AND - The Open Proforma

We need to address the housing challenge by focusing on increasing supply, and simultaneously we need to accelerate decarbonization. We won't solve housing by building less, and we will not solve climate by building more supply via the current legacy processes known as "business as usual." On their own, each of these challenges are "wicked problems" and we must deal with both simultaneously, which creates a compounding complexity multiplier.

The solutions lie in addressing cost and risk. As is clearly evident, construction cost has skyrocketed over the last three decades, while productivity has plateaued. Further, the design and development of built space is already inherently risky, and already stressed project teams are wary of trying new products and methods. As Brian Potter has stated eloquently in his excellent substack "Construction Physics: "The upside of any given project is usually a single-digit profit margin. But the downside is 'whatever your company is worth'." {1}

We can unlock greater velocity on housing affordability and decarbonization by reducing the innovation premium and identifying mitigations to risk. This project will seek to identify and index emerging solutions currently being implemented by smart practitioners, and explore the financial efficacy via proforma modeling. I am seeking folks doing interesting work who are up for sharing what they are working on and the insights they are seeing. Architects, developers, finance, and construction experts all have a piece of the puzzle.

The Open Proforma: What if transparency were more valuable than secrets?

Development costs broadly stem from 16 categorical sources, the table below is a meta-study-of-meta-studies that shows a range of development cost sources in relative percentages. Highest sources include hard cost, site acquisition, soft costs, and finance (finance meaning, in this case, the weighted average cost of capital or WACC).

The solution space this project will look at stems from design, construction/procurement, and impact finance. The plan is to identify a design move, a procurement strategy, or a novel impact investment instrument and test the relative efficacy via proforma modeling incorporating total development cost (TDC) and target value design (TVD). These models will not be correct, development proformas are highly specific to particular projects. (Remember that famous George Box quote? "All models are wrong, some are useful.") However, the intention is that they at least provide a directional signal which may be useful for our community.

Where this Lands & Call for Coffee Chats

In the short term, this will be published as a research project satisfying the requirements of my MBA capstone at the Presidio Graduate School. Longer term, I plan to publish findings in a series of posts on substack and organize a few round tables in New York (perhaps via AIANY, ULI, and/or BE-Ex). If you, or someone you know, may be interested in contributing, please let me know! The list of thought partners who have contributed so far include amazing folks from:

• Alloy Development

• Atelier Ten

• Gluck+

• Hines

• Juno (v1.0)

• L+M Development Partners

• Nabr

• Nightingale Housing

• Neutral

• NYSCHA

• Vornado Realty Trust

Thanks so much! - Josh

1. Brian Potter’s Construction Physics substack: https://www.construction-physics.com/p/why-its-hard-to-innovate-in-construction