Ep 119 - The new Paradigm for Unlocking Productivity

Adam Jones (00:56):

Thanks so much for coming on the podcast for the second time. Lisa was, I think we spoke a few years ago pre covid about the evolution of mass timber. So I think we sort of going in that direction still. So how have you been over the last few years and just as a reminder and a refresher for the audience, can you just start by telling us a little bit about yourself and your role within Lendlease?

Lisa Podesto (01:21):

Yeah, absolutely. So I am a mass timber specialist for our US construction and development businesses here at Lendlease. We are very interested I think in innovation in general, but mass, our interest in mass timber specifically is kind of rooted in our sustainability goals. We are our tar, we're targeting 2025 net zero on scopes one and two and absolute zero without the purchase of offsets by 2040, which is aggressive and in some ways I think we don't exactly know how we're going to get there, but we know that with structure and envelope being a huge, huge embodied carbon contributor, that scope three emission goal is going to have to engage in more mass timber structure really in order to reach those goals.

Adam Jones (02:29):

So that's absolutely wild is that, I think that's definitely industry leading, absolute zero by 2040, no offsets somehow zero. So you know, got mass timber as an option, but other material categories I guess have to lift their game as well. Is that right or mean? You said it's sort of waiting for a few things to move in that direction.

Lisa Podesto (02:52):

Well, it's interesting that you said that because I think part of, I won't say gamesmanship behind reaching targets, but part of actually being able to reach the targets is establishing what you are going to be measuring and what you're going to be reporting. And actually it looks like the way Lend Lease is at least going to attempt to do this in the near future is to really track what we're doing with cement aluminum, glass, and steel, which is interesting because timber's not necessarily on that list, but by displacing some of those materials that we are measuring with a material that we know has better carbon performance. But that doesn't mean that we don't still have to really push the industries in those four categories to get to zero because that's really what it's going to take. I think in general you can't make the whole world out of wood as much as I would like. And even then there's embodied carbon in the process of making wood. So how do you get to absolute zero without the purchase of offsets, right?

Adam Jones (04:12):

Yeah, a hundred percent. So one of the good things about timber is I feel like people in this space, it's almost implicit you don't have to try and talk about sustainability because we know that more exciting is driving down the cost of sustainability through what mass timber can provide. So I'd like for you to tell us a little bit about whole building component componentization struggle with words sometimes what this is and what the evolutions are in this space and what it means for the industry.

Lisa Podesto (04:44):

So I think I've kind of come to this slowly, but I think that whole building componentization is really the space that Mass Timber allows us. Well it does two things. Number one, it's enabling us to get cost efficiencies out of mass timber, but number two, it's also addressing the underlying issue with rising construction costs in general, which is just really low productivity. Every project is a masterpiece in and of itself and there's very little repetition both in process and in product. So I think there's these benefits that we see in mass timber that we can't actualize because we're not willing to streamline processes and create repetitious product number one. So we kind of have to do that in order to get more efficiencies out of mass timber, but also mass timber enables the ability to do that easier than maybe some other materials. So it's not something I think we can do.

(06:14):

It's not really, it's more of a stair step. In some ways it weren't not going to lead the other, they kind of both have to work in unison. But my thoughts on whole building componentization are really that a lot of people pay a lot of homage to the fact that mass timber has a lot of schedule benefits and that is going to be what offsets this material premium. And I do have some thoughts about, I don't believe that the material premiums are specifically in the timber and we can talk about that. But specifically on the schedule front, structured a structure to structure, there are projects where there is almost zero advantage from a concept perspective for mass timber and in other cases you might have a structural schedule advantage, but it's only for a couple of floors. So in order to get the rest of order to further compress the schedule, you need to follow the critical path. What is the after structure, what is the next critical path element and how can you expedite that on the back of mass timber. Mass timber being very, having really tight tolerances lends itself to the ability to do other prefab offsite and have it come on site and marry really well with that system. So anyway, I think the idea of whole building componentization in my mind is really addressing critical path throughout the entirety of the project and leveraging the whole series of benefits that you get with mass timber in order to achieve that.

Adam Jones (08:11):

Yeah, that's awesome. I love that so much because when we talk about a theoretical 80% faster, 50% faster, if you just hit a in situ core, you're just waiting for that anyway. So how do you think about, say alleviating bottlenecks within the whole construction program outside the mass timber, what are some of the things that sort of need to be massaged to get the whole productivity of the whole building going as fast as possible?

Lisa Podesto (08:41):

Yeah, so I think after structure, right, the first thing becomes the facade and using prefabricated facade systems that don't require scaffolding, that really can enclose the building very quickly. Why? Because then you can bring your sheet rock and your mechanical subtrades in super early. So I think facades is the first one. The interesting thing is that since mass timber kind of has hit the market, I'd say over the last five, seven years or so, there's been a ton of prefabricated facade products kind of available in the market at different levels. It's not just window wall and curtain wall, there's kind of this broader spectrum of facade products that you can couple with these mass timber structures. I mean obviously they can be used for any structure, but the market that they have in mind when they're creating these is to be coupled with a mass timber structure.

(09:47):

After that, I would say the space where we still need market development and product development is kind of in the MEP space. And I think where we've seen the most, I could say the most synergy, and again it's not, is with either wet walls or basically companies that are doing bathroom pods and can do other areas of customization, can do wet walls or mechanical rooms or things like that. But we also need kind of distribution prefab in some way, shape or form. And a lot of that I think is rethinking how we're distributing our MEP through the building and if there's a way to minimize first and if there's systems that again have synergy with sustainability objectives and energy efficiency and then also lend themselves to less onsite installation or onsite construction. So I think this is a space where we've seen lots of things being tried and there's some benefits to a few different product types, but I, we've seen things work and I think we'll continue to see that market develop and it couples really well with mass timber. So after that I think there's some spaces that I know need to be addressed that I haven't seen a whole lot of proliferation and that would be with vertical circulation. In order to top out a building, you have to have all of your egress fully installed and ready to go you to have your elevators in, which tend to be sometimes some of the last things on the project. So I know that there's work going on trying to modularize and simplify the onsite construction of those elements.

(12:08):

But that I would say is one step further out.

Adam Jones (12:13):

That's so cool. So we're over here in Australia, we see some of the things happening over in the US and there's some big plays and venture capital going towards katara and we see Sidewalk Labs doing crazy stuff and Intelligent City. What are some of the lessons learned, some of the reasons things haven't gone as predicted and the things we can take things forward because I guess it's one of those things there's always, there's all these big problems in construction. It seems like vertical integration is the key, but for some reasons things don't go as planned. So can you tell us a little bit about that?

Lisa Podesto (12:51):

Yeah, so it's interesting because whole building componentization necessarily a new concept. It's a mouthful of stuff to say, but it it's, we see companies out there understanding the value of coupling multiple components in a single product delivery scheme. So we're talking about Katara and Sidewalk Labs, they feel like examples of how whole building Componentization is maybe not meant to succeed. And I would say that really what those companies tried to do was to vertically integrate to your point and to do design, manufacture, installation, the whole kit and caboodle. I think in order to have that, you also need a really strong pipeline, which I think both Katara and Sidewalk Labs were maybe lacking and perhaps there's other reasons that their business models that participated in that business model not working out. But I think what we're seeing now is the people coming into the market, folks like Intelligent City for instance, they are vertically integrated for a certain set of scopes.

(14:19):

So they are fabricating mass timber products and not necessarily manufacturing the components themselves. They're doing the fabrication, the design of fabrication, they are fabricating the exterior wall systems as well. So as a project you can go have some design services and then get a certain range of products. I'm not sure, I don't know a lot about their delivery model and I'm sure it changes. This is the other thing, all of these companies are constantly shifting their business model, which makes it hard to track how can as a GC or an owner or whatever can plug in to using these services. But then there's I think another model which is really asset light that I've seen companies like you know, which is a Bay Area company that are doing a lot of streamlining the design approach and making sure that the products being utilized and the design are highly repetitive and they can easily translate those to fabrication models. So that basically what you're doing is you're truncating the design cycling, which is huge and I think is a space where mass timber in particular can be an accelerator for change, but that business model really relies on having the bidding opportunity that stretches in the right range. And if there's not a bunch of people operating with that business model, it becomes hard to compete in a normal sense because you have a suite of services that nobody else is offering identically, you know what I mean? So anyway, for whatever that's worth. Yeah,

Adam Jones (16:32):

Well it's the first, the front runners, they got the arrows in their backs or whatever and then the pipeline you're saying is key to all this. So it's hard the pipeline maybe demand is building as we go forward. And in Australia for example, we had schools infrastructure, new South Wales who did a kit of parts requirement over 10 years for all their schools. So it's gives that pipeline certainty and a really good leadership from the public sector. But it seems like something like that certainty around some sort of pipeline means people can make these huge leaps because if they make the leap and the pipeline's not there, then you got the empty factory essentially and the costs that come with that.

Lisa Podesto (17:15):

Yeah, absolutely. And so I think some of these companies that are taking on a certain segment of the market of the, they're not taking the full vertical integration, they're taking a certain piece of it and are able to be really asset light allows them to be more flexible and respond to the opportunities that come their way that and it doesn't necessitate the same level of pipeline. Does that make sense? Because they're able to flex not the manufacturer, they have relationships with the manufacturers and obviously they would need some sort of versatility in their, they need more than one manufacturer that can make a certain product subset, but that enabling that flexibility takes them away from the necessity for that same type of pipeline.

Adam Jones (18:19):

I love how, I've never heard that the way you describe it sort of vertically integrated with this specific scope, which is such a really cool way to do it. Does that mean architects at the very front end or it's on designers to work out what these scopes are from the supply chain, whether it's a fully vertically integrated or just a manufacturer and then bring that up upfront. So what are your thoughts on that, bringing that information to the very front of a project?

Lisa Podesto (18:49):

Well I think this right now is the part I think that's tripping up the most amount of progress in construction productivity because there's so many different ways you can dice up the project procurement and not just not, and I say procurement, I mean consultant services and things like that too. And because there's so many different ways you could model the way the project delivery, it kind of stymies, you have to have, basically what you've done is the construction industry is so complex. The way we've operated for years is like, look, we know how to do this. Everybody does it the same way. We design it, we bid it, we build it. And that even though everybody knows that that system is broken, there's like players that do this portion, there's players that do this portion and there's players that do this and everybody, there's just the amount of communication that has to happen between each of those silos is actually very little with regards to process because there's a well understood way that it works.

(20:07):

Now when we're trying to mix design and build or even public private partnerships where you've got development and design build, but you're trying to integrate certain pieces, there's a lot more communication that has to take place in order to scope the project right before you've even started it. And all of these different business models just make for a messy make for all of it being really messy. And I'd say mass timber's right in the middle of it. Why? Because everybody sees all of these opportunities with mass timber to change both the process and the product. And so we're tweaking dials on both sides and it's part of why you don't see mass adoption. In my mind it's not so much, yes, there's cost challenges, but it's adding more complexity to a system that's already very complex and you are not going to see a lot of synergy building that quickly with all the different things that are being tried. You know what I'm saying?

Adam Jones (21:35):

Yeah, yeah, a hundred percent. So you know mentioned before the material costs being not all in the math timber, but I'm interested in one hand here, what are the other things where it's just material you're going to actually have a higher price, but following on from that are the cost curves, where are we now and are the cost curves improving at a rate and say if we did design in this sort of way and philosophies we're talking about now, do you see the cost curves improving to a point where it's unequivocally cheaper than the traditional way of doing things?

Lisa Podesto (22:11):

That's a good question. I'm going to try to talk around it if I can, in terms of where do I see it going. But so first of all, structure to structure in most markets actually vertical structure to vertical structure in most markets, if you're not competing with light frame construction, timber is actually more cost efficient and by a margin where we end up adding a lot of cost, at least in the project that I've seen is when we couple it with the lateral system. So part of that is if we're using traditional lateral systems for instance, is it the reduced scope that is driving prices up or in order to mobilize for a concrete or steel company, there's a certain amount of cost. Now those are being averaged over smaller footprint of actual material that they're installing. I don't see it really being an integrated piece.

(23:21):

It's not cause they're working on a timber project. I think there's also not specifically with steel, there's not, there's big steel companies that'll do full steel buildings and then there's like miscellaneous metals and the projects where we're trying to use steel as a lateral system tend to be kind of in between what those kind of companies want to do. There's also the complexity of managing trade and labor contracts and how are you having a mixed crew. And I think the market is working itself out from that perspective. But the lateral systems tend to be when you combine the vertical timber system with the lateral system, that's when it be, it's harder to compete with the full concrete or the full steel building where we recoup those costs number. The number one place is in foundations. So I always tell people, I'm like, if making this a lighter building doesn't help eliminate the deep foundation situation, you are going to have a really hard time making it less expensive than the steel or the concrete building.

(24:42):

You have to be able to capitalize on that. And so this is where when we talk about composite floor systems or using concrete toppings, you're not really reducing the weight of that structure and some of those situations enough to perhaps get the full foundation benefit. And in some cases it doesn't matter. You could make it a lot lighter and you have to have a crazy foundation for some other reason because of soil conditions or the lateral system or whatever. So that's your number one lever. There's a lot of things that are adding cost to a timber structure from a traditional perspective. So we talked about the lateral system, but there's also the fire resistance. If you're in a structure that requires a lot more sheet rock, while you could say, oh yeah, we're going to eliminate all the sheet rock in a fully exposed building, you're going to pay more for the material package and perhaps it's still cost competitive with the structured structure.

(25:50):

But when you're getting up to the heights where you need to in encapsulate that timber, that ends up being a significant cost addition to the overall project, you pay a little more for the acoustic assembly, you pay a little more for building envelope depending on where the timber's interfacing with building envelope at the roof, the things, the levers that you're pulling in order to get cost efficiency are obviously material efficiency. But I don't lean really hard on that. It's foundations, it's like being able to leverage the schedule advantage that won't schedule alone, will not make it pencil. It will help, but it won't do the trick at least on any project that I've seen. And then obviously taking, are you getting some financial advantage on the carbon side? And I think that's the space where a lot of mass timber people are still holding their breath and waiting for the ability to see that play out in the finance, the financial part of comparing these projects or comparing these structural systems.

Adam Jones (27:15):

Yeah. So when they'll be like net zero when offsets the trend toward buying offsets, increases in the cost of those offsets increase as well, then that becomes more and more of a thing. Is that sort of what you're saying?

Lisa Podesto (27:30):

Yeah, and I would say that people talk about, oh well when the price of mass timber comes down, and this is like I get frustrated with that conversation because I personally don't think that the mass, all the projects I'll get, it's not the mass timber that's killing the project. It's not being able to leverage these other advantages and paying a premium in these other project scopes, which are code driven or yes, impacted by the fact that the structure is timber, but it's not the timber itself. But I do think that the timber industry, the mass timber industry in particular can probably get to higher efficiencies if they're able to manage their own pipeline of work so that some of it is very standardized and providing more of a throughput, something that they can produce in between jobs to keep the factory running and making money without requiring this mass customization project specific design. So I think that some of these outfits that are focused on repetitive design solutions that are utilizing mass timber as their structural chassis have the potential to participate in the manufacturer's ability to provide better throughput and then reducing their overhead and allowing for more consistent and efficient pricing.

Adam Jones (29:13):

Yeah, awesome. Love that. Getting towards the end of the podcast now, can you tell us a bit of an overview of just the evolving market in us in general? So are there major hurdles right now? Are things just going boom, how? How's it over there?

Lisa Podesto (29:28):

Oh, it's not a good time to ask that question. That's fine. Are I think anticipating major slowdowns, so we have a lot of our Silicon Valley clientele have put a lot of projects on pause. I think reassessing the market in general post covid, but also some of the market volatility issues are also kind of scaring people off. And then I think the price of money is also quite high right now, so investment is harder for projects to get and therefore projects are fewer and further between. I think that's the sentiment at this point. That's kind of where we feel like the market is going now. I mean there's lots of people theorizing much smarter than me and I have, I'm not a market person, but that the dip will be small and short. And so there's a lot of effort to use this time for project piloting. Some of these, I mean the beauty of downturns for innovation is that this is the time where you maybe don't have a lot of dollars, but you have the time. So how can you leverage what you do have to get ahead for the next market cycle, upward market cycle when you don't have the time to think really hard about how you might do this better? Yeah,

Adam Jones (31:15):

Yeah. When you're busy it's just like whatever works, you just keep it going and then it just goes. Yes. That's awesome. Well, thanks so much, Lisa. Can you tell us just about the F, what do you see as the future going forward? Any sort of blue sky thinking about where everything's heading?

Lisa Podesto (31:37):

I really think whole building componentization is offers probably the most promise for mass timber execution at scale. And I think that the prefabricated and offsite construction market has realized that this is a great structural chassis, and as they start pumping out solutions to address these critical path elements, we are going to find that it is an easy stair step into low carbon structures. So I'm really excited, I'm actually excited about this construction lull because I feel like we're going to get our feet under us and ready to run in the next up cycle

Adam Jones (32:37):

A hundred percent. If people want to find out more about yourself, Lisa, or anything, what we're talking about, anything where people should go who are listening right now.

Lisa Podesto (32:49):

The Lendlease obviously has a lot of information on the projects that we've delivered on our website, but reach out to me. There's a lot of smaller organizations I think contributing to this kind of innovative mind space and I am happy to connect you with some of these organizations. Yeah,

Adam Jones (33:13):

Thank you so much, Lisa. That was awesome. We'll leave it there. Thank you.