison

• Senior Financing: First Business Bank

• Title: First American Title

• Product Design: Yue Shao

• Architecture of Record: Neutral Studio

  • Daniel Glaessl, AIA - Executive Architect

  • Yue Shao

  • Avnish Flora

  • Kadri Kaldam

• Design Consultant: Sala Hars

  • Douglas Harsevoort

  • Juan Sala

  • Sergio Bulla

  • Camila Morales

  • Daniel Alvarez

• Branding: Direction

  • Kuba Snopek

  • Ilya Tsentsiper

  • Mykhailo Smetana

  • Igor Snopek

  • Lev Gorodetsky

  • Polina Nesalenis

• Art Consultant: SPMD

• Spatial Data Analytics: Habidatum

• Landscape Design: Shane Bernau

• Civil Engineering JT Engineering, Inc.

  • Dylan Douglas, P.E.

  • Seth Reardon

• Geotechnical: Terracon

• Environmental: True North

• Structural Engineering: Forefront Structural Engineers

  • Josh Dortzbach, SE, PE

  • John Pawlak Bodett

  • Eric Guenther, SE

• Utilities & Earthworks: Terra

  • Justin Horack

• Shell & Core Construction C.D. Smith Construction

  • Dane Bernau

  • Brett Jerdee

• MEPFP Design Builder: Dave Jones

• Sustainability Consultant: dbHMS

  • Scott Farbman

  • Sachin Anand

• Construction Management: Neutral Build

  • Scott Zimmerman

  • Carson Hemphill

  • Danny Zimmerman

• Masonry: Corner Stone

• Interior and Finishes: Neutral Workshop

  • Don Williams

  • Greg Zinselmeier

  • Luke Piper

  • Travis Cisney

  • Tyler Scheib

  • Benigo Barrera

• Mass Timber: Binderholz group

• Windows: INTUS Windows

  • Nick Tobar

• Videography and timelapse: CloudsNorth

• Visualizations: D-Render

• Plumbing fixtures: Kohler Co. & Kohler WasteLab

• Cabinets: Bathsystem America

• Legal

  • Kevin Martin (Michael Best)

  • Joe Shumov (Reinhart)

  • Justin Oeth

  • Kevin Ramakrishna

• Property management: Hines

  • Nichole Oswald

  • Josh Purkepyle

  • Manny Ceron

  • Dylan Cudo

  • Jamaal Calloway

  • Tabitha Hunter

  • Shanti Stuesser

• City of Madison

  • Mike Verveer, District 4 Alder

  • Jenny Kirchgatter

  • Colin Punt

  • Chris Wells

  • Josh Sherrod

  • Timothy Troester

  • Matt Hamilton

  • Bradley Hofmann

  • Shannon Davis

  • Timothy Sobota

  • Trent Schultz

  • Ann Freiwald

  • Bryan Johnson

  • Timothy Stella

  • Jeff Belshaw

  • Allan Harper

  • Baig Khalid

  • Kathleen Kane

  • Martha White

Thank you for reading, you can support this publication by sharing this article, subscribing, or booking a consultation.

Every building needs its "movie credits."

Brady Corbet, the director of "The Brutalist" said: "Every time we make a film we start a new company, raise funds, hire 250 people, and repeat the process every 18 months."

The resemblance to real estate development is striking. For every new building, developers create a new company, fundraise, hire hundreds of people across various consulting and construction trades... This process is repeated time and time again, often with new people involved in every project. And yet, can you easily identify individuals who were involved in the construction of a specific building? — I can't.

Our fascination with star architects makes some buildings commonly known as “Zaha’s museum”, “BIG’s tower”, or “Heatherwick’s blob”.

Frank Lloyd Wright took this to an extreme by creating a signature tile for select projects that he deemed to be fully realized according to his vision and specifications.

In real estate investment circles, the buildings are commonly known by the developer's name: a "Related tower", "Lennar home", or "Caruso mall."

That focus on the lead designer or developer is not dissimilar from cinema's fascination with a specific director or studio: a "Tarantino film", a "Marvel movie."

The difference is that along with highlighting the leading names, each of these large movie productions ends with credits that list every individual involved. There's simply nothing equivalent in the building industry.

Buildings take a long time. Years, sometimes decades. People who played an integral role in the early days may move on. They shouldn't be forgotten. Also, individuals can play many discrete roles within the same project. They should be credited for these various contributions. Every name counts. From the banker who signed the loan to the trucker who hauled the timber.

Movie credits are a recent phenomenon

It's easy to discredit the idea of full building credits because our industries are different. Surprisingly, full movie credits are a rather novel phenomenon.

Classic movies had barely any credits at all. Some featured opening credits lasting no longer than a few minutes with no closing credits. During this period, only a few key people were mentioned, at best.

By the 1940s, some notable films like "Citizen Kane" and "The Wizard of Oz" pioneered extensive end credits. Still, these were personal choices by individual directors and studios, not an industry-wide practice.

Only by the 70s did the now-familiar end credit format become prevalent. Driven, in part, by labor unions. Credits often come with strict hierarchy and contractual requirements dictated by the Directors Guild of America (DGA), Writers Guild of America (WGA), and Screen Actors Guild (SAG-AFTRA), among others.

Today, blockbuster movie credits can run for tens of minutes on end.

Building precentents

Although full building credits are uncommon, many individual practices in architecture, development, and finance do highlight the contributions of team members on specific projects. Unfortunately, this information is scattered and isolated across different firms.

Recently, I ranted about the lack of long form crediting in the real estate industry to Kuba Snopek. He listened patiently and said, “You know I created a project with full building credits, right?”

In 2017, Kuba co-directed a crowdsourced project for an abandoned site in a public park in Dnipro, Ukraine. The outcome was a multifunctional cultural installation Stage, co-designed, co-constructed, and co-funded by an international and local community of designers, builders, and donors.

As he explained, the project’s nonprofit and collaborative nature made full credits essential. For many participants, having their name commemorated was an important motivation to see the project through with no other compensation.

When the project won an ArchDaily award, the team insisted that every single contributor be listed on the website. Below is a screenshot of these credits.

This is by no means a short list, and you might expect it to be a massive structure. In reality, the building is a rather modest outdoor pavilion.

I’m not saying this to diminish the complexity of the project, but to illustrate that even something that seems deceptively small required a whole “village” to bring it to life. Now imagine what full credits for a skyscraper might look like.

Keeping records

The challenge of tracking building credits often comes up in my day-to-day work in development. When we publish our projects, we always aim to list the full project team.

Often, we end up listing organizations rather than individual contributors. Even if we wanted to include everyone, there is no straightforward way to collect and reconcile the full list of people involved across all consultants, subcontractors, and suppliers.

Implementing "movie credits for buildings" would require proactive intent and some kind of digital repository specifically designed for tracking since a project's inception.

For example, architecture office BIG uses accounting time sheets to track every individual on the team who contributed to a given project, and that automatically generates the project credits.

The film industry has digital platforms like IMDB that track all individual credits and make them easily discoverable. Unlike LinkedIn, which tracks employment in organizations, IMDB is structured around specific projects.

There's no direct equivalent to IMDB in the building industry, no scalable platform tracking building credits at the individual level. The closest would be ArchDaily, Architizer, and ProCore Construction Network. These platforms are limited and focused primarily on capturing credits at the level of firms (i.e., ArchDaily, ProCore) or building products (Architizer).

That said, I'm not concerned about software. The tools will come once the demand is there.

The first step is for us to collectively agree that full building credits should become a universal practice across our industry within ten years.

Of all the players in the building industry, real estate developers are the ones with the most comprehensive information and control to lead the way. Let's make it happen.

Best,

Fed

Thank you for reading. You can support this publication by subscribing, sharing this article, or booking a consultation with me.

And yet, on coffee tables around the world, you're likely to stumble upon one of many books covering the Case Study Houses.

Despite the program being close to a century old and rather humble in its scale, it has managed to achieve a disproportionate, seemingly ubiquitous presence and serve as inspiration for generations of designers and homeowners.

In this letter, we'll take a brief look at the history of the Case Study Houses program, speculate on the reasons for its lasting success, explore relevant modern precedents, and sketch out a concept for its potential reboot.

Read online

The program

The Case Study House program invited select architects to design and build homes in post-war America. It lasted from 1945 to 1966, during which a total of 36 homes were designed by renowned architects of the time, with 25 of them actually being built.

What makes this program unique is that it was not a government-sponsored initiative, an individual’s philanthropic endeavor, or even a paper architecture competition. It was a privately funded program by an architectural magazine — Arts & Architecture. This media outlet funded both the design and construction of actual innovative homes, then published and open-sourced the results.

In reflecting on the program's resilience, we can identify five primary factors driving its popularity and influence through the decades:

1. Independent media-driven. Frankly, I was shocked when I first learned that a media created this program. It may seem counterintuitive today given the relative cost of construction and financial woes of media businesses. However, an independent media is also best positioned to spread the word about the program, attract top talent, and interested audience. And an independent media has the trust necessary for an unbiased assessment of results after the projects were built, a trust that is rarely achievable with self-initiated commercial promotions by construction companies or developers.

2. Outstanding architects. The Case Study Houses program attracted influential contemporary designers like Richard Neutra, Eero Saarinen, Charles Eames allowing them to express their solutions freely.

   

3. Practical, scalable, open-sourced designs. While given creative freedom, architects had to design projects within reasonable constraints of local regulations, available materials, and a budget attainable for a middle-class family of the time. It was not an exercise in pure artistic expression, but a practical exploration of new housing possibilities.

4. Constructed in real life. Most of the projects designed within the program were actually built. The act of implementing new proposals and ideas in physical form with all regulatory and construction constraints was a necessary proof point for “Post-War” design. These weren’t just “dreams”, they were real, tangible structures.

5. Ability for many people to experience them first hand. The program was designed to allow readers of the magazine and the general public to tour the houses after they were built. Over the years, the houses attracted over 350,000 visitors to experience them firsthand. This direct interaction with the innovative designs left lasting impressions on many, including professionals and enthusiasts alike.

These five aspects of the program may seem trivial and common sense, but combining all of them was imperative for its lasting success. Remove one, and something important would be missing.

Modern precedents

Most modern precedents aimed at promoting innovative building solutions and new construction technologies are examples of combining some, but not all, of the above approaches. While producing helpful and well-meaning results, they often fall short of achieving the same level of influence and longevity as the Case Study Houses program.

Architecture competitions

Architecture competitions are great for generating innovative ideas and designs. However, they often lack the crucial element of actual construction.

For example, Los Angeles held a series of local design competitions like Low-Rise: Housing Ideas for Los Angeles design challenge in 2019 or Los Angeles Affordable Housing Challenge. While these ideas may have produced thoughtful concepts, the absence of built examples limited their real-world impact.

The Los Angeles ADU Standard Plan Program, arguably, took this much further than an ordinary competition by pre-permitting selected designs on a city level. That means that a homeowner interested in applying these designs would be certain that it complies with building department requirements, reducing some of the headaches and uncertainty that comes with new construction.

The problem is that these ADU designs have not been built as part of the program. Local residents, investors, and developers couldn't fully experience what these designs would feel like. And more importantly, they didn't provide a reliable basis for their construction cost.

Expos

Expositions combine elements of design excellence, real-world construction, and public accessibility.

One of my favorite expo example is House Vision in Japan: the project brought together architects, designers, and companies to create full-scale house prototypes that addressed contemporary living challenges.

Expos are great for inspiration, getting many people to experience spaces first hand, and yet they are lacking in some critical ways:

• Temporary nature: Unlike the Case Study Houses, which became permanent residences, most expo prototypes are typically dismantled after the exhibition.

• Less emphasis on replicability: While the Case Study Houses aimed to provide practical, buildable designs for middle-class families, Expo prototypes are often more conceptual and less immediately applicable to mass housing.

Hospitality experiments

Among some of the rare exampes of concept houses having a life after the Expo is Yoshino Cedar House that was created by Airbnb Samara and transported to the region that produced the wood it was made of. The project remained as a short-term rental managed by the local community. This allowed visitors to experience it first hand long past the Expo closure.

Hospitality experiments allow to come close to replicating the success of the Case Study House program and, in some ways, surpass it by allowing more people not just to tour the places but to call them home, even if only for a few days.

I've been rather skeptical of 3D printing as a viable solution for housing. At the same time, I see hospitality as a perfect medium to allow for unrestricted experimentation with its potential. And I wouldn’t mind being proved wrong.

For example, Icon3D has partnered with El Cosmico to develop a 60 acre masterplanned community in Marfa, TX that combines 3d printed houses for sale and a 3d printed hotel. It's an ambitious endeavor that shows a wide range of designs and configurations that takes full advantage of the technology and allows guests from around the world to experience it firsthand.

In a similar spirit, Airbnb has established its first $10 million OMG! Fund and sponsored 100 hosts around the word to implement their unique (and often odd) concepts.

Hospitality projects like Living Architecture (UK) or Not a Hotel (Japan) have been collaborating with leading architects on experimental projects and renting them out for anyone to experience them.

Hospitality shines with unique designs. Unfortunately, it’s less effective when it comes to projects that are meant to be more pragmatic and repeatable, limiting its impact on the broader housing industry.

Venture startups

In the past decade, venture capital became one of the leading financial drivers for experimental construction and prototyping. Although it may not always be the best long-term fit for real estate innovation, construction startups created new housing products to various degrees of success.

Just like Case Study program, venture startups’ ambition is to propose scalable models that could be replicated widely. And similarly to the Case Study Houses Program, venture startups are generally media magnets, and their media coverage is typically disproportionate to the actual volume of units delivered.

One of the closest modern example echoing the Program is Dwell’s partnership with Norm Architects and Abodu in designing their own “Dwell House” that they promoted in their own media outlet.

Where venture experiments depart from the ethos of the Case Study program is their proprietary nature. Most startups seek to control their designs and technology betting on scaling them and gaining market share. The Case Study program fully open-sourced their designs and findings to spread the precedents throughout the country.

Here we have to acknowledge that the Case Study program existed in a vastly simpler regulatory context. Today, zoning codes are far more granular and complex and building codes vary throughout the U.S., making any open source designs far less likely to be spread.

However, companies like DEN prove that it, in fact, may be possible. And projects like Culdesac act as a viable proof point for other developers considering car-free communities across the country.

How could a Case Study Houses 2.0. program look like?

This brings us to the final question. How could a modern equivalent of the Case House Program look like?

Naturally, it would follow similar traits to the original program: it would need to be media-driven, focus on practical and scalable designs, involve best design teams from around the world, must be constructed in real life, open to a wide audience, and open source its designs and post-occupancy analytics.

I think that it could work as a media-driven real estate revolving fund that would finance both a design competition and construction, run it as an expo and hospitality operation for a few years, and later refinance or sell each project, using the proceeds to finance new projects. Rinse and repeat.

The projects can showcase innovative responses to emerging legislation or constraints, new construction technologies, and test new concepts of modern living. Unlike the Case Study Program, it would be important to go beyond the form factor of a single family home and experiment with products that have more density.

Where building a full-scale multifamily or commercial prototype would not be economically or technologically feasible, an analogous approach to ETH's DFAB house can be implemented: introducing multiple concepts within the same building structural frame.

With so many challenges and opportunities in the built environment, this would be an exciting time for a modern reboot of the Case Study Houses program. And who knows, maybe it could inspire a generation of designers a century from now, just like the original Case Study Houses do.

— Fed

For this report, I’ve spoken with the founders of three new creative consultancies focusing on the built environment: Roy Alpert of Favorite Field, Karen Zabarsky Blashek of Ground Up, and Kuba Snopek of Direction.

Favorite Field is a creative collaborative for the built world. Their process revolves around three core services: brand strategy, identity creation, and brand and experience integration. The team is focused on projects that simultaneously foster connections between people, value aesthetics and beauty, and thrive in the tangible space. 

Ground Up is a multidisciplinary studio providing end-to-end creative for the built environment. In particular, they specialize in real estate strategy, design, and branding. The Ground Up team is on a mission to create narrative-driven, community-loved projects.

Direction is an interdisciplinary team of urban-, product-, service-, and digital designers specializing in designing experiences, destinations, and branding for real estate and urban projects. Their services for developers and property owners encompass high-level property concepts, customer needs analysis, design briefs, place branding, and distinctive selling point creation.

In the chapters below we’ll explore:

• What do these practices do?

• What’s novel in their approach?

• Why were these firms founded within the last couple of years?

A few remarks before we dive in: 

All of these organizations work with a wide range of clients: cities, restaurants, retailers, hospitality operators, offices, proptech companies, etc. For the purposes of this newsletter, we’ll explore their value proposition for real estate developers.

Each of these collectives has their unique strengths. For example, Favorite Field are experts in hospitality, GroundUp can lead architectural design in-house, and Direction are specializing in urban storytelling and digital product design. For this report, we’ll focus primarily on their common traits and shared approaches. 

Finally, there are a few other relevant examples of creative studios with expertise in real estate strategy, such as:

• Another Structure

• Above The Fold

• BURSAtelier

• Cohere

• Corner Booth

• Evergreen

• Longitude

• 43Places

Although I haven’t interviewed them in time to include in this report, I believe that most of the principles discussed below would apply to them as well.

What Do They Do?

In “LVMH of Real Estate”, we wrote about the Creative Director and Product Director roles in real estate companies. The emerging practices we’re covering today are providing a similar service. However, instead of being employed in-house, they help clients on a per-project basis as external consultants. 

While these creative studios use different terms to describe their approach, and there’re indeed differences in their methods, we can identify four common offerings. First, they define a concept and initial story for a development project. Second, they design the brand, digital, and physical identity. Third, they integrate the brand into the physical space operations after a project is launched. On top of that, the consultants can assist clients in coordinating the creative process end-to-end on their behalf.

1. Strategy and Narrative. Creative consultants help clients with research and definition of a clear and concise project narrative that can help guide decisions throughout design, construction, and operations. They may influence many core real estate decisions, including target audience, program, and amenities. They translate a dry market research into a clear and empathetic brand story. This stage may be described with terms like “brand strategy”, “product narrative”, and “creative vision”.

2. Hands-on Design. Creative collectives hold various skills and expertise in-house where they can design a brand identity, design system, digital assets, and even interiors by themselves. This aspect of their work overlaps with the scope of traditional branding or creative agencies.

3. Brand Integration and Activations. These consultants are involved in integrating the brand narrative through every step of the project including the post-launch operations and brand activations.

4. Creative Owner Representation. In addition, or as a substitute, to their in-house design services, these consultancies play an obscure coordinating role. They help clients create detailed briefs (architecture brief, marketing or PR brief, web design brief, etc) for other creatives and act on their behalf in bidding out and arranging the design work. The service substitutes the need for a full-time creative role on developer’s payroll and thus can be called: “fractional brand direction”, “fractional product direction”, or “creative owner’s representation”.

What’s novel in their approach?

The emerging real estate creative consultants are neither the first nor the only ones helping clients with branding built environments. Their competitors may be traditional branding agencies or even 3D visualization firms who have expanded to provide branding and web design. 

On the surface, the new generation of creative consultants may look alike. They often produce similar deliverables like identity design, web assets, and sometimes architecutral renders. And yet, there are some profound differences in their approach:

• They influence a project's strategy and narrative from its inception.

• They know how the real estate works.

• They get to know the end-users.

• They help owners to coordinate the creative process on their behalf.

Let’s explore each of these unique aspects individually.

They influence strategy and narrative

The emerging creative consultancies aspire to help their clients craft a narrative that defines the very essence of a development project. It can be a narrative for a city, a narrative for a building, a narrative for service in a building, etc.

Outside of the hospitality industry, traditional branding and creative agencies typically have little to no impact on real estate strategy. They have to adapt and work after the project had been largely defined by developers. By contrast, for the new generation of creative consultants, being able to contribute to the development strategy, program, and narrative is an essential part of their process and value proposition.

As Karen puts it: “Marriott requires branding to be done before the interior design can even begin. This approach is specific to a certain level of hospitality, but it could and should become the standard for other product types in the built environment. I would never just design a logo or a website unless strategy is included in the scope”.

Achieving a shared development narrative is much trickier than it sounds. A sophisticated architectural design may not satisfy a developer if it doesn’t optimize for a developer’s business model. An exquisite visual identity may feel out of place if it doesn’t consider physical integration or leasing process.

Developers have to cater to multiple audiences and balance conflicting objectives: meet the financial targets of investors and lenders, please the end-users, and balance designer aspirations with compliance requirements. The promise of the new generation of creative consultancies is to help owners facilitate a balance of real estate business objectives with spatial poetry.

Having a concise positioning strategy and creative brief from the very beginning has a very practical business value. A clear vision for a project allows the team to make faster and better informed decisions throughout the lifespan of a project. It makes the design process more streamlined and the end-product more coherent.

Roy echoes this sentiment: “At our core, we strive to unify the conceptual and strategic phases, orchestrating the creative process both internally and with all partners involved in a project. This is achieved through the formulation of a compelling narrative serving as a cornerstone for collaboration, ensuring that every team member, regardless of their specific role, shares a common understanding and common vision. If there's no clear story, we're probably not the best fit for that client, we really want to find that bigger story and make it real, so everyone involved can connect with it.”

Finally, a well crafted strategy may help differentiate a project in the market without making it more expensive. As Kuba explains: “It's sometimes possible to make a splash with expensive architecture, but it also can be done very cheaply. For example, there’s a building designed by OMA in Williamsburg. It’s very attractive from far away, but as you approach it — the lobby is pretty bland. At the same time, there’s a nearby development in Greenpoint that has absolutely generic architecture, but its small lobby is very thoughtfully designed as an intimate library for the residents and their guests. It's an amazingly memorable space that didn't cost much, but required a deliberate narrative and positioning.”

They know how the real estate works

For a client to rely on a creative consultant’s guidance in crafting a development project’s strategy beyond superficial visuals, they must trust their knowledge of the real estate development business. In particular, financial underwriting, building codes and permitting, community engagement and government relations, nascent competitive business models, and the tastes of increasingly discerning audience.

The new creative firms are unique in the market, in part, because they are led by principles with hands-on experience in crafting real estate projects across different scales:

Prior to founding Favorite Field, Roy was a director at Sydell Group and led the conception, branding, launch, marketing, and growth of Freehand Hotels. Roy later started his own private equity practice where he partnered with prominent figures in real estate and hospitality to reposition underperforming properties (for example, joint ventures with Highgate Hotels and The Fishtown Collective Company). From these experiences, he saw a growing demand for a holistic creative strategy and branding service focused on tangible experiences: “our goal was to create an offering that functioned as an extension of the clients in-house development team, aligning with the unique demands and timelines of real estate ventures. Given that a project might span over five years, we designed our services to provide sustained support throughout the entire lifecycle of a development, from initial conception to beyond the launch phase.”

Karen of Ground Up, trained in architecture and urban design, was the first creative hire at Kushner, one of the leading NYC-based developers. Over her seven year tenure in the company, she was promoted to a unique role overseeing end-to-end creative direction of all the firm's projects. As Karen puts it: “A big part of my value proposition is my experience in real estate and seeing projects through. At Kushner, I had this unbelievable position of being able to contribute to the creative vision of a project from the underwriting to the last throw pillow that went on the couch before we opened our doors”. Now, Karen brings her experience at an institutional development company to a wide range of consulting projects across North America: from a massive tech center in New Mexico, to a residential tower in Canada, to a non-profit innovation hub in Harlem. 

Kuba of Direction is an urban researcher, designer, and internationally renowned author. He collaborated with Bjarke Ingels and Rem Koolhaas. Kuba was a co-founder and program director at Kharkiv School of Architecture in Ukraine. More recently, he wrote a graduate thesis at UC Berkeley on alternative models for investing in and supporting art within new real estate development projects. Since co-founding Direction, he helped craft new strategies and storytelling not just for buildings, but cities. A big focus of their practice is helping owners better understand the end-users of their build environment: “whenever a developer starts a project, they should be thinking about the sales process early on, even if it's really far away in terms of time. The objective is to create something that is formulated for a very specific audience and also differentiates itself from the other products on the market. It has to have its own story.“

They get to know the end-users

Market statistics may not always be enough to create a compelling and successful real estate product. It requires a profound empathy with customer’s needs and feelings. Developers need to be good at many things: deal-making, fundraising, construction management, public relations, and asset management to name a few. Empathizing with various end-users may not be the strong suit for every developer. Creative consultancies aspire to help fill that gap by conducting user research, getting to know local community, and bringing a human touch to raw market data.

For example, it’s one thing to know that there’s a growing demand for student housing. It’s a very different skillset to be able to craft a place these students would passionately love. Creative consultancies can help developers imagine ideal student housing. The interior design and a selection of services that can make them feel at home. The design of amenities and an event program that can foster new friendships and enhance the ability to learn. Last but not least, all these elements, together with a name and identity that makes them feel cool amongst peers. Turning a student housing project into such a desired place to live cannot be achieved with merely architectural design. However, if successful, it will inevitably lead to higher rents, better retention, and building a long-term reputation.

The new generation of creative consultancies make user research an integral part of their process. For example, when Karen starts a project, she spends a long time with the local community to better understand who the project is for: ”I always kick off strategy, design, or branding projects with a deep dive site immersion. This entails several days on site, getting to know the property, surrounding area, local culture, and competition. I also spend that time talking with locals, getting to know the neighborhood and city like I'm getting to know a friend. Taking the time to experience this immersion results in a much richer, more meaningful design or brand that stands the test of time and is authentic to the site.“

The stakes of this research are high. The ability of a developer to cater to the needs, aspirations, and preferences of the end consumer can make or break a project. The better they understand the end users — the better they can attract more visitors, increase their retention and word-of-mouth. This, in turn, makes the property more attractive for the tenants – the owner can get the most reliable tenants on the market and increase the overall value of the property.

Consider another seemingly simple case. A developer may know that they want to incorporate a public open space in their project, but how can they decide whether it should be a communal garden, a padel court, or a dog relief area?

Getting to know the end-users and the history of the community can help create very specific recommendations. According to Kuba: “everyone understands that today complementing a design with a nicely designed green space is a must. But what is this green space specifically? Depending on our research, we have advised our clients to create an elegant bosquet, a micro sports ground for the local with discreet amenities and events, and even a thematic botanical garden, where plants are supplemented with educational narratives for children. Each of these decisions made the project's green area tailored for the needs of a specific group of users, and made it stand out from other green areas in the neighborhood.” 

Finally, in many cases, the project can be complimented with time-tested user-centric design principles. Kuba argues that: “There is a huge amount of knowledge about how cities work, what people like about them, and what people dislike about them. I have heard so many times from my real estate development friends that they can't tell with certainty whether people would love a project or not. That’s wrong, you can tell. There are very specific things that people value about culture, experiences, and design details. We can design for that.”

They coordinate creative process on the owner’s behalf

In addition to their in-house research and design services, the emerging consultants often undertake an influential behind-the-scenes role. They help clients create detailed briefs (architecture brief, marketing or PR brief, web design brief, etc) for other creative subcontractors and act on owner’s behalf in bidding out and directing their work. Roy explains the relative novelty of this service in the real estate context: 

“Branding services are more holistic in the realms of startups, technology, or consumer packaged goods, where a branding agency often plays a crucial role in delivering a cohesive product experience. This includes a blend of product design, packaging, brand identity, and messaging. However, from my experience in the built world, this process can be a bit disjointed. It's common to encounter various consultants each handling distinct aspects (such as identity, design, and food beverage conception/partnerships, retail curation, etc.) that may not seamlessly integrate their identities or visions.”

I find this to be one the most intriguing and, at the same time, the least understood offering of these firms. We’re used to branding and design agencies who are doing most of the creative work in-house. And we’re used to developers being the ones who orchestrate various creative subcontractors in a project. The concept of an external consultant taking on a big chunk of developer’s coordination responsibilities while not doing the design work hands-on is not trivial.

We can compare that service to that of an owner’s representative (rep). Typically, an owner can hire an external professional to act in their interest and on their behalf in coordinating with other subcontractors. However, owner’s reps commonly focus on controlling the budget and project management. And even when they oversee architectural design, they almost never touch branding, marketing, or other creative aspects of a project.

Given the exclusively creative focus of the role, I suggest that we can refer to it as a “Creative Owner’s Rep”.

Why now?

All of the firms featured in this report were founded within the last couple of years: Favorite Field in 2023, Direction and GroundUP in 2022. Which begs a question: why now, all of a sudden?

I believe that this is a natural outcome of two factors: first, more developers are realizing the importance of brand and creative direction for attracting modern customers; second, more developers are finally acknowledging their relative weaknesses and are seeking outside help with directing the creative process.

It had been possible for real estate developers and operators to get away with subpar products and lack of any creative direction. In part, because customers had limited alternatives or had seen fewer examples of quality products.

Over the last decade, the customers' expectations have been rapidly changing towards better experiential offerings instead of merely utilitarian ones.

The success of hospitality industry in attract and retaining more experientially-oriented customers has inspired developers in other asset classes to take note. Similarly, venture-backed real estate startups have brought over product management and branding playbooks from tech and consumer products into the real estate industry. Regardless of underlying venture capital returns, these experiments proved that consumers gravitate towards thoughtfully crafted real estate brands and products. Now that real estate is becoming more experiential, real estate owners need to think about a building as a brand to remain competitive in the market.

Large organizations started to adapt to the new environment and customer expectations by hiring creatives in-house. This is also how Roy and Karen got their in-house experiences in brand leadership. At the time when Karen joined Kusher, the job was described to her as: “we want someone to make our projects look beautiful”. The company didn't even have a name for that role. They just wanted someone that makes the physical spaces look good. Make the marketing materials look good. Make everything look good.

A decade later, it’s increasingly common to find real estate development companies employing Brand Directors, Product Directors, and Creative Directors. For example, Daniel Glaessl, Chief Product Officer at Neutral; Greg Fong, Head of Brand at Samara; Michaela Solar-March, Chief Marketing Officer at TwoTrees; Roger Black, Creative Director at Ballymore; Pascal Duval, VP of Brand at Numa, and many others.

However, for smaller real estate organizations, hiring a full-time creative team may not be economically feasible. It stimulates the demand for consultants who can provide product and brand direction services on a per-project or part-time basis. Roy explain the insight that led to creation of their practice: 

“Real Estate is evolving into a consumer-centric product. Buildings are not just structures; they are brands. However, developers often lack the comprehensive teams—comprising brand strategists, digital experts, and marketers—that other consumer-facing products benefit from. There's a critical need for someone to help orchestrate the brand's creation, pinpoint the ideal retail partners, and weave a unified narrative that aligns with the interior design team's vision. For entities where having such expertise in-house isn't feasible, we step in as the equivalent of a Fractional Chief Brand Officer, offering our specialized skills to fill this gap”.

What’s the catch?

One of the challenges for market adoption of services like brand strategy and creative owner’s representation is that they add additional upfront costs for a developer. It’s always a difficult pitch to promise savings and process efficiencies downstream.

In order to make the offering better tailored for the long-term nature of real estate projects the companies may need to experiment with ways to reduce upfront cash burden for their clients. For example, Favorite Field is relying on long-term subscription-like engagement: “we do a retainer throughout the whole project that can be paused, it's a smaller fee distributed around a longer process instead of a large upfront fee that is typical for traditional branding agencies”.

Another challenge is that the developers who need the most help with creative direction — are often the most oblivious to it. It’s still difficult to explain to some why the creative strategy and coordination services are so valuable, and why it may not be enough to hire a random freelancer off Upwork to get compelling results.

Yet, there are many reasons to be optimistic. The market for creative consulting is poised to expand for years to come. The need to create better built environments is boundless. And in a high-interest environment, the competition on quality starts to matter more, as well as search for affordable yet effective strategies to keep rents and occupancy high.

We simply need to keep in mind that the adoption of new creative methods, just like everything in real estate, would require patience and perseverance. And these folks know it, better than most.

— Fed

P.S. If you happen to know of other relevant real estate consultancies, feel free to leave a comment below or message me on substack:

Relevant Reading

• “LVMH of Real Estate”

• “What “Branding” Means for Twenty-First Century Real Estate” by Karen Zabarsky Blashek for

Naturally, this got me thinking about ways we could learn from these products to improve apartment design for families, in particular:

• How could we make the design of family apartments more opinionated?

• How can homes better respond to children's developmental needs?

• How can interiors evolve as children grow?

• How can we plan for things that break along the way?

• How can we design for children in a way that also looks good to adults?

  Subscribe to receive new posts on product innovation and design in real estate.

We need opinionated design of family friendly apartment buildings

The subject of family-oriented apartments is gaining more attention in the North American real estate development community. However, family-focused residences still constitute a small portion of new construction.

In “Fighting The Childless City”, points to the lack of family-friendly projects as a result of developers hedging their bets:

While shifting demographics may provide a tailwind for family-sized apartments, some developers and analysts point to a different problem at the root of those units’ poor historical performance: their design.

Specifically, larger “family-sized” units in urban developments are often designed to solve for the needs of roommates and families simultaneously. It goes without saying that those two demographics have very different preferences, and it’s difficult to satisfy both use cases with a single unit.

Specifically, roommate- and family-oriented units have a few key differences: family-oriented units have more, smaller bedrooms, and windowless bedrooms / dens are appropriate; family-oriented units don’t need a 1:1 bedroom:bathroom ratio and have baths rather than showers in the secondary bedrooms.

In order to de-risk a project, many developers choose to create a product that could, in theory, cater to various clients. Unfortunately, the desire to please different people often results in none being truly satisfied. As Bobby Fijan, a developer working on family-friendly apartment buildings, observed: “For most apartments, certainly in the United States, the objective is to offend as few people as possible.”

Designing family-oriented apartments with the same attention to detail and usability as stroller manufacturers would require an opinionated and product-led approach to development. Instead of planning for a common denominator across all potential renters, we would need to think about the unique needs of parents and children of different ages: from infancy to teenage years — and design accordingly.

Montessori apartments

Many educational spaces, such as kindergartens, nurseries, schools, museums, and playgrounds are nothing short of opinionated. They are designed to be more inspiring, safe, and conducive to children's development.

Yet when the kids return home from these well-crafted places, they often find themselves in relatively unprepared surroundings. Ashley Yeh, the author of "The Montessori Home", argues that:

Our children often find themselves at odds with a traditional home environment, as the physical space is usually designed with adult proportions in mind. You must learn to see your child’s environment with fresh eyes, from their perspective, so that you are more effectively able to create simple, organized, and beautiful spaces that invite more meaningful learning and offer natural opportunities for independence.

The artificial separation between a well-designed "educational" space and a home is confusing at best, and harmful at worst. Many modern educational spaces have been modeled on the principles developed by Italian pedagogue Dr. Maria Montessori. Her research investigated the impact of the built environment on children's healthy development from birth. Dr. Montessori showed that kids are always hard at work in absorbing their environment, learning patterns from it, and training themselves to become self-reliant in society and the world. As a result, a prepared environment is essential for a child to develop their autonomy, self-esteem, and self-confidence.

It is striking that we don't commonly apply these design principles at home, where the kids spend the most time. In particular, by improving accessibility of apartments so that children can interact with the space without the intervention of an adult. The space should be designed with kid-sized objects from ordinary life like sinks, furniture, brooms, that can be easily accessible.

We don't expect parents to hack together a stroller from Home Depot parts. Yet we expect them to figure our how to fit out their home for children completely on their own. This creates an opportunity for developers and architects to propose a better design that would incorporate pedagogical best-practices and recommendations by default.

An environment that can evolve over time as children grow

Norwegian designer Peter Opsvik couldn't find a suitable chair for his young son that could accommodate him at the table. His son had already outgrown his highchair, yet the adult products were still too big for him. Opsvik set out to design a chair that would change at the pace of his son's growth. He succeeded and created what later became a legend of industrial design – a reconfigurable chair called Tripp Trapp.

In a similar fashion, an apartment designed for families with children should be able to adapt as they grow and their bodies, abilities, and needs change. Instead of buying and cycling through furniture of different sizes, a rental product can natively integrate reconfigurable elements within the apartment.

It can be achieved with something as simple as modular shelving that can be rearranged over time. Or something as complex as integrated bunk bed systems, robotic furniture, and flexible plumbing fixtures that can change their height.

For renters, making such improvements on their own may be prohibitively costly. Unlike homeowners, they may expect to move and not be able to recoup some of that expense in time. By contrast, long-term multifamily owners can amortize such an investment across several tenants.

A higher operating income may justify making apartments reconfigurable over time. It could offset larger upfront costs and operational complexity for property managers.

For when things break along the way

Some developers, design-oriented hoteliers, and property managers are afraid of the occasional mess that can come with children in a space. Play, experimentation, and creativity may not always bode well with beige couches, white walls, and a "pristine" space designed for adults. There's a good reason you don't see too many white strollers.

The design of a family-friendly apartment building must proactively take maintenance into account. It may mean borrowing from the hospitality playbook with robust and easy-to-clean materials or prioritizing laundry rooms over walk-in closets.

We can also imagine more radical experiments like completely modular walls that allow for easy replacement of some parts or sections. Imagine having the lower half of the wall become a dry-erase board for a few years, then switching back to normal drywall. Modular wall systems (like LADA Cube etc) already enable various skins to be clipped on them in seconds.

Ultimately, design with maintenance in mind may not require more expensive solutions. It's just got to be an integral part of the design brief that a development project optimizes for from the beginning.

Balancing design for children with a tasteful environment for adults

One of the problems with real estate projects catering to families is that they quickly become too whimsical: with playful wallpapers, patterns, and extremely vivid colors everywhere. They end up looking so tacky that they no longer feel like a place an adult would choose to live in on their own.

Family-friendly apartments should have an environment that is subtly convenient for kids of different ages, yet looks completely normal to an adult (with or without children).

One of my favorite examples of that approach is illustrated by the French landscape architecture firm BASE known for their extraordinary playground designs. Their projects look like standalone art installations.

Similarly, design for child safety only looks bad when it is done as an afterthought, like a bandaid on otherwise pristine spaces. If it becomes an integral part of the design process — it may result in beautiful environments that don't have any obvious visual cues of being designed for safety. For instance, a floor-to-ceiling net can both protect children from falling over and look like a sophisticated architectural element unrelated to safety.

There're myriad other product improvements that we can think of in designing better apartments for parents and their children alike. From creating communal amenities and shared services to making childcare a bit easier and affordable, designing spaces for sound sleep, and many more. It would require experimentation to get to the right mix of features, services, costs, and their appearance.

At the same time, we have to be mindful of over-amenitization that may feel too gimmicky. The apartment should always remain a canvas for living rather than a rigid "machine" dictating ones lifestyle.

It’s time to play

This theoretical inquiry became very tangible when Ksenia, Leny, and I moved from New York to Los Angeles. Our search for a new family-friendly home has been taking much longer than we anticipated. I was always rather picky about apartments, but now I’ve suddenly started caring about bathtub heights, entry storage space, stairs, and access, light and open space, floor materials, heating and water quality, etc.

It reminded me that while I was browsing stroller reviews, I couldn't help but notice the sheer passion of parents for products that made their families lives easier. Whoever figures out how to help people feel the same way about apartments - will undoubtedly do well.

Further reading and listening

• “The Montessori Home” by Ashley Yeh

• “Fighting The Childless City” by

• “Why We Don’t Build More Apartments for Families“ by OddLots Podcast

• “Why we can’t build family-sized apartments in North America” by Center for Building in North America

• “Miniature Architecture” by ArchDaily

Visit Commonplace

Commonplace is launching by featuring curated stories of developers and capital providers, with plans to introduce dedicated fundraising tools in the near future. It focuses on:

• Impact development and investing. Commonplace celebrates projects that promote inclusion, equitable development, housing affordability, historic preservation, and sustainability, among other important themes.

• People over transactions. Commonplace centers the conversation on the people who develop, fund, and occupy the buildings. It aims to balance the often impersonal, numbers-driven narratives in the real estate industry.

Developers are good

I joined Commonplace earlier this year, drawn in by its founders' mission to help emerging developers get more projects funded and off the ground. Commonplace originated from REDIST, a New York City-based company founded a few years ago by Atif Qadir and Jonathan Kuo to simplify access to real estate development incentives. Over time, Jonathan and Atif decided that it's crucial to go beyond incentives and assist developers in obtaining funding across the capital stack: from equity and debt to alternative forms of capital such as credit guarantees and grants.

I especially loved that Commonplace challenges the familiar narrative of "greedy developers" and "ruthless capital." Frankly, I was not always immune to the "developers are crooks" stereotype myself. When I was growing up in Moscow in the '90s, the most prominent developer, as well as the richest woman in the country at the time, was then-mayor's wife. During the 20 years of that mayor's reign, development was pretty much synonymous with corruption.

Naturally, I thought that any developer had to have shady government and criminal ties to secure entitlements through covert deals. My interest in studying urban planning for my master's degree was driven, in part, by the desire to counter this corruption with more transparent and fair rules for development.

Over the last decade, since moving to the U.S., my attitude towards developers has completely changed. I now see them as the unsung heroes of today, building much-needed housing and other infrastructure despite crippling bureaucracy, excruciatingly long timelines, and huge risks to their own financial well-being. This is especially true for many small to mid-sized developers who often have to risk all of their personal assets to guarantee new loans.

Sam Zell, the late legendary real estate investor, famously said: “I was cured of any inclination to become a developer. I think that to stay in that business, most developers must get 50 percent of their returns from real cash flow and the other 50 percent from the intangible benefit of seeing their phallic symbols rise out of the ground. Otherwise I can’t see the reward.“

What Zell seems to imply here is that the sheer risk involved in development makes it an extremely difficult occupation, oftentimes to the point of business irrationality. Instead, let me offer an alternative perspective on the intangible reward that development carries: rather than pure ego, perhaps a calling or a sense of public duty justifies the many sacrifices and motivates developers to stay in the game.

The real estate industry faces numerous issues, including housing affordability, rising rates and construction costs, structural racial disparities, and barriers for minority developers. To address these challenges, it is important to celebrate and support developers and capital providers who make a conscious effort to effect change for the better.

For instance, Matt Temkin restoring historic housing in Detroit while keeping rents affordable; Jenny Shen who is reviving Boston’s abandoned streets and odd lots with design-driven projects; or Louis Joachim who is creating mixed-income housing in Florida.

Increasingly, capital providers are adopting a similar philosophy. A growing number of investors and lenders now explicitly consider social impact as part of their underwriting process. This includes not only non-profit foundations and Community Development Financial Institutions (CDFIs), but also for-profit impact investors.

Coined by the Rockefeller Foundation in 2007, the "impact investing" spectrum includes responsible investing, sustainable investing, impact investing, and philanthropy. Impact capital aims to make measurable social impact on top of market-rate returns.

The global impact capital market is estimated to be $1.16 trillion (GIIN, 2022). Currently, real estate represents only a small fraction of that market ($7.5 billion, ULI and DLA Piper), but it is growing rapidly. Commonplace aims to support the maturation of this niche.

People over transactions

Throughout the hundred of research interviews with industry professionals conducted by Commonplace's Atif Qadir and Jack Lei, one word really stood out: "relationships." It vividly illustrated that, at its core, the real estate industry revolves around personal bonds and trust, not just sticks, contracts, or dollar bills.

Finding the right balance between fostering new relationships, facilitating profitable deals, defying biases, and doing it all in a tech-enabled, scalable way is a formidable challenge. However, we know from the likes of Airbnb that it's possible to bring a human-centric experience even to mass market and financial products. Commonplace aims to apply similar principles and humanize real estate networking and fundraising.

To make meaningful connections between capital providers and developers, Commonplace needed to solve the chicken-and-egg problem of having a relevant audience on both sides. To achieve this, the team chose to start with a media-forward approach, inspired in part by the product strategies of companies like Capital and AngelList.

Through Stories, Commonplace provides in-depth, long-form interviews with founders, executives, and senior leaders who are pioneers in the world of impact real estate. Stories share an insider's perspective on their approach. Each Story also provides an opportunity for readers to reach out directly to the featured developers and capital providers, making new connections easier.

This is only the first humble step, and the team will keep working on other ways to make capital more accessible for emerging developers. In the meantime, I invite you to explore Commonplace.us and stay tuned for updates.

Visit Commonplace

Team credits

• Jonathan Kuo, Co-founder and CEO

• Atif Z. Qadir, Co-founder and Chief Impact Officer

• Jack Lei, Associate

• Rasheem Henry, Software Developer

• Andrey Yazev, Software Developer

• Zeba Iqbal, Events Program Manager

• Six & newkid, Design & Brand

• Fed Novikov, Sr. Product Manager

Venture capital is often not the best way to finance innovation in real estate development and operations. Especially, for projects that involve the physical world. Permitting, construction timelines, and labor-intensive operations limit the ability to scale rapidly. At the same time, relatively slim margins make it more difficult to cover the costs of maintaining a large team optimized for growth.

I call this an open secret because whenever I meet fellow founders in the industry, the conversation inevitably leads to someone saying, “Venture is a tough match for real estate.” It’s a secret nonetheless because publicly acknowledging this sentiment might reclassify a company in the eyes of investors from a growth business to a traditional real estate operation, undermining its ability to raise funding for innovation.

There is a need and an opportunity for a new capital product that is more risk-tolerant than traditional real estate equity, but less growth-demanding than venture capital.

This topic is personal for me. When I worked on prefab housing at Airbnb Samara, I witnessed firsthand how difficult it is to reconcile hardware timelines with a software-based organization (eventually, the project spun off into an independent company). When Petr and I started Apt with the aim of standardizing and streamlining the development of low-rise multifamily, we believed that we could achieve development at a venture-like pace. However, we quickly discovered that our in-house software automations were hindered by per-project permitting and customization requirements, making it more akin to a traditional developer than a startup. Since these experiences, I have been constantly thinking about ways to better align the pace of real estate innovation with appropriate funding.

In this article we’ll explore:

• The binary nature of funding options for real estate endeavors;

• The reasons why venture capital may not always be the right fit for innovation in real estate;

• How venture dollars may undermine OpCo-PropCo arrangements;

• Concepts for “Middle” capital products and the size of the opportunity.

The Procrustean Bed of Capital Choices

Imagine a risk and growth gradient for individual real estate investment opportunities. On the one extreme, we would place a ground lease in a prime location that promises a steady, tax-optimized cash flow. On the other extreme, we would place something like Airbnb — a ridiculously risky bet that now operates more units than Marriott, Hilton, and other legacy hotel chains combined.

In the middle of the spectrum, we would find innovative businesses constrained by the physical environment. For example, developers using new construction technologies, new untested amenities, property managers and co-living operators, experimental industrial and manufacturing operations, alternative hospitality developers, and other “Middle projects”.

Capital products1 available for financing real estate projects are not distributed evenly across the risk/return spectrum. Instead, they are concentrated towards the tails of the spectrum.

This results from the conceptual and economic differences between traditional real estate and venture investing. Real estate capital tends to be risk-averse, optimized for tax and cash flow, and often requires extensive track records and personal guarantees. By contrast, venture capital is risk-tolerant, welcoming newcomers with no strings attached but expecting rapid expansion and go-big-or-go-home outcomes.

These distant capital options create a “procrustean bed” for early stage real estate projects who fall somewhere in the middle of the spectrum. This creates two distinct challenges:

1. Some of the Middle projects end up in the traditional real estate capital bucket and either don’t get funded at all (due to being perceived as too risky), or have to abandon their novel ideas and become a traditional operation. 

2. Other innovative Middle projects try to qualify for the venture track. Many succeed in attracting early stage funding, but fail to meet investors’ growth expectations over time.

The second problem became apparent with the first generation of tech-enabled real estate developers and operators, such as WeWork and Sonder. These companies tied up venture capital in real estate leases and built large organizations optimized for growth. However, they ultimately fell victim to mismatched capital placement and the gap between investor expectations and their core business profitability. As MetaProp, one of the prominent proptech venture funds, puts it: 

“In the last decade, a staggering amount has been deployed into tech-enabled real estate businesses such as WeWork, Sonder, and Opendoor, which manage and operate physical real estate. How should these businesses be categorized? Are they merely old-fashioned real estate businesses in a shiny new candy wrapper, or is there something new and innovative about how they operate? These companies seek to leverage technology in various parts of their business, streamline manual processes, and focus on user experience to surpass traditional real estate returns <...>

These startups raised a bulk of their capital from venture investors that have historically financed high-growth, high-margin software businesses and have the highest return expectations. This puts moderate-growth and capital-intensive tech-enabled real estate companies in a tough position when they receive capital from similar investors on similar terms.

In response to the inefficient use of venture capital in real estate applications, the industry has been shifting towards adopting the OpCo-PropCo model (short for “operating company”, “property company”). It’s an arranged marriage of sorts between venture capital backing the OpCo, which holds all intellectual property, and real estate equity and debt capitalizing the PropCo, which holds specific properties and leases. You can learn more about how this approach works here. 

Venture-Backed OpCo-PropCo Isn’t a Panacea

OpCo-PropCo is a time-tested structure and is a massive improvement over locking up venture capital in real estate assets. Most established hospitality operators have adopted it years ago. For example, companies like Hilton have split their business between an operating company (Hilton Worldwide Holdings Inc.) and a real estate investment trust (Park Hotels & Resorts Inc.) in charge of development and asset management. A more recent example is LifeHouse, a hospitality startup that has raised venture capital for its OpCo (brand, design, and software development) and now manages over hundreds of millions in real estate assets capitalized in a traditional way. Similarly, Wander, a short-term rental startup, has launched its own REIT to finance expansion.

OpCo-PropCo funding is currently the hottest topic among proptech venture investors. The number of OpCo-PropCo funds has been growing over the years, and many renowned founders and operators are considering their next move in that space. 

However, there may still be trouble ahead:

As long as the OpCo is funded with venture dollars, it will be expected to grow at a venture pace. Unfortunately, this may not be feasible for many Middle businesses dealing with custom entitlements, permitting, and bespoke construction for each individual project. Cheaper property-level capital can help in many ways, but it doesn’t solve policy and physical delays. Personally, I anticipate that a significant number of venture funded operating companies will undermine investor expectations within the next few years.

To address this issue, we can introduce capital products tailored for the middle of the risk-return real estate spectrum. Specifically, let’s explore:

• OpCo-side Middle capital. An early stage fund that promises venture-light returns on the portfolio level while expecting relatively lower growth (and lower failure rate) from each individual company.

• PropCo-side Middle capital. A co-GP fund for property-oriented investments that secures warrants in brand- and tech-enabled operating companies to compensate for the higher risk.

Middle Capital for Operating Companies

It may be possible to introduce a new type of early-stage OpCo fund that could achieve similar fund-level returns to venture capital, while having relatively lower growth expectations for individual companies in the portfolio.

At first, this may sound impossible, but let’s consider the relative benefits of tech-enabled or brand-enabled real estate. While it may be slower than some tech startups, it also carries a lower risk of going to zero. 

These characteristics of tech-enabled real estate projects make it possible to structure a portfolio of companies that promises investors similar returns to venture funds. The lower delinquency rate in the portfolio may balance out the relatively lower potential for high returns from the winners.

Venture Company vs. Venture Fund

The general public tends to discuss venture capital through the lens of individual companies, especially the rare winners that make staggering 100x-1000x returns.

However, far less discussed is the fact that, on a fund level, venture returns tend to be more modest. Good venture funds return approximately 3x on their investors’ equity, but average performance can often be as low as 0.5x (50% loss) to 1x.

This is due to the extremely risky profile of the individual venture investments. According to the U.S. Bureau of Labor Statistics, 45% of new businesses during the first five years, and 65% during the first 10 years. These statistics have been fairly consistent since the 1990s.

The structure of a venture fund requires each individual company to have the potential to yield returns that can cover the entire fund. As a result, venture is a tough match for real estate projects, even when considering only the OpCo side.

Middle Portfolio

Now, consider an alternative scenario where an investment portfolio consists of innovative real estate projects that may yield less than 10x but have a much lower failure rate than 50%-65%. Such a fund may ultimately deliver the same 3x return to its limited partners, possibly with even better reliability than venture funds. 

Why do I believe that a portfolio with a relatively lower failure rate is a viable option? 

The commercial real estate industry has a delinquency rate of under 1%. Even following the crisis of 2008, its failure rate stayed below 10%. However, due to Covid, the hospitality industry saw up to a 15% failure rate on commercial real estate loans. 

The gap between the highest commercial delinquency rate (10%-15%) and the failure rates of startups (45%-65%) is massive. Innovative real estate projects may increase the risk and returns volatility compared to the traditional commercial real estate, but still be safer than pure venture. Most of the time, they have fallback options to revert to traditional operation.

Rather than focusing on the limitations of tech-enabled real estate businesses, it is time to embrace their unique benefits. A Middle OpCo fund could structure its portfolio to assume a failure rate of 15-30%, while also participating in the upside potential of successful companies.

Tax efficiency is a subtle yet important factor to consider when deciding on the structure of venture-funded OpCos for Middle real estate projects. Most large developers are structured as pass-through legal entities, such as limited partnerships or limited liability companies. This allows owners and investors to write off some of the paper depreciation losses from a building against other income, reducing their overall tax bill. In contrast, venture capital typically requires operating companies to be registered as Delaware C Corporations, which do not allow for pass-through taxation.

A Middle Capital OpCo fund could operate similarly to private equity search funds that offer co-investments to real estate general partners to support emerging operators. Rather than partnering on a specific property or joint venture, these funds take a stake in the long-term future of an emerging real estate firm. This structure may be optimal for supporting incremental innovation in real estate development.

An important precedent in this space is Almanac Realty Investors (now part of Neuberger Berman), which has invested over $7 billion into 51 real estate operating companies over the past several decades, including major players like RXR.

Middle Capital for Property Companies

On the property side, a Middle PropCo fund offering would take the next logical step after the opportunistic funds. In fact, it may as well be called “Opportunistic Plus” because it would remain closer to real estate than to venture. 

An important difference is that typical opportunistic funds invest in individual projects and properties, while the venture funds invest in their parent operating organizations.

Opportunistic real estate capital already takes risks on entitlement and construction. More radical and innovative projects would add new technological or business model risks. To compensate for this added risk, a Middle PropCo fund would need to participate in the upside of the parent company (OpCo) beyond a specific property deal.

At the same time, having exposure to asset ownership or the ability to save a risky bet by reverting to a more traditional real estate approach can reduce the downside compared to a pure venture investment.

The Middle PropCo approach is gaining more attention and experimentation. Jonathan Wasserstrum, founder and chairman at SquareFoot and a prolific proptech angel investor, is currently working on a Middle PropCo capital solution. He provides relatively affordable and risk-tolerant co-GP capital for innovative real estate property investments, such as dark kitchens, SB9 developers, co-equity startups, branded student housing, etc. To compensate for the relatively higher risk compared to a traditional real estate deal, Jonathan uses warrant coverage in the operating company.

Overall, Middle OpCo and PropCo funds could contribute to a very healthy menu of capital options for startup operators:

OpCo Funded Solely Through PropCo Management Fees

In some rare cases, a large early-stage PropCo investment can make a separate fundraising for OpCo irrelevant. For instance, a data-driven Single Family Home investment and management platform Amherst was funded with a $200M “seed raise” of a new fund. The management fees from the fund were enough to support an in-house data analytics team. If this was a venture backed operation, it would have required a dedicated OpCo raise to assemble the analytics department.

Similarly, CitizenM has grown a new global hospitality brand through a well capitalized holding company and even developed their own software products for guests. All without raising venture capital.

Capital for Innovation as a Time Machine

This leads to a logical question: is funding for innovation in real estate necessary at all? Or should everyone just bootstrap these businesses instead?

Historically, venture funding was not essential to build a massive real estate company. The majority of the largest developers in the U.S. are privately owned limited partnership and limited liability corporations (Related LP, Greystar LLC, Hines LP, Tishman Speyer LP ) that never raised venture capital.

If you spend any time on real estate Twitter, you’ll know that many operators take pride in bootstrapping their fortunes while maintaining 100% ownership. Building a “sweaty” startup is formidable and hard work. While it may be a great strategy for building and preserving wealth, it can also result in a massive negative externality of delayed innovation.

If everyone who has an innovative idea would be required to toil away for 10+ years to accumulate enough resources to invest in R&D and test it by themselves, they may be too late or society may benefit much later than it could. 

Early stage capital works like a time machine, enabling people and organizations to build new and better solutions faster. It can save years, and sometimes decades. This is especially helpful for those who lack resources, such as affluent family and friends, or connections to large investment companies.

Real estate imposes a speed limit on this “time machine”. Zoning constraints, lengthy entitlement timelines, and restrictions on new construction methods all contribute to a slower pace of growth and innovation adoption. While this may make venture capital a difficult match for real estate, the industry still requires appropriate funding for R&D and experimentation. Middle Capital can become a crucial complement to venture capital in promoting innovation in this industry.

Sizing The Middle Market Opportunity

It's difficult to determine how many organizations fall within our target zone of middle innovation. How many qualified for the venture track? How many had to become traditional real estate organizations? How many chose not to start at all due to the lack of compatible capital? And how many would start if the capital became available?

Skeptical Scenario

The pessimistic view is that the distribution is naturally skewed towards the extremes, and that only a minority of existing or potential projects lack Middle capital funding.

Aleks Gampel, founder of Cuby Technologies, expressed concern that finding compatible, high-quality operators in the market may be prohibitively difficult: “there is simply not enough LifeHouses out there”.

Optimistic Scenario

A more positive argument would be that there are many “invisible” Middle companies that are currently hidden in either the traditional real estate or venture buckets. Moreover, there are many companies that have never received any funding at all (I will spare you the stereotypical image of a WWII plane with bullet holes.)

The optimistic scenario is backed by many conversations I've had over the years with developers working on relatively novel projects, as well as with tech-enabled real estate startup founders. Developers state that it is very difficult (if not impossible) to find equity partners willing to support new approaches, and tech founders worry that they may struggle to secure follow-on funding due to the comparatively slow pace of growth.

There may be many candidates for Middle funding:

• Companies taking advantage of local policy changes like ADU and SB9 developers and prefab sellers;

• Branded operators of new retail and professional services with physical storefronts (primary care, dentists, veterinary clinics, etc);

• Industrial co-manufacturers;

• Dark kitchens;

• Tech-enabled developers;

• New charter school operators;

• Niche co-living, co-working operators, and tech-enabled property managers;

• New operators blending hospitality and residential or experimenting with rent-to-own vehicles.

• and many more…

Venture capital will still be critically important to finance deep tech innovation in real estate like construction robotics, material science, augmented reality, manufacturing, prefabrication, and other complex research and development initiatives.

However, according to Bryce Roberts of Indie.vc, only 1% of new companies use venture capital. It’s no surprise that there may be an underserved niche in the market between traditional real estate equity and venture funding.

Real estate debt and equity is the largest asset class in the world, so it makes sense that it can support its native way to finance innovation without relying solely on venture capital optimized for software and hard tech. In fact, a similar narrative is emerging with "calm funding" for bootstrapped software companies.

I would bet that within the next 5-10 years, more money will be invested in innovative real estate businesses through new types of Middle Capital vehicles than through traditional venture capital.

Time will tell. For now, let’s get back to building.

Thank you for reading,

— Fed

This article is for education and entertainment purposes only, no offer is being made to buy or sell securities.

Further Reading

Venture Growth Expectations vs. Real Estate

• “Startup=Growth” by Paul Graham

• “Real Estate Lacks Network Effects, And I’m Ok With It” by Moses Kagan

OpCo-PropCo

• “OpCo-PropCo Primer” by Kunal Lanawat of Agaya Ventures

• “OpCo-PropCo Evolution” by Kurt Ramirez of Nine Four Ventures

• “Intelligently Financing Tech-Enabled Real Estate Concepts” by MetaProp

• “The Big List of OpCo-PropCo Investors” by Brad Hargreaves of

• “The Future of OpCo-PropCo Model” by Brad Hargreaves of

Emerging Alternatives to Venture Capital

• “The Calm Capitalists” by Mario Gabriele of

• “Venture Capital Is Ripe for Disruption” by Evan Armstrong for Napkin Math

• “We’re Selling Entrepreneurship Short” by Bryce Roberts

• “Venture Capital Risk and Return Matrix” by Industry Ventures

• “How Venture Capital Works” by Harvard Business Review

My dear friend Keaton saw "Top Gun: Maverick" in the movies 8 times. I only saw it 4 times. We marveled at the stratosphere at supersonic speeds, and felt the force of 10G ascents pushing us back into our seats.

Tom Cruise, the lead star and executive producer of the movie, has defiantly held off its release for over two years due to the pandemic. It was worth the wait, Top Gun 2 became an astonishing box office success and grossed over $1.5 billion in worldwide ticket sales. It also managed to stay off the streaming platforms for much longer than originally planned. Renowned directors like Steven Spielberg now praise Tom Cruise for saving the theatrical release, the soul of Hollywood, and moviegoing. 

I believe that "Top Gun: Maverick" and "Avatar: The Way of Water" offer a glimpse into the future of movie theater design and real estate development strategies. Multi-IMAX theaters will soon be upon us.

IMAX and the new trends of movie going

During its opening weekend, "Avatar: The Way of Water" fell $16 million short of the domestic box office forecast. Yet it didn’t spell doom for its long term performance. It turns out that the original predictions didn’t account for the increasing bias of viewers towards premium viewing formats. While all IMAX auditoriums were booked solid for days and weeks out, regular screens did not sell nearly as well. These days, people are looking for the largest, loudest, and meanest screen, or they may not bother going to the movies at all. In the age of streaming and synchronous releases, premium formats like IMAX may be the true saving grace for movie theaters.

The movie theater business is tough. Studios can take up to 90% of ticket sales during the opening weekend. Only by the third or fourth weekend can theaters increase their share to 40%-50%. The longer a movie plays, the more money a cinema can capture if attendance remains high.

The problem is that many cinemas have, at best, one IMAX screen. It’s a coveted real estate with a packed schedule of new releases. It doesn’t allow a hit movie to continually run in premium format long term, undermining the ability of theaters to capture the upside.

I witnessed this issue firsthand during the initial Top Gun 2 run. I caught the very last IMAX screening at AMC Lincoln Square 13 in New York. It was a 10:45pm show and the auditorium was still sold out. In the next few days it had to give way to Jurassic Park and Bullet Train, but these movies barely got butts in half the seats. When Keaton and I noticed this pattern, we decided to plead with the General Manager of AMC Lincoln Square to bring the movie back.

Matthew, a true gentleman, not only replied but also personally invited us a few weeks later when Top Gun returned to IMAX. In fact, the movie managed to return to IMAX multiple times, first in August, then in November, and even in December, more than half a year (sic!) after its May release. Squeezing in a few days here and there. This impressive but inconsistent schedule made it difficult for cinemas to inform their customers and fully benefit from the movie’s popularity.

Towards an IMAX-plex

Movie chains have been looking for ways to boost their revenues and viewership for several years, especially since Covid and increased competition from streaming. Some are introducing airplane- and concert-like priced seat selection, others invest in expanding food and concessions offerings. These are viable options, but I believe that a more important and lasting solution will be an increase in the number of premium format auditoriums. 

As regular auditoriums increasingly compete with home streaming options, movie theater developers may choose a new real estate strategy: building new cinemas with two or more IMAX screens and fewer regular screens. Multiple premium auditoriums could allow hit movies to run simultaneously during competitive seasons, capturing more of their long-term value for the cinema.

This is a simple idea that requires a deeper financial feasibility analysis, but judging by the evolving consumer preferences and trends — seems like an inevitability at this point.

Magical spaces

Even after being available on demand for 2 months, fans still came back for in-cinema Top Gun experience. It didn’t surprise me. Watching a picture like Top Gun at home, you’re watching a different movie. You may enjoy the plot, but it simply won’t make you feel the same way. 

Movies remind us that physical spaces and our senses matter. I always love sitting in the front rows where the screen extends just beyond my field of vision. I love listening with my body, not just my ears. I love the feeling of communion in the cathedral-like auditorium.

Modern luxury is not about the cost of admission or convenient access anytime, anywhere. It's about being able to experience something magical in person, whether it's traveling abroad or going to see a movie on a very large screen.

Movie theaters are here to stay. Larger. Louder. And even more majestic.

P.S. It's not lost on me that I just wrote a piece praising a movie that romanticizes fighter jets. In the wrong hands, a warplane can cause much damage and suffering. Unfortunately, we see daily evidence of this as Russian forces bomb Ukrainian civil infrastructure, homes, and peaceful residents. I hope that Ukraine prevails against this aggression, and that the U.S. and its allies provide Ukraine with the planes and other resources necessary for its defense. I also hope that the russian government and its enablers face justice for their crimes. I hope that peace and prosperity return to these lands.

Naturally, I was excited when Brad proposed to collaborate on an article about the rise of outdoor hospitality, also known as glamping. This topic has been dear to me since my Airbnb Samara days.

You can read a preview of the story below. To access the full article, continue to . Please note that Thesis Driven is a paid newsletter and that the complete article is behind a paywall.

Continue reading on Thesis Driven

In early 2020, the hospitality industry came to an abrupt halt. Planes flew empty, urban hotels were vacated, and Airbnb’s business plummeted by 80% practically overnight. Despite the chaos, one niche stood out as immune to the pandemic and was growing rapidly — local stays in nature.

Accelerated by the pandemic, the outdoor accommodations industry has become one of the fastest-growing sectors in hospitality over the past decade. According to Kampgrounds of America, 17 million households took at least one glamping trip in 2021, a staggering 155% increase from 2019.

The low barriers to entry and the potential for substantial returns have made outdoor hospitality an attractive niche for local entrepreneurs. While traditionally dominated by mom-and-pop businesses, the industry is now becoming more sophisticated with the emergence of branded operators backed by institutional capital.

Institutional investors, including Whitman Peterson, Starwood Capital, Certares, KLS Capital Partners, and others, have poured hundreds of millions of dollars into glamping projects. In 2022, Summit REIT, a public real estate investment trust, made a direct investment in a Texas-based outdoor resort. Giants in the industry, such as Marriott and Accor, have also launched their own experimental projects. According to hospitality consulting firm PKF, the glamping market is expected to continue growing by 12% annually, reaching $5 billion by 2025.

It's a good time to evaluate the current state of the industry and explore:

• Why are outdoor accommodations so attractive to both consumers and investors?

• Is the popularity of glamping just a pandemic phenomenon?

• What are the opportunities for institutional investors in the industry?

The article will give an overview of the outdoor accommodations sector including economics, major players, institutional investors and recent financings, and the go-forward, post-pandemic outlook for the category, and a gentle warning to investors to avoid McDonaldization of the industry. To read the full article, continue to Thesis Driven 1.

Continue reading on Thesis Driven

In hindsight, writing through the lens of institutional investment didn’t come naturally to me. I’m grateful to David Smith from Outside Capital, Jeff Wilson from Jupe, and Jon Staff from Getaway for providing invaluable advice and insights. For the avoidance of doubt, any mistakes in the article are mine alone.

I plan two write new posts at least every other week, exploring impact investing, product innovation and design in real estate development. I invite you to subscribe for free to receive new posts.

Have a great day,

— Fed

Even if you don’t follow fashion, you’ve likely heard by now that Bernard Arnault, CEO of LVMH, has just replaced Elon Musk as the richest person on Earth. I’ve been long fascinated by Arnault’s ability to create a financial powerhouse while delegating huge amounts of power to creative directors. Therein lies an important lesson that I hope more real estate developers learn and embrace.

While the public is commonly aware of fashion brand names like Prada, Bottega Venetta, Chanel, Calvin Klein, Loewe, enthusiasts and industry insiders care more a particular creative director at the helm of a brand at a given time. You may hear folks talking of brands in terms of their eras: Margiela’s Hermès, Phoebe Philo’s Celine, et cetera. While the finance and operations folks stay in the background, creative directors drive the product vision.

I had a chance to witness a vivid illustration of creative change at the Christian Dior: Designer of Dreams exhibition at the Brooklyn Museum. Passing from one room to another, you could see the evolution of the house since its inception and the interpretations of creative directors who followed: Yves Saint Laurent, Marc Bohan, Gianfranco Ferré, John Galliano, Raf Simons, and Maria Grazia Chiuri. All standing side by side.

Bernard Arnault has championed the modern fashion conglomerate approach where the “suits” give up the creative control to the artistic directors. In a 2001 interview with Harvard Business Review, he explains his method:

“Our philosophy is quite simple, really. If you look over a creative person’s shoulder, he will stop doing great work. Wouldn’t you, if some manager were watching your every move, clutching a calculator in his hand? So that is why LVMH is, as a company, so decentralized. Each brand very much runs itself, headed by its own artistic director.”

In his brilliant profile of Arnault, Mario Gabrielle adds that “each [business] unit can act according to its own culture while still benefiting from the distribution and resources of the parent company.”

A lesson for real estate

The idea of drawing parallels between fashion and real estate may seem preposterous at first. The fashion industry may be able to introduce new collections every six months, while real estate development often takes a similar number of years. The fashion industry may thrive in chaos and provocation, while real estate is a notoriously conservative industry focused on minimizing risks.

And yet, I think there’s a core similarity and need. Real estate, just like fashion, could benefit from a coherent and opinionated product vision. Instead of creating clones of a neighboring properties, developers could prosper by creating new products with specific audiences in mind. Instead of a bland commodity, building products that some people would passionately love.

Occasionally, boutique developers create such exciting projects. At the same time, large multinational developers are painfully similar across their product lines. Would you really know any difference between Mill Creek, Toll Brothers, and Tishman Speyer without checking? Even hospitality brands are getting harder and harder to distinguish.

I believe that real estate firms are missing out on a great opportunity. By hiring and empowering dedicated leaders to define product vision, they can lead the market by quality and, in turn, by sales volume as well.

Creative freedom and profits

Fashion is no charity. For large houses the stakes of product decisions translate to billions of dollars. Over a long period of time, creative directors are still judged by the company in terms of their ability to impact the company’s bottom line.

Arnault knows that better than anyone and tells Harvard Business Review how critical it is to find creative talent with the drive and capability to deliver a massive commercial success:

“The responsibility of the manager in a company dependent on innovation, then, very much becomes picking the right creative people—the ones who want to see their designs on the street. And that desire inside them is something that you, as a leader of a company, can only sense. After all, most artists don’t go around proclaiming, ‘I want to be a commercial success.’ They would actually hate to say that. And frankly, if you asked them, they would say they don’t actually care one way or another if people buy their products. But they do care. It’s just buried in their DNA, and as a manager, you have to be able to see it there.”

It’s fascinating that a creative director can make or break a brand for a long period of time. Sometimes, they can even alienate existing customers in favor of bringing a new and larger audience. It’s risky and takes vision, guts, and perseverance.

For example, the appointment of Virgil Abloh to Louis Vuitton has contributed to an increase LVMH revenues by 16% within sheer months.

Alessandro Michele has nearly tripled Gucci sales from from €3.9 billion in 2015 to €9.7 billion in 2021 (it’s owned by LVMH’s main rival Kering). But more recently, the pace of growth slowed, leading to his departure from the fashion house a few weeks ago.

Demna’s impact on Balenciaga (also a Kering subsidiary) has been immense — their sales grew from about €400 million in 2015 to €1.2 billion in 2021. That good fortune is at risk now because Demna may have made a step too far in his provocative art direction.

Subscribe now

Real Estate Precedents

Creative Directors

The title “Creative Director” may not translate well to real estate as it’s too easily confused with a Brand or Marketing director role. Depending on a particular organization and role specification we may consider titles and scope of responsibilities more aligned with real estate. There’s at least a couple relevant cases to consider:

Ian Schrager is the OG creative leader in the hospitality industry. The founder of the Morgans Hotel Group and the godfather of boutique hotels, Ian has been personally invited by Mariott to define their EDITION line from scratch. Although I don’t know the intricacies of their collaboration, from the outside it looks like the closest example to what I mean by a large developer hiring a Creative Director to define a vision and product for a specific brand.

Branded residences. We’ve seeing an influx of branded residences in the market. In many instances they represent a marketing blurring the line between residential and hospitality projects. For example, in a surprising parallel with fashion, OKO’s Missoni Baia tower in Miami is being developed in collaboration with Angela Missoni. We have no visibility into how their decision-making is structured, but it’s an interesting case nonetheless.

Architect in Chief

Architect-led Developers. In Compounding Great Buildings, I mentioned an emerging trend of architect-led development firms. By having a creatively trained professional at the helm of a development shop, naturally, the products tend to be both more opinionated and of a higher design quality.

Bjarke Ingels deserves his own section here. Bjarke has been invited by a number of prominent organizations — such as WeWork, Telosa, Nabr, and Icon — to be their Chief Architect in charge of a holistic product vision. I applaud Bjarke’s ability to promote better architecture and genuinely hope to see exciting results from all these initiatives. At the same time, I’m worried that being involved in so many projects at once goes against the idea of a deep product involvement and a coherent vision. In any case, I’d love to see more companies creating similar roles and inviting someone (other than Bjarke) to lead them.

Product Directors

I think that “Product Director” or “Head of Product” may be the most appropriate equivalent role to that of the Creative Director in fashion.

Today, the real estate development product definition too often starts with finances rather than understanding of the end-users. And the responsibility of defining the product is shared between the underwriting team, project managers, marketing, designers, and IT department. In larger organizations the vision is designed by a committee.

By contrast, a Product Director would have the power to consider inputs from multiple sources and propose a consistent vision for the project, target audience, its design, and marketing — treating the building, services, digital experience, and marketing holistically.

Lenny Rachitsky breaks down the responsibilities of product management in three core elements:

Shape the product: Harness insights from customers, stakeholders, and data to prioritize and build a product that will have the most impact on the business.

Synchronize the people: Align all stakeholders around one vision, strategy, goal, roadmap, and timeline to avoid wasted time and effort.

Ship the product: Ship high-quality product on time and free of surprises.

There’re two important takeaways here: product starts with a deep understanding of customers and requires a singular coherent vision. It’s a huge responsibility and not every person would be able to succeed in that role.

It may not be easy to find the right person to entrust with product direction at a development firm, but it’s possible. A modern real estate Product Director would need to be able to balance financial objectives with a deep understanding of users and a bold creative vision. The right person can help turn a no-name firm or a niche segment into a market maker.

There’s also no need to risk it all at once. Product Directors in real estate should have some guardrails for their experiments, whether it’s a limit to a number of test units, software integrations or provocative marketing campaigns. Similarly, Bernard Arnault lets creatives experiment only on a subset of a full collection:

“We do not put the entire company at risk by introducing all new products all the time. In any given year, in fact, only 15% of our business comes from the new; the rest comes from traditional, proven products—the classics.”

For example, in Thesis Driven, Brad Hargreaves showcases developers applying a similar approach to real estate by changing one variable at a time, like designing apartments specifically for families or building car-free communities.

There’re also emerging product-oriented developers. For example, here’s how RNDSQR, a boutique Canadian developer, defines their process: ”We put our users' experience at the forefront of everything we do, so people can get more out of their lives.”

Product management at tech-enabled real estate companies

Startups in co-living and property management space (Common, Landing, and others) have adopted product management best practices from software firms and have even introduced product management roles. They run user research, post-occupancy studies, and treat their digital and physical products as one.

However, when it comes to the interior design, many of these companies try to navigate a fine line between creating an identity for a global brand and providing diverse “home-like” options for their guests, often resulting in a “design-by-algorithm” look and feel.

I’m also intrigued to see the results of tech-enabled developers like Juno, Nabr, Culdesac, and Madelon who approach both their physical and digital products in a holistic way.

Product Consultants for Real Estate

We’re also seeing an emergence of consulting firms for product management and innovation in development. Companies like Another Structure, Direction, Bursatelier and others are helping bridge concept development, user research, and design with financial feasibility of a project. Here’s how Kuba Snopek, Managing Parner at Direction, explains their service:

“In a nutshell, product design is about looking at real estate projects through the eyes of the end users. This perspective allows to quickly see what needs to be fixed in many different areas: architectural design, landscaping, property management, service design, programming, and others. Way too often product improvements are considered in the final stages of the project. Hiring a product design consultancy allows to shape the product in the early stages of design, saving time and money. ”

Not every development organization, especially a young one can afford a full-time product hire. Product consultancies provide a project-based alternative for emerging real estate sponsors that may be complimentary to their in-house finance and organizational skills.

Epilogue

All of these precedents are still a minority compared to the mass market indistinguishable development. However small, they make make me optimistic about the future of the industry. I’d like to close with a quote from Arnault:

“Some companies are very marketing driven: they follow the consumer. And they succeed with that strategy. They go out, they test what people want and they make it. But that approach has nothing to do with innovation, which is the ultimate driver, we believe, of growth and profitability. You can’t charge a premium price for giving people what they expect, and you won’t ever have break-out products that way — the kinds of products that people line up around the block for. We have those, but only because we give our artists freedom.”

Of course, I don’t suggest that all housing should become a premium designer product. Affordability is still the best amenity a building can have. Yet, I believe that our industry should learn an important lesson from the success of Bernard Arnault’s method: that letting product visionaries run the show can ultimately lead for better financial outcomes. All the while building more places that people love.

Best,

Fed

References

• “LVMH: The Civil Savage” by The Generalist

• “The Perfect Paradox of Star Brands: An Interview with Bernard Arnault of LVMH” by Harvard Business Review

• “What Is Product Management?” by Lenny Rachitsky

• “Role: Creative Director. Company: USA” by Reggie James

Thank you for reading. You can support my work by forwarding this story or sharing it on social media.

Share

Subscribe for free to receive new posts. I publish new stories once or twice per month.

This is a snapshot of our ideas on designing a modern motel experience.

I still remember one of my first nights at a motel. In the summer of 1999, our family visited the United States and rented a car to drive from Seattle to San Francisco. The trip was magical; my brother and I climbed black rocks by the Pacific Ocean, parodied seals’ moans, ran circles around sequoias in Redwood National Park, and sang made-up tunes about McDonalds and KFC from the back seat.

One evening, we got caught in a fog so thick that we could barely see our hands outside of the window. Our parents decided to stop at the nearest motel for the night. That motel happened to be somewhere on the outskirts of Eureka, California, next to a gas station and a fast-food restaurant outfitted with bulletproof glass by the cashier. Back in our room, I was lying on my bed, wondering what kind things occurred in that room to justify wrapping the bed in plastic that thick…

There’re tens of thousands of motels in the U.S. It’s easy to find a place nearby, but difficult to find a pleasant one. Roadside motels are at best a bland and clean utility; and at worst, a soulless cash machine with a roof. 

It’s a shame, really, because there was once a time when motels competed in quality, technology, services, and design — a time when motels were in the business of hospitality.

The origins of motels

Roadside accommodations became an essential need when cars started to define the American way of travel. The first auto lodging services looked more like a trailer park than a modern motel. In response to auto tourists sleeping in the fields, small towns organized dedicated territories for auto campers with picnic areas, restrooms, and centralized garbage collection.

Soon, local farmers and entrepreneurs realized there was an opportunity, and built small cottage courts to offer short stays for transient guests and vacationers. By the late 1940s, the now-familiar form of a motor court with rooms accessible from the street, all lined up under a single roof, became the new default for motels.

Motels had to constantly compete, evolving their design, amenities, and business models to keep up with technology and customer preferences. Owners pioneered new architectural forms, air conditioning, television, and other now-common in-home technologies. Brands like Holiday Inn made their ubiquitous motels family-friendly with pools, restaurants, and an explicit focus on cleanliness and safety.

For many years, motels remained primarily local mom-and-pop enterprises. The first branded experiences came from referral networks that set a standard of mapped, trusted motels to help travelers find reliable accommodations on the road.

Eventually, local motel chains and referral networks turned into nationwide corporate enterprises. A place-product-packaging approach crystallized in the industry: chains established repeatable standards for motel design, amenitization, and their operating principles.

By the 1970s-80s, gone were the glory days of the local bespoke motels and chains competing on quality. The rise of cheap air travel lured more leisure and business travelers away from the road. The dominance of place-product-packaging on interstate highways made most motels uniform and practically indistinguishable. Private equity firms started to trade and flip motel brands every few years.

Thus concluded the transformation of roadside motels from spontaneous auto camps in the farm fields to unique local hospitality products, into a bland financial commodity.

Redesigning Motels

A few months ago, my friend Vasily and I met for lunch in New York. Following the Russian attack on Ukraine, Vasily had to leave Kyiv where he ran the best boutique hotel and co-working in town. As Vasily started to explore new project ideas, I’ve suggested that we take a closer look at motels.

The way people travel is changing again, creating an opportunity to reimagine roadside hospitality experience for the better. We’ve looked into a number of emerging guest behaviors that are likely to reshape demand for road trip lodging and services, from the proliferation of electric car travel, to remote work, extended stays, and changes in navigation. We then created a development concept based on these inputs and visualized it with the help of our friends at Kosmos Architects, we call it:

The Travel Hub Motel

A modern motel should accommodate different guests and use scenarios throughout the day: EV drivers stopping for a quick recharge and rest; remote workers seeking a place to concentrate for a few hours; and travelers looking to spend a night or two, located in pleasant spots off the major highways. A travel hub motel may be a home for different travelers for a few minutes, hours, or days.

This isn’t such a crazy idea if we consider modern urban hotels that combine different uses under the same roof, and provide vastly different services to various patrons at all hours. How many guests at Ace hotel lobby working on their laptops stay overnight? How many patrons of Roxy jazz club live nearby? How many visitors of BURSA Gallery also grab a drink at the bar?

This concept works well with a flexible motel system made up of functional blocks can allow owners to fine-tune the amenity mix depending on a specific location. Some places may call for a transient design with fewer leisure features and smaller communal spaces, while others may be a better fit for a private arrangement designed for longer stays.

Taking this approach to an extreme, a travel-hub-motel may act as an operations control center for glamping and cabins on nearby properties, or even public EV-charging travel stops.

EV-friendly travel stops

Electric vehicles will profoundly reshape the roadside infrastructure. Obviously, any modern motel should guarantee abundant overnight charging, but it shouldn’t stop there.

Electric cars change travel behavior on long-distance road trips. Even with fast chargers, stops last much longer than with gasoline-driven cars, increasing from 10 to 30+ minutes. It may not matter much how a gas station looks and feels (although finding one with clean restrooms is as much art as science these days), but with electric cars, the rest stop experience matters.

It means that EV rest stops may become closer to the business of hospitality than that of convenience stores. That certainly isn’t the case today, as many EV charging stations are located in remote parking lots or near shops that close for the night. The number of times I had to look for the bushes during a nighttime charge is frankly embarrassing.

This is obviously a subpar experience and a transitionary phase of the electric roadside infrastructure. Charging companies are in the complex infrastructure business; hospitality is not their core competence. That makes hospitality companies uniquely positioned to reimagine the charging experience and partner with these infrastructure providers.

We’re seeing a glimpse of that future from companies like Stack Charge, a U.S. land development startup with a dozen EV rest stops in the pipeline; bkWorld, a European manufacturer of prefab rest pods that has partnered with Tesla; and Electrify America, one of the leading charging infrastructure providers that is testing its own lounges.

Using a motel as an operations hub for EV rest stops makes sense. It helps relieve the economic pressure of remote maintenance by sharing labor and supplies, and treats rest stops as the hospitality products they should be.

Work + leisure

A modern motel should have comfortable co-working spaces accessible to overnight and daytime guests. Working on the road should feel just as convenient as working back at the office. In the U.S., trips combining business with leisure (now referred to as “bleisure”) are projected to grow by 19.5% annually, while 88% percent of such trips will be domestic.

Co-working spaces in select locations may create additional revenue streams for motels, from day use by locals. It may resemble the business model of Daybase, a co-working operator explicitly targeting small towns to facilitate hybrid work.

Beautiful locations, off the main highway

The rise of bleisure may prolong the time that guests stay in one place, and make surroundings more important.

Motels have often been clustered on major highways, to be visible directly from the road. Their large signs were a necessity in the pre-mobile era, when a traveler would see a vacancy sign and pull into the parking lot. It made sense at the time, but it resulted in motels facing the loud highway, surrounded by a sea of parking, gas stations, and road infrastructure. It may be a convenient location, but it is an unpleasant one, especially for longer stays.

Today, phones make highway signs redundant and allow motels to be located in relatively more picturesque areas off major highways. Travelers research and plan their overnight stops on their phones in advance and a quick detour to a better location is no longer an issue. This makes it possible for modern motels to be located farther from the major highways in relatively nicer areas.

Design

American landscape is beautiful. Road trips are spectacular. Yet, most motels are ugly.

A modern motel must be designed with taste. I find the importance of good architecture to be self-evident, but there’s a rational reason for it as well. Design-oriented hotels outperform the competition by 7% in occupancy and up to 65% higher average daily rate.

Good design will also help motels to be a compelling substitute to international travel. Surprisingly, in a survey conducted by Booking, 1/4 of respondents said that they chose to travel to a destination closer to home to reduce their carbon footprint. The more people that choose to vacation by car instead of flying, the more the motel experience matters.

Of course, beauty and taste are subjective; some may find repulsive what I find appealing. And that’s alright, I’d be happy to see more experimentation in roadside hospitality with different takes on beauty and taste.

Other motel experiments

This wouldn’t be the first or the only attempt at reimagining a modern motel.

New Extended-Stay Brands

In the last couple of years, hospitality conglomerates started introducing new brands that try to combine leisure and work and refresh their amenities; for example, IHG’s Atwell Suites, Radisson Inn & Suites, and Choice’s Everhome Suites.

The Atwell Suites prototype includes a large shared business lounge, EV charging, and a revamped design. It’s certainly a step in the right direction, but personally, I find these products to be too incremental and close to the status quo.

Tech-enabled startups and boutiques

FieldStation is the most relevant case of reimagining a motel as a mixed-use activity center. It converts old motels into an upscale motel with a service center for outdoor adventures, including equipment rental, guided tours, etc. It’s a new brand by Autocamp, a company with origins in upscale Airstream getaways.

Life House is the most prominent tech-enabled property manager working with motels across different price points. However, unlike in their bespoke ground up properties, LifeHouse is typically constrained by motels’ legacy building and has a limited ability to reshape them to meet all modern demands.

Hoteliers have also been restoring and converting select, independent vintage motels into upscale boutique properties. These are great projects, but they are typically located in remote places and have a high daily price, making them more of a final destination than a casual stop on a road trip.

Epilogue

Motels are so common that we almost forget they are there. This humble staple of the American roadside hospitality has potential to become a travel center for a new generation of road travelers. Motels can help a passerby recharge in comfort. Motels can enable productive work on the road. Motels can power hospitality operations for nearby properties. Motels can be cool and beautiful again. Motels can revive their hospitality spirit. Motels can once again make road trips magical.

— Fed

As Vasily and I continue to explore this concept further, we’d love to learn from experts in the field, such as hotel developers, owners and operators of midrange motels, and operators of EV charger networks. Please reach out to me or Vasily if you know someone who may be interested in discussing this idea. You can also help by spreading the word and sharing this article.

Share

Subscribe if you’d like to receive future articles exploring the intersection of architecture, technology, and real estate.

Subscribe now

With gratitude to Kosmos Architects for collaboration on architectural concept and visualizations; and to Vasily, Cam Houser, Helen Jiang, Shubham Khoje, and Chris Wong for feedback on earlier drafts of this article.

Yet when we passed through a city, drove into local towns to grab some food, or stayed the night, I felt a recurring sense of dread from the look of the average newly built environment. Indistinguishable hospitality, food and retail chain structures. Small towns with parking instead of streets. Lipstick-on-a-pig renovations. Faux materials. Tacky furniture and graphic design. The exceptions were few and very far between.

I got so riled up that I almost started barking at the random, ugly structures through the windshield… and a thought kept racing through my mind: “Why do all these new buildings look so bad? Can we do something about it?”

There are, of course, rational reasons for the prevalence of a mediocre built environment across the U.S. Many historic neighborhoods were erased in favor of newer, car-oriented development. Restrictive zoning, parking minimums and setbacks constrain architects and developers. Design is often subject to the whims of community design boards staffed with non-professionals. Home Depot merchandising influences more average, mainstream designs, etc… 

All these reasons still don’t explain why, as a society, we keep accepting the epidemic of tasteless and inadequate buildings as normal.

I’d argue that there’s a subtle and far less-discussed factor in play — compounding of bad examples. In it, there’s also a silver lining and a possible way out of this mess.

The role of compounding

Compounding is a powerful force. You’ve likely heard the famous mathematical problem about wheat on a chessboard: “if a chessboard were to have wheat placed upon each square such that one grain were placed on the first square, two on the second, four on the third, and so on (doubling the number of grains on each subsequent square), how many grains of wheat would be on the chessboard at the finish?” It turns out, the result would be about 2,000 times the annual global production of wheat.

At its best, compounding creates fortunes and accumulates knowledge, innovation, and lasting culture. Renowned investors like Warren Buffett treat compounding with reverence, vividly illustrating how even a small annual improvement can result in massive wealth over decades. If real estate investing was a religion (which it arguably feels like at times), compounding interest may as well be its god. 

At its worst, compounding results in technical debt, deferred maintenance, and all sorts of other problems. In this instance, America has compounded the creation of underwhelming buildings over decades. The fewer examples of good architecture and well-planned urban environments that people experience in the past, the less likely they are able to create quality projects of their own. As the cycle repeats, new generations will keep settling for even worse baseline quality. 

In real estate, copying precedents is a standard practice. Due to the myriad risks in development, it’s easier to finance and construct something similar and derivative of nearby projects. Even well-meaning developers become dependent on their context and the relative quality of regional projects. The fewer good examples to rely on, the lower the chance for a noticeable improvement. 

Turning the tide

Back on that road trip across the nation, my anger and initial despair started to transform into hopefulness and a sense of purpose. I remembered my favorite thing about U.S. history — its ability to reinvent itself and improve by setting better precedents. 

It’s a sentiment that is echoed today by many people who acknowledge America’s many problems, but believe in its ability to rebuild itself for the better: Packy’s Optimism, Coby’s Optimism, Katherine’s Optimism, Ezra’s Optimism, and many others…

I dream that someday the United States will become a global beacon of good architecture (and city planning). This may take decades, but it’s possible. I wonder, what if we could apply the same principle of compounding to turn the tide and accumulate better buildings instead? And if so, is there a way to accelerate that process?

Good examples matter 

We’ve seen successful precedents take over other industries. Apple almost single-handedly willed their design philosophy across the consumer technology industry. Tesla reshaped the car industry. IKEA reimagined the global furniture market. Organic grocers brought back quality produce en masse. This gives me hope that the same can be done with improving the built environment by setting better precedents.

Unlike other digital or physical products, the built environment is extremely local and static. People don’t need to travel far to personally experience a better website, a better phone, or a better car. But when it comes to real estate, it may not be enough to see a picture to internalize that a similar approach is feasible on local scale. Relying on examples from Japan or Denmark may be about as convincing in Dallas as referring to a Martian settlement.

Contemporary American vernacular architecture has little to show for it, no matter the product type or price point — whether you are looking at a new cookie-cutter subdivision or watching the new, vulgar $10 million listing on “Selling Sunset”. Many multifamily buildings seem to be designed in spreadsheets rather than in architectural software, a phenomenon that Kuba Snopek so succinctly dubbed “Excel-chitecture”.

Most common examples of good designs available to the American public come from pre-war and mid-century buildings. No wonder, people are often skeptical of new development, while architecture twitter memes call to “reject modernity, embrace tradition” (personally, I don’t care that much for either, any architectural or urban planning style can be done well or can be botched). The desire for traditional architecture indicates that people intuitively earn for good quality that they don’t often see in new construction. To compound better buildings, we’d need better local examples, and proof that it’s possible to achieve this aim within the same economic and regulatory constraints that other developers face. 

Earlier this year, Coby Lefkowitz started a crusade to promote case studies of quality developments across the United States on a daily basis. To date, he has documented hundreds of buildings in different regions of the United States, all across different product typologies (multifamily housing, officers retail etc.) and architectural styles.

In the long term, being exposed to more good projects educates customers. As people discover that better alternatives are available, it puts competitive pressure on other developers to up their game. 

For example, Ian Schrager and Steve Rubell launched Morgans Hotel in the 1980s as a rebellion against the safe, uniform “place-product-packaging” hospitality industry. They set a modern precedent for a “boutique hotel”. Since then, an avalanche of new bespoke hotel concepts have popped up around the U.S. and the world. 

Developers who create exceptional buildings despite all the external challenges are the unsung heroes of today. They demonstrate that beautiful, sustainable and equitable projects can perform well financially and act as a benchmark for others. They plant the seeds of a positive flywheel effect: the more examples of good buildings, the more educated the general public and customers, the more benchmarks for other developers, increasing the odds of improving quality over time. 

Accelerating the spread of good examples

Media and marketing play an important role in taste-making and accelerating the distribution of emerging styles. The successful expansion of the boutique hotel category was helped by the awareness created by Design Hotels, a hospitality media and booking platform which has been promoting design hotels since the ‘90s.

An even more extreme example is Dwell, a design publication that influenced the tastes of a generation of modern homebuyers. Dwell has recently released their first branded house (developed in collaboration with Abodu and designed by Norm Architects). It’s a powerful combination of a broad audience sharing common tastes, with an opportunity to get a turnkey product. It can help spread their designs far and wide.

This is not the first time a design publication has tried to actively set better precedents by developing homes. Arts & Architecture Magazine initiated one of the most famous and influential architectural programs in recent American history — Case Study Houses. The magazine commissioned some of the most prominent architects of their generation, including Richard Neutra, Charles and Ray Eames, and Eero Saarinen to create experimental residential designs. The objective was to create new models "capable of duplication and in no sense being an individual performance". The blueprints were published and open for replication by contractors and the general public.

Selling copies of good architecture

Today, a number of startups are taking the Arts & Architecture Magazine’s “Case Study Houses” approach and reimagining it in a digitally native way. For example, Den is selling complete drawing sets for small cabins and single-family homes for mere hundreds of dollars, and HighArc is looking to turn architectural designs into parametric user-friendly software.

Both of these approaches don’t inherently guarantee a better quality of design, but rather they illustrate a scalable mechanism through which good design can spread. In theory, selling copies of the same product may allow us to invest more up front in the quality of design and sustainability, as the cost of this investment will be spread across multiple projects instead of just one.

Architects becoming developers

Another potential way to improve the quality of the built environment is to encourage and make it easier for more architects to become developers (or act as a co-GP by providing some architectural services as equity contribution). In a traditional model, the developer, no matter their taste, calls all the shots and defines the product, leaving little room for an architect to maneuver.

In recent years, there’s been a slow but steady growth of development firms founded by architects: Alloy, DDG, OJT and many others. Personally, I find their developments to be well above average in both design and quality. I feel comfortable making the claim that the more architects would become developers, the better the overall built environment would become, even though this idea rests on anecdotal evidence and observations.

Introducing thematic equity

Finally and most importantly, economic incentives may radically accelerate the pace of new development of well-designed buildings.

Thematic equity is becoming increasingly common. BlackRock, one of the largest investment corporations in the world (with over $10 trillion in assets under management), has made environmental, social, and governance (ESG) investing their top priority for decades to come. Venture capital is seeing an influx of climate, real estate, diversity and inclusion thematic funds. As a more radical example, Airbnb has recently launched a $10 million “The OMG! Fund”, which plans to grant $100,000 to 100 hosts (DIY developers) with wild ideas for new rental properties.

We may treat good design as part of the “social” in ESG, or as a new direction altogether. Either way, we can imagine dedicated real estate funds with a specific architectural or urban planning thesis, setting criteria not just for the investment performance, but also architectural quality.

This equity already exists, but often investors don’t know where to find the right projects. I’ve met quite a few people who are looking to invest funds into real estate, but become demotivated by the aesthetics of projects they see on offer. These folks prefer their money to fund better environments, not just anything that gets them a return. Emerging matching projects (like Raise Up Network or Redist) may help financial backers (LPs) discover developers (GPs) who propose new projects that align with their tastes and preferences.

This may be a small niche, but it’s a powerful concept. After all, developers have two clients: the end-users of the building and the equity investors. It makes sense to offer both of their clients new and better alternatives.

In conclusion

We can build either a beautiful future or a mediocre one. Just like the U.S. has accumulated an underwhelming built environment over the years, we may be able to reverse that trend and compound the number of great buildings. The power of compounding is that even a small but consistent improvement can bring about exponential change.

We can increase its pace by popularizing case studies of great buildings in the media; by making copies of good architecture more affordable and broadly accessible; by supporting architects in becoming developers; getting more funds to back exceptional projects; and likely in some other ways I’ve yet to discover…

I hope that not so long from today, I’ll be driving across the U.S. again, smiling at the new beautiful buildings and amazing people who made them. 

Subscribe now

Share

Thanks to Alexey, Petr, Adrian, and Andrew for feedback on early drafts of this note.