Walter Resendes (00:00):
Hey everybody. This is Walter with Access Electric and I am here today with Gerard McCaughey from Entekra and they have a unique business where they have a… I’m going to let him tell you the business model but they built homes in a fraction of the amount of time that traditional house building can happen. And they allowed us to be in their factory to help them build their factory here in Modesto, California, and the process of watching that factory come to life and the things they do there totally surprised me on what can be done today in this day and age… What changes we can make in building homes and how much more efficient that can be. And so we asked Gerard to come over and to talk about his company, talk about what they’re doing and because we want you guys to know what’s happening right here in Modesto, California. So Jerry, glad you could join us today.
Gerard McCaughey (01:08):
Thank you, Walter.
Walter Resendes (01:09):
And maybe tell us a little bit about yourself and your company.
Gerard McCaughey (01:13):
Well, I’m Gerard McCaughey, I am the CEO and I’m one of the co-founders of Entekra, which is what we call an offsite company. The trademark name we have is a fully integrated off-site solution, FIOSS. But pretty much what we’re doing there is distinguishing ourselves from either stick framers or component manufacturers. We already, as opposed to in many ways, applying European offsite technology to the construction industry. So it’s something that’s… I suppose you’d say it’s relatively new in the U.S and in some cases people say it’s actually been around for a long time. I mean and I hear both of those things. I hear people saying “Oh, this is unusual. I’ve never seen it before.” And I have to point out to them that my Dad set up the first offsite business in Ireland, back in the early 1960s.
Gerard McCaughey (01:54):
So that’s how long it’s been going on for my family and throughout Europe. Then I hear all the people saying “Oh, I’ve seen this before.” And the reality is they haven’t. What they’re doing is comparing us with a component manufacturer, which is unfortunate from our perspective, because it’s a product that looks somewhat similar to what we do, but doesn’t deliver the same benefits. And then when it doesn’t have the same benefits, people think that the off-site solution doesn’t work, but there’s a clear distinction in the European market between what a component manufacturer is and what a true offsite company is. And we are true offsite manufacturing company. We’re actually more than that. We’re design engineering and manufacturing company. So we basically make them the ability… we like to say, as we bring building into the 21st century, we apply 21st century technology in the 21st century to the construction of homes as opposed to when we look at stick framing and I don’t mean this sparingly, but it’s just a simple fact. It’s really 18th century technology being applied in the 21st century to the most expensive product that U.S citizens ever going to hold.
Walter Resendes (03:08):
Just to clarify when you say component manufacturing that has maybe modular walls or…
Gerard McCaughey (03:14):
Yes, it generally refers to people who make walls in California it really refers to stud walls, because they’re not even sheeted or sheared. It’s just a stud nailed to a top and bottom plate and then they call that a wall panel. In our world that’s not a wall panel and certainly in Europe, it’s not a wall panel. It’s a stud wall that really has no structural integrity in its own right. It’s a pretty basic piece of kit for building a house whereas ours is fully integrated. We’re responsible for the floor, the roof, the walls. We’re incorporating with the HVAC guys we’re pre-cutting the holes in the floor joists for the HVAC… the Company were looking at the routes for the electrical and for the plumbing.
Gerard McCaughey (03:59):
And we’re making sure… Although we may not necessarily be drilling some of the holes, we’re making sure we get clear routes and we take the obstacles and the clashes out of the building. So typically what means is we can take an average two and a half thousand square foot house maybe taking anything currently from 15 to 20 days to get to a roof level. We’re actually… We’re able to get it through three and four. Now, when you take it out onto multifamily buildings then it gets dramatically different. So it’s not a matter of us taking up 15 days out of the equation. We can be taking two and three months off the construction cycle time. But on top of that there’s more than just the cycle time. There’s obviously the quality of the building.
Gerard McCaughey (04:38):
We’re using automation and as you’ve seen and you probably will see in the videos we were using automation, that’s capable of making walls… Sorry, I’ll put this in meters and I’ll bring it back to the feet and inches. Walls that are up to 12 meters long plus or minus one millimeter or two millimeters, which is 37 and a half feet, plus or minus a 16th of an inch. It’s simply not achievable on a building site. So you end up not alone with the house being built faster but with the house or the building being built to such high tolerance levels that you simply can’t be achieved on a building set. So you end up with a higher quality product and on top of that we reduced the amount of waste on the site. So it’s a much more sustainable product and we require less labor.
Gerard McCaughey (05:17):
And actually in this COVID 19 world, because we require such less labor on and we use a lot of clearage on the site it means we can keep our workers socially distant while they’re working, which means we improved the safety on the site as well. So it has… and I could go on and on and it reduces dust, it reduces the environment, it reduces noise impact. It goes on and on and on the type of advantages that the system has so that’s what we’re basically bringing construction into the 21st century.
Walter Resendes (05:45):
So if I’m a builder and I have a set of… I have five or six house models that I want to build and I come to you, what does that process look like if I come to you and I say, I want to build these homes and I want to use The FIOSS system. What does that process going to look like?
Gerard McCaughey (06:01):
Well, that’s what you start with. You come to us with your drawings. You’ve obviously got two options, you can go out to a framer to get them stick framed or you can come to us and say, “I’d like to use your system to build these homes.” and we will go through the process of pricing that job for the builder, if we’re successful and we’re awarded the contract then starts a 8 to 10 week process with us going through our design and engineering process. So where we were literally stripped that building right down to the last meal and then we will rebuild it. We will actually says we create a digital twin of the building. So we have it built before it’s ever built. We have a full 3D model computerized that we know every single kneel that’s in that building.
Gerard McCaughey (06:46):
We can tell you how many screws are in the building. We can tell you what volume of lumbers in the building. We can show you where the HVAC going to go in the building. We literally have the twin, it’s a digital twin, but nonetheless it is that exact building that’s going to get built on the building site. Doesn’t mean our analogy is a few hours on a computer screen is a hell of a lot less than a few hours on the building site in terms of cost. So we try to figure out the problems before it ever hits on the building site. So it’s a very very intensive, modern, digitized, digital world that we work in. And then once that’s been figured out and we will invariably come up with issues and problems that the architect and engineer have not seen and we have 50 engineers working in the company, that’s their job to get through these buildings.
Gerard McCaughey (07:35):
And we will invariably always come up with these problems that wouldn’t traditionally have been seen until they actually hit the building site and then we have to go back to the clients and his architect and engineer. “So what do you want to do about this?” We will make suggestions although it’s not really our job to do that because we are not trying to influence how they want the building to look. But we are going back to saying that particular way you are doing that is not going to work and here’s the reason why. Here’s particular options you can use to see how you want that rectified and then once that’s done, we will incorporate those changes into the drawing. And when it’s all signed off and everything’s finally done, then we produce a cam file, computer-aided manufacturing file for every single component that has every element, right down to a half inch wide piece of blocking.
Gerard McCaughey (08:21):
We have a part number for that. And all of that information is then sent to multiple different CNC controlled piece of automation in our factory. The element will get precision cut to literally in the millimeter and a part number applied to it. And then those pieces will be brought together and assembled in panel form, whether it’s floors or walls or roof for that particular building. So we have literally, when you see the trailers going out, all the elements for that house have all been accounted for and put on the trailer and have been assembled to the tightest levels of tolerances that you can imagine. And then we bring it to site and you can say on the site then we would typically take the period down on a relatively straightforward two and a half thousand square foot house from anything from around 20 days down to four days.
Walter Resendes (09:10):
Just being at the site yesterday, I appreciated watching some, shear walls getting, getting covered with OBS and they were getting nailed. And I turned to [Grant 00:09:21] who’s filming this right now. I turned to him and said “Look at that, the machine is holding that wall perfectly square while it’s being sheared now.” You’re not going to get that kind of quality.
Gerard McCaughey (09:31):
No, that machines applying 75 tons of pressure to keep that wall square. There’s nothing it physically can’t be done on the site. There’s no possible way but that’s as I’ve said to you earlier on. That’s like the analogy of… If you think about every single product that’s in this office or that you have in your home, are you using your business? Every single one of those elements was manufactured in a factory.
Gerard McCaughey (09:57):
And there’s a reason for it because we all know that we can just higher quality and higher productivity, safer environment and lower the costs and I suppose the best true analogy that we use for that is if I said to you “If you go out this afternoon to buy yourself a new car” and you walk into the dealer and you say “I want to buy a new Toyota or a new Mercedes or BMW or whatever it is” and the dealer says “Okay, that’s great. I’ll give you two options. Option one is I get every single piece for that car” Which can be done by the way because it’s a part. “Shipped to your front yard. I have five guys come out in the pickup truck with some welding gear and pneumatic tools and put it together or I can have it made in Toyota’s or BMW’s or Mercedes factory” Which are you going to take?
Walter Resendes (10:39):
Yeah, no question. Factory.
Gerard McCaughey (10:40):
You’re going to take it factory every time and then you asked the question why, you don’t even have to answer the question but the next question is this, if you’re going to take it out of the factory, why wouldn’t you have your home done same way? Because remember the United States is pretty much unique in the Western world in building wood-frame homes the way that it builds it. Because if you think about it, the only thing that’s changed…
Gerard McCaughey (11:03):
If I said to you that if you went out of here now and you transport yourself back 200 years and you want to get into your mode of transport. You’re going to go out there and get in the horse buggy to go somewhere. And if I say to you about construction, go transport yourself back about 200 years. What difference would you have seen? A hard hat and an Eagle. That’s how little a U.S residential construction has progressed in 200 years.
Gerard McCaughey (11:32):
Yet the iPhone is only 10 years old.Look at the flat screen TV that’s on the room in front of the people or the computer screen that people are watching now, that technology didn’t even exist 30 years ago and yet, somehow some way people think that stick framing in 2020 is the current most modern way and most advanced technological way to build a home. Now it’s not and it hasn’t been in most other developed nations in the world. To me as a European, it’s a crazy scenario that I even have to explain this. How do you think about everything else that we take for granted now today? And yet you’re still trying to convince people that using CNC controlled automation in the factory is not a better way to build a home.
Walter Resendes (12:20):
So what is the percentage in Europe? Or let’s say England, what’s the percentage of this kind of framing?
Gerard McCaughey (12:25):
Okay. So, good question. So wood framing as a method of construction is not the most common necessary in all countries, right? So if you take that, for example, in Ireland, wood framing accounts for about 40% of all new homes, in Scotland it accounts for about 83%, in Scandinavia it accounts for about 90%, in England it accounts for about 20%. So it varies from country to country. However, the one thing that’s common in all of those countries is it doesn’t matter whether or not it’s 20% in England or 40% of Ireland or 83% in Scotland or 90% in Sweden. 100% of those wood-frame homes will be built in a factory.
Gerard McCaughey (13:06):
I make this joke actually about a European goes to a builder in the United States to get his new home built and the builder says “I’ll stick frame that for you” and the European says to him “You can’t stick frame that where I’m from.” And the U.S builder says “Where’s that?” and the European says “The 21st century” It’s just, that’s how crazy it sounds to a European that you would basically say “No, I don’t want any technology applied to the house. I really don’t want any technology.” Why would I do that? Think about it. Because that’s what stick framing is saying. Stick framing is actually saying that all that CNC equipment, all that technology that we take for granted today does not apply to house framing. When you think about it. It’s bananas but yet that’s how U.S residential construction has evolved. So we’re here to try to change that.
Walter Resendes (14:09):
Why do you think that is? Why do you think the U.S has been stuck in stick framing and old technology for so long?
Gerard McCaughey (14:19):
There’s multiple different possibilities to answer that question. The one that I think is probably the most relevant is that in Europe, a lot of the forests got cut down during the industrial revolution. So there was a lack of the raw material, meaning lumber and then however… So Europeans then a lot… Lots of cases switched to using concrete and aggregates and stone to build buildings because they simply didn’t have the volume of raw material to build. So that became for a long time… That became the common way to build homes whereas in the United States, it’s only 250, 300 years old we’re coming up to the independence day now. When the first settlers came here, all they saw is virgin forest. It was just forest everywhere and so to that extent there’s a lot of raw material in the U.S. It’s above ground you’re not digging it out of the ground, which is a lot more expensive to do.
Gerard McCaughey (15:16):
So an industry grew up that basically as the West was worn and people went West every little town had a saw mill. Lumber was cut down because it was a forest close to them. It would have been families of framers built up and the industry… Very disparate industry built up. What happened in the… And they’re all small little family and institutions, so to speak. But what happened in Europe was wood framing really only started to come back into fashion after World War II. And what’s significant about that is it’s post-industrial revolution. So U.S Wood framing is actually pre-industrial revolution and European wood-frame construction is post-industrial revolution. So a lot of the wood framing that started to really take to get popular in Europe happened after World War II to rehouse the returning soldiers and to rebuild the homes that were destroyed during the bombing raids.
Gerard McCaughey (16:14):
So when Europe said “We need to build a lot of houses very quickly” I said “Okay, what is now the way to do it? It’s a friendly material to use and the forest has started to grow again. They were being managed and there was availability of lumber” but they just applied modern technology. Okay, everything else is built in the factory. We’re going to apply modern technology to the construction of those homes. So when the next wave, so you think it is the second wave of wood-frame structure started in Europe. It started post-World war II, post-industrial revolution and modern technology was applied to it. So there wasn’t a resistance to it.
Gerard McCaughey (16:45):
What you’ve had in the U.S is a pre-industrial revolution industry that built up that is highly resistant to change, does not want the change. They want things to remain the way they are because obviously it takes a lot of investment to try to build those factories. And so people want to try to keep it as local as they can. And I understand that, that’s not taking away. That’s a quite legitimate position for people to take. What’s not a legitimate position to take is to say that actually can build a home as efficiently, as quickly to as high a quality or a safe as using modern technology. That then is people’s choice but I think the argument is saying that you can do it better stick framing it is just ludicrous. And the factory is always going to be a better quality, higher productivity, and higher quality way to build.
Walter Resendes (17:37):
Yeah. So as a comparison, if I want to build a house and I’m going to stick frame it, how long does that usually take the stick frame a house? The traditional American way?
Gerard McCaughey (17:49):
We always base everything on around a two and a half thousand square foot house. So from the time you get your lumber drop and the guys come out on site. Really at the moment it’s taking… You get all the… See you also have to factor this in. When you ask a stick framer how long it takes to frame a house you’re never going to get true figure because they will always give you the best case scenario, right? The best case scenario, meaning is all of the lumber arrived on site at the time they were supposed to arrive, that there was no inclement weather conditions, and that all the men who were supposed to show up, showed up and nothing got forgotten about. So they’ll tell you “Oh, I can stick frame a house in 11, 12 days. And then you have to actually get them to say “Well, how long did it actually take you on average?”
Gerard McCaughey (18:36):
And then that figure goes up to 28 days because there’s always going to be the days when the guy doesn’t show up or somebody gets sick or a piece of lumber, the floor joist didn’t arrive. And so period of time… That’s again, the one of the benefits of offsite construction as we do it, is it’s very definitive. When our truck pulls up on the site on that day, that house is going up to the roof on that day. Because there’s everything that’s required for that house is on that truck. We don’t require or are we waiting on anybody else to supply pieces to it and the crane is going to do all the heavy lifting. So even if one guy doesn’t show up, it really doesn’t make any difference. The house is still going to go up.
Walter Resendes (19:12):
So you have a crew of four people to-
Gerard McCaughey (19:16):
Four to five people typically is what it takes.
Walter Resendes (19:17):
It takes four or five people and a crane?
Gerard McCaughey (19:19):
And a crane. And the house will be- [crosstalk 00:19:20].
Walter Resendes (19:19):
2,500 square foot house will go up [crosstalk 00:19:22].
Gerard McCaughey (19:22):
Will be at plate level on day one.
Walter Resendes (19:23):
On day one.
Gerard McCaughey (19:23):
On day one.
Walter Resendes (19:25):
But all the time it took place ahead of time in the planning and development stage.
Gerard McCaughey (19:29):
That’s correct. But that has no effect on the better… because here’s an interesting… Here’s also the thing that people don’t fully understand the benefits of offsite construction. So they’ll come along and somebody will say “Oh, I can get a stick frame for this” to say for sake of argument “for $40,000” and they’ll say “Well, Entekra’s price is $42,000.” And they’ll go “Well, you’re more expensive. You know, I’m going to go with the cheaper guy.” But what you have to figure in here is… So let’s assume it, even assume it’s $5,000 cheaper. Now you have to ask yourself and I’ll put this in context of a custom home owner, first of all. So let’s assume you’re a custom home builder…. You’re a custom home owner, it’s your home, you’re building your dream home.
Gerard McCaughey (20:17):
Now you go out, you’ve sold your existing home to get the money to buy the land and to have the construction money to down payment to get the house built. So you then still have to take out a construction loan. Construction loan is obviously paying a rate of interest as much higher than the mortgage when you get it converted over, when you convert your construction to your mortgage.
Gerard McCaughey (20:39):
So during the period of time that you’re waiting for your house to be stick framed now because when I said on a 2,500 square foot, that’s for a production whole home. On custom homes just assume that the home is… And I’ll give you an example. The house was built right beside my house in California. It took them three months to frame the house, we would have framed that particular house in probably five days. Took three months, that’s three months that homeowner was paying for rent on a building that their family was in plus three months of interest on the construction loan that they were paying during that period of time before they got to convert it.
Gerard McCaughey (21:20):
So when you add that into the equation, it probably, depending on the market you’re in, if you live in Southern California in the coastal regions, you could have been looking anywhere at up to three months between rent and construction loan. You could have been looking at 40 to $60,000 in difference. We were $5,000 more expensive yet we have a higher quality products, but in reality is we were much cheaper. Now you bring up to production home builders and let’s just take the Bay area. So if you take the Bay area…. What do you call the site?
Gerard McCaughey (21:55):
The cost of cycle time every day on site can amount between anything between a $1000 and $2,000 per day. So if we take 15 days off the cycle time, there’s $15,000 that goes straight to the builders bottom line. And what also, what people don’t figure out is remember your bank doesn’t go on vacation on Saturday and Sunday, right? It’s still paying you. It’s still charging you the rent… Sorry, the interest on the Saturday and Sunday.
Gerard McCaughey (22:25):
So if we start on the Monday and we finished on a Friday then you’re done, if a framer says he’s taken 15 days, he’s not taking 15 days you’ve got three weekends in there as well and you got to pay for that too. These are the realities, things… How people spin stories, never to tell them, never to tell the full facts about what’s going on. Time is money. That’s the one thing every single business person understands, time is money and the bank doesn’t stop on Saturday and Sunday. You’re still paying. So no matter how you do the calculation on hours, we’re still always going to make the builder more money by using our system.
Walter Resendes (23:03):
Gerard, transitioning a little bit. Let me ask you, why did you choose Modesto for your U.S Headquarters?
Gerard McCaughey (23:11):
Well, As it turned out when we looked… When we decided where we were going to put our first factory in the U.S we look all over, all 50 States and we did a lot of research. We spent probably two and a half years researching the market and it became clear to us that California was the optimum market to go after. Primarily because that’s where the labor situation was the toughest and where the onsite labor costs were the highest. And so we said “Okay, that’s where our system brings its maximum efficiency.” So once we identified California then the next thing became where in California. And as we all know, anybody who lives in California knows California is really two states. We have Northern California and Southern California, they don’t really like each other. And so it became then “Okay, where do we go? And if we’re going to divide this into North and South, where do we go?”
Gerard McCaughey (23:59):
So again, we looked at that and said “Okay, Northern California,” because I actually live in Southern California. Well, we decided that Northern California was the optimum place to start a factory because that’s where again the labor issue was the most critical. And so it’s somewhat simple enough that in reality so you say, “Okay, I need to put a factory in Southern California eventually but I need to put a factory in Northern California now, where do I put it?” Well, we also know from 30 years experience doing this, that really our distance from the factory that we can go with somewhere about 200 to 250 miles maximum radius. So when you look at Northern California, see if they take a line and say “Take a line from Fresno across and say, ‘there’s the top half of the states. We need to be able to hit all the major construction markets in Northern California within a 250 mile radius.’”
Gerard McCaughey (24:51):
It became very clear that Center Valley was the optimal place to go to. So then after that, it was okay, which location do we go to? We originally started with a small factory which was just a demo our product in the market and see what reaction we get in, in Ripon which is only 10 miles away from Modesto. And then when we raised it, then $45 million from Louisiana Pacific to build the big automated factory in that we now have. Where do we put that? And so it was a matter of then, we knew we had to be in this area. So where would we go to then? And obviously Modesto with its infrastructure and to be honest with the help of the city and with… To be honest with also with the G3, which is part of the Gallo Group, we got such help and encouragement to actually do it.
Gerard McCaughey (25:47):
We said “Okay, that’s where this is where we’re going to put it.” And I have to say, I’ll honestly say this, best decision we ever made. We’ve had, I’ve said this to anybody looking at this area. This is an incredible pro business friendly place to locate any business so we’re delighted with our choice.
Speaker 3 (26:06):
That’s great. That’s great to hear too because I see our country kind of moving anti-business. So it’s nice to know that at least this area help them.
Gerard McCaughey (26:15):
And they have been. I have to say now it has been pleasure and people here are helping and we have been very lucky with the people that we picked to build our factory, including yourselves, but the people who have helped us now have been… they’ve known what they were doing. They were very professional. They were very switched on. They kept… They did everything the way they said they were going to do it. It was a great, it has been a great experience, really has been. So we’re absolutely delighted with it.
Walter Resendes (26:44):
Fantastic. I really appreciate the frankness, the openness to discuss these things. I know you’ve talked about them a lot because this is your life but it’s maybe things that somebody that’s not in this industry would think about all the time.
Gerard McCaughey (27:02):
Walter Resendes (27:03):
And so it’s really an eye-opener. Factory’s beautiful. I thank you so much that you selected us. I know your options were open for… To select anybody you wanted and we appreciate the work you’ve given us and I hope you’re happy with that.
Gerard McCaughey (27:19):
No, as I say we do our due diligence too and who we bring in to do the work for us and so we’ve obviously done our due diligence on access and everything that we had heard was it was good and that has actually proven to be the truth. So we’re delighted. So no, thank you very much for it. At the end of the day this is so true. You have to work in an environment where the business people around you are helping you, it’s … the ideal expression says it takes the village, well it does in terms of business too, because all of us in business all rely on each other at some point in time along the way and it can be for the strangest reason.
Gerard McCaughey (27:54):
So it’s just great to know that there’s people around you and in this environment and this city that are actually so willing to get involved. I genuinely mean this, it’s at times I know because we have a lot of Irish guys working for us. People have said to us “What’s it like?” I said “Every one of our Irish guys would actually say they’ve been welcomed with open arms.” That has made a big difference because we had to bring a lot of people over from Ireland to train the people here. And our guys that are from Ireland have 20 plus years doing this and they’ve moved over here and some of them moved their families here. And just to get the reaction that they got, they’ve never at any time felt anything except welcomed.
Gerard McCaughey (28:38):
That’s an incredible thing in itself. It makes it so much easier. If I were bringing guys over and they were feeling uncomfortable or were feeling unwelcome, it would be a different story. These guys are welcomed into the community, both the regular community and the business community. And that’s a real endorsement of the type of atmosphere that there is in the business community here.
Walter Resendes (28:59):
That’s fantastic to hear. Fantastic, yeah. I’m so happy to hear that. So anyway, thank you so much for letting us participate in here, your endeavors here, and I wish you nothing but the best.
Gerard McCaughey (29:11):
Thank you very much.
Walter Resendes (29:12):
And I hope for exponential growth that I know that [crosstalk 00:29:18]
Gerard McCaughey (29:17):
We’re planning on it anyway.
Walter Resendes (29:19):
This catches on and more and more builders decide to- [inaudible 00:29:23]
Gerard McCaughey (29:22):
No, the last thing I’ll say with a minute, we started a factory in Ireland in 1919 out of a 5,000 square foot building with five people and in 15 years we were the largest offsite company in Europe and we had five factories and we had nearly 800 people employed and we were exporting as far away as Japan.
Gerard McCaughey (29:42):
So I see the opportunity here as being exponential to that. So I think there’s an exciting period of that here.
Walter Resendes (29:52):
Thank everybody for watching and hope you learned something today and appreciate Gerard coming over and talking to us today and telling us all about his factory and his plans and the FIOSS process and how that works and how that can benefit the productivity of home building here in the United States. Thank you for watching and until the next time.Have a good day.