Compounding Great Buildings
A Really Good Buildings' manifesto of sorts
About a year ago, I took a 15’ Budget truck from Los Angeles to New York City. The old thing could barely go over 60 mph, so I had plenty of time to look around. I felt in awe of nature's beauty…
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.
Thanks to Alexey, Petr, Adrian, and Andrew for feedback on early drafts of this note.
As a developer, if projects can better the built environment while also creating great returns I'm all for it. But ultimately my investors care more if the project feasible or not + how much returns can we squeeze out. Not how beautiful the building will be. As long as we can lease-up, the importance of design is pushed back.
I feel that many architects once they actually become developers come to the realization that designing for profitability metrics ultimately becomes more important. Or else their beautiful design will just be another rejected design.