Thursday, October 20, 2011

Ground Force

It was three years ago when I ran into Kenneth Neatherlin in New York at the Museum of Modern Art (MoMA). It was less than a month after Lehman Brothers had filed bankruptcy and the financial crisis was reaching a noisy crescendo. Like being in the eye of the hurricane, at the center of global finance, most of us were still unaware of the eventual fallout and great extent of the economic destruction that was to follow.

I was drawn to the calm island of MoMA (hidden within the chaotic island of Manhattan) by, among other things, “Home Delivery:Fabricating the Modern Dwelling”, an exhibit that ran in 2008. The exhibit included “eighty-four architectural projects spanning 180 years” and illustrated “how the prefabricated house has been… a critical agent in the discourse of sustainability, architectural invention, and new material and formal research.”

From MoMA to Navasota

Neatherlin founded a company called GroundFORCE Building Systems located in Navasota TX. If you were trying to boil down what his company does in a investment or sales pitch, like one you might make to a venture capital firm, it might go like this:

“GroundFORCE Building Systems manufactures, off-site, residential, commercial, medical and educational structures incorporating proprietary concrete foundation systems and patented structure delivery technology that produces high quality, flexible, permanent (and reusable) building structures delivered to, and completed on-site, in shorter time frames than site-built structures thereby reducing construction waste and cost-related risks.”

Neatherlin is one of the entrepreneurs carrying the century’s long torch of prefabricators profiled in the 2008 MoMA exhibit. It is a small specialized group who has persevered in a world dominated by site-built production and a group who, at the same time, have an aversion to the lack of perceived durability and quality of traditional mobile homes.

A quixotic quest? Maybe. But in 2011 GroundFORCE is rolling dozens of units off its Navasota factory production line; these are completed buildings and building modules on engineered concrete foundations. This is respectable activity given the sad state of the economy and housing industry. I visited the factory in September 2011. It was the first time I had been back to Navasota since the Lehman project Neatherlin and I were working on (located in Austin TX) had halted as a result of Lehman’s bankruptcy.

A Family History of Moving the Immovable

You could say that the concept for GroundFORCE was born about 10 year ago after Neatherlin sold his Texas site built homebuilding operation (to an affiliate of Lehman Brothers I believe). As Neatherlin tells it, while he was a conventional home builder, he was bothered by the inefficiencies of site-built techniques and technology. He wondered if there was a way to get production out of the weather, to cut cycle times and at the same deliver foundation systems superior to those site built homes offered.  The tweaking of the home building model had begun.

Many Texas markets have expansive clay soil that wreaks havoc on conventional foundations. He dug into how a builder could eliminate the movement and cracking of slabs and started down a very long R&D road that focused on coming up with a cast concrete slab and structure that could be transported, handled and delivered without using a crane or any other type of lifting equipment. GroundFORCE constructs homes or commercial buildings or building modules (in a factory) and delivers nearly complete structures, in their entirety, on concrete foundations.

But the real story of this particular technological convergence starts farther back in Neatherlin’s past.

Rising to the challenge of moving the immovable runs in the Neatherlin family. His grandfather moved the first concrete structure in Houston, Texas back in the late '40s (a store, the story goes, moved with the stock left on the shelves, undisturbed).  His dad perfected the hydraulics of the transportation system and moved countless large structures. His great uncle was in the business with his grandfather. Neatherlin and brother and grew up moving houses and structures with their dad and grandfather. As kids they crawled and tunneled underneath slabs and set jacks and raised foundations and loaded structures and trucked them across town or across the state.

Looking back Neatherlin says there was nothing glamorous about moving the unmovable in the Texas heat and dirt.  But growing up in the building moving business and research pursued over the last decade led to the idea of marrying the moving of structures with the building of structures. GroundFORCE now has a broad-based utility patent on just such an integrated building system.

Puzzling Physics

The GroundFORCE System enables them to handle, hold and transport a completed structure or module in compression. The system’s appearance and functionality is often quite puzzling to the public.

Concrete is strongest when in compression. It cannot be attached to or rest on a surface because it will stress, twist and crack. The GroundFORCE transportation system consists of a compressive strut that grabs the unit at each end tightly and suspends it over the road. There is no trailer underneath the slab.  There is a front end with wheels and back end with wheels. These are parts of what we think of as the normal trailer one sees traveling down the highway. The middle of the trailer is missing, however. Hydraulic cabling pulls together the front and back. The building unit itself makes up the middle of the truck’s “trailer”, like magic.

As the unit is transported down the highway and inevitably bounces the system creates greater compression with the computer-driven hydraulics that offset the transport stresses that maintains equal pressure into the floor of the slab.

The GroundFORCE patented carrier keeps the structural load in compression without the customary stress and also allows delivery without loading the structure on top of a trailer or needing a crane system. As a building or module moves down the highway at 60 miles an hour (or faster), bouncing does not cause cracks or fractures in the structure. In most cases the buildings arrive without a single stress crack in the drywall or the sheet-rock of the building.

Equally important to the GroundFORCE system is the way GroundFORCE creates slabs.

The company casts and pours the concrete and has tweaked the composition and slab designs to create a lightweight type aggregate with twice the pressure PSI that most concrete has.

The average thickness of the floor is around three and a half to four inches at it thinnest point. The GroundFORCE slab incorporates cabling, steel, fibers and aggregate mixtures that translate into the strength that allows buildings to be constructed, handled and delivered on foundations that do not crack. The foundation technology is more closely related to a concrete parking garage deck (in compression) than it is to the flimsier site-built home foundation. It is similar to an engineered concrete section of a bridge overpass.

The smallest building footprint GroundFORCE produces is 12’x20’ and the largest as big as a 15’x60’. The sizes of a section max out as the weights and widths of transport are managed. Larger buildings are made by joining and tying together multiple sections to create commercial and institutional structures of up to 15,000 square feet.

Each module is placed on drilled piers, one at each corner. The delivery truck simply drives over building site and lowers the module in place. The drilled piers eliminate movement in the foundation.

Production  occurs in the 250,000 square foot factory GroundFORCE occupies in Navasota. The company repurposed a shuttered mobile home plant, using, modifying and improving on an existing production line.  The specially trained GroundFORCE production team is integral to the implementation of a Japanese-inspired continuous improvement process and just-in-time production strategies. Through this production model GroundFORCE continues to develop and enhance valuable “tribal knowledge” of its processes and system.

Amazing New Apps

Neatherlin believes the system has potential to revolutionize the building industry.  First and foremost he maintains that the building system is true ‘flex’ space.  His buildings look site-built but the design and engineering of the structure or module means that they can be moved again easily, if needed. Modular design allows the building to be added to or subtracted from or, as in the case of a hybrid structures, combined with site built structure(s). There is residual value to the flexible structures and modules.

Because the foundation system resembles a bridge the structures are natural for coastal and wetland installations where flooding is an issue. Ground Force’s finished products are engineered to be positioned on elevated stilts well above the flood line.

Earthquake prone California is also a potential market for the system. Units placed on engineered drilled piers can incorporate seismic shock absorbing caps that neutralize the effects of the West Coast’s destructive ground movement.

Neatherlin is sure that architects, engineers and designers, once familiar with the system, will create new construction applications that he and his team have not even thought of.

Signed, Sealed and Delivered

Neatherlin does not believe there are any competitors that can do exactly what GroundFORCE does.  It is the company’s holistic approach of handling and delivering structures that distinguishes the firm.

Many sites cannot be accessed by a crane or it is too expensive to deploy a crane to set a 1,500 square foot house that is located in the middle of nowhere.

With these advantages and numerous construction applications Neatherlin hopes to take his unique family of building and transportation technologies on the road.

GroundFORCE plans to market its technology and processes to modular manufacturers in other parts of the country. Ground Force’s experience at repurposing an idled mobile home plant may also be useful in revitalizing unused industrial capacity located across the US.

The company has perfected the equipment, perfected every system in the factory to be able to handle and deliver the extremely flexible structural applications.

Where To From Here?

Memorialized in the MoMA Home Delivery exhibit was the story of architects, inventors and entrepreneurs that do not let the gloom of the present get the best of them but instead, in the darkest times, derive solutions to problems that may eventually dispel the malaise.

It has been over three years since the economic and financial meltdown has crushed housing markets. We have had plenty of time to look back across the devastation wrought, particularly to the damage done by the housing and finance industries to themselves.  A moribund housing sector is generating new home sales at an annual rate of roughly 300,000 per year, down from the 2006 peak of one million homes.  Nothing seems to indicate that housing market conditions will improve soon.

Three years after the meltdown Neatherlin pushes ahead with his decade long adventure, ever the optimistic entrepreneur taking on a challenge that few see and even fewer could solve.

How big is his technology?  How disruptive? What will be the impact on conventional construction methods?

It remains to be seen.

But what can be seen is that despite the harsh and hostile economic environments in which we operate there are those that keep grinding away, producing one new type of house, one flexible commercial structure, one technological  breakthrough, one software application at a time in an attempt to get industries back to working again and to work even smarter this time.

The housing and housing finance industries are a long way from finding new formulas to revive themselves. Eventually they will be restored, slowly and steadily gaining ground.

Tuesday, October 18, 2011

A Jerry Maguire Moment

Pimco bond gurus (El-Erian and Gross) have a lot of good ideas about the direction of US economic policy might take as outlined in five points in the New York Times’ Caucus blog:

“The first is housing, staggered by fallen prices, foreclosures and “underwater” mortgages that exceed the value of the homes they financed.

One critical step, Mr. El-Erian said, is for government to ease refinancing rules for homeowners who remain current on their payments but do not meet borrowing criteria. (Mr. Gross observed that these lower-interest-rate refinancings would cost Pimco money on its mortgage investments.)

The second is the labor market, which has steered too many workers toward the housing, retail and leisure sectors, which will not fully recover anytime soon. To create new and better jobs, the government needs a renewed focus on improving math, science and engineering education, as well as job retraining programs to make workers more competitive.

While waiting for education investments to pay off, however, Mr. Gross says the government should finance immediate job creation to shore up the third structural weakness: America’s fraying infrastructure. Updating roads, bridges and airports would provide an engine for reducing unemployment faster.

“You’ve got to create a demand for labor,” Mr. Gross said. “The private sector is not going to do it.” Even if the government must do it directly, he said, “Putting a shovel in the hands of somebody can be productive.”

The fourth weakness lies in lending. Banks, still smarting from the loan losses that resulted from the financial crisis, want to lend to big companies that don’t need money, but not to small businesses that do.

“Credit pipes are clogged,” Mr. El-Erian said. One way to unclog them is a program of public-private partnerships, like the Infrastructure Bank that the Obama administration has proposed.

On the fifth problem, the government’s questionable long-term solvency, the Pimco executives say Republicans and Democrats are both right. Spending on Medicare, Medicaidand Social Security entitlements must be curbed, and taxes must go up — on the affluent and perhaps the middle class, too.

Given the scale of the problem, Mr. Gross says the tax increases proposed in the “grand bargain” that Mr. Obama and Speaker John A. Boehner sought earlier this summer were too small. Instead of $1 in tax hikes for every $3 in spending cuts, he wondered, “How about one-to-one?””

Like a Jerry Maguire I came up with a list of ideas (on the same topics):

The underlying assumption is that the US 'base' has been hit harder by the Super Recession than anyone would like to admit. The US consumer base must be helped by a mix of measures and steps. These steps are the key to the economic recovery.

Big banks received a multi-trillion dollar flood of (necessary) capital to save the financial system; Main Street has yet to see tangible benefits from the flood of capital into the system.

1. US Infrastructure
Strategically important infrastructure is, among other things, food, housing, health, education, energy, transportation and communication systems that supports the healing and long term health of the damaged US household (addressing the hierarchy of needs).

The best way to reverse the decline is to start the bottom of the pyramid, preferably at the household level. Get the US consumer back on his/her feet. The household, the consumer IS the US demand driver.

The mantra is 'nurture the household, nurture the nation'. This is where successful corporate and government strategies should be the same.

Big, hasty and haphazard top-down macro investments, like a flood, are much of the time wasteful and often times become corrupted with corporate cronyism. Like floodwaters the investment runs off quickly and money goes to waste. Big banks got a multi-trillion dollar infusion. Main street has yet to receive a corresponding dividend.

'Trickle down' does not trickle unless there is ground-up demand. Methodical steps must be taken first to water the grass and re-grow the base.

As Pimco suggested above, perhaps rewriting home mortgages on a massive scale that passes along lower interest rates to the US consumer (requiring loan writedowns by big banks mentioned in item 3 below) could encourage consumer cash to flow into the economy and allow the base to begin to contribute to a recovery.

2. Government Solvency
Government spending and administration requires more discipline and feasibility analysis. What spending provides a measurable marginal return? What spending adds both quantitative and qualitative (and sometimes intangible) value? The current moment of political stalemate and partisan paralysis provides an opportunity to reflect on how effectively and how much money is being spent by the government. US spending requires financial discipline. Spending or 'investment' needs to be thoughtful, methodical, transparent and accountable not politicized, hasty, wasteful, reactive or haphazard. That is, it needs to be smart.

3. Bank Lending
Bond vigilantes may or may not want to hear this (depending on their book) but we need to cleanse the banking system of consumer and commercial bad debt once and for all. The hit must be taken and resulting (even large) bank and institutional failures dealt with. When the markets clear they will recover balance and, at a reduced and more manageable basis, be positioned for long term, organic growth.

Without catharsis markets will continue to founder on the fear of bad (euro-like) debt that lies hidden on balance sheets (in markets that continue to be driven by uncertainty, a lack of transparency and incomplete information).

Darkness and uncertainty may be profit centers for high frequency traders but are not desirable for a US system that needs to be righted.

Going forward we need to make a clear distinction between safe, consumer-centric banks and excessively speculative institutions. Then informed consumers can choose where to put their money.

The Consumer Financial Protection Bureau’s efforts and FDIC’s ‘Living Will’ mechanism (if public) will provide necessary, digestible transparency about the practices, balance sheet and riskiness of our financial institutions.

4. Labor Market
We need to line up the labor market and educational infrastructure to jointly and directly address near and long term strategically important demand-side sectors (more than just the much needed repairs to roads and bridges). Education must be informed by labor market data and is about training the workforce to get and to stay ahead of the ever increasing rate of change in the labor market. We long ago left the 20th century Henry Ford economy for a Steve Jobs economic model (we have yet to fully comprehend) in the 21st.

‘Near and long term demand sectors’ might be, for example, the development of ‘smarter’ food, housing, health, education, energy, transportation and communication systems. The tech sector already has incredible and unstoppable momentum towards such disruptive efficiency and systemic change. Disruptive change continues to seep into public sector's systems.

It will take a national strategy, extensive project analyses and extreme patience to tame, turn and reverse the job destruction trends technology and efficiency bring and that we are so fearful of. Success requires iconoclastic thinking. Success requires a 10-50 year plan.

5. Housing
Last, housing values must adjust to long term, sustainable income levels (that will result in greater affordability as assets and loans get written down to under-writable levels). Post catharsis, let housing establish policy-neutral market equilibrium. Don’t prop up the housing (or any) industry artificially.

Encourage and support demand-driven innovation in housing. Housing follows and supports employment, demography and evolving communities.

For example:

Housing that meets the requirements of a more ‘mobile America’.
Housing that meets the requirements of an aging boomer America.
Housing that meets the requirements of a connected America.

Abandoning (soviet-style) supply-driven, credit-fueled, bubble-dependent and exploitative housing (and other) industrial growth models for grassroots, consumer-friendly, thrift-promoting household initiatives is disruptive to the system at first but will create more stable, sustainable, and organic consumer-led growth in the long run.