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Startup of the Month: Factory OS

You might not associate remote work with construction. But Mare
Island-based Factory OS is
redesigning the business model by building multifamily homes
off-site, then shipping them to the designated location.

“There was a lot of skepticism, a lack of general confidence from
the buying public that this could happen,” says Rick Holliday,
CEO and cofounder, who spent 40 years creating affordable housing
and market-rate apartments in Northern California.

Previously, lenders have been reluctant to make loans to modular
construction companies because the modular process involves
funding more heavily upfront, he says, but he sees the landscape
shifting. The ongoing labor shortage and rising costs have put
the whole industry in a chokehold. 

Holliday’s construction knowledge and network of developers gave
him insight behind the scenes. In 2015, he collaborated with a
modular apartment business called Zeta. That company went under,
but he started his own company, Factory OS, in 2017 with
cofounder and Chief Operating Officer Larry Pace.

Factory OS worked with Cyrus Youssefi, president and owner of CFY
Development, on the Truckee Artist Lofts project. (Photos
courtesy of CFY Development)

“I really wanted to utilize off-site construction,” Holliday
says. “I really think it’s the wave of the future.”

As construction costs keep rising, Holliday touts modular
buildings as a way to save money and time. He says most projects
built conventionally take about 18 months to two years to
complete. Factory OS had a recent job for a nonprofit in San
Francisco, and Holliday says they saved 30 percent off the
building cost and finished in half the time. “We’re demonstrating
we can save money and time, and quality’s higher,” he says.

Other benefits, he says, include caulking and detailing windows
on the ground in a factory instead of up in the air for a
four-story building, for example. Unpredictable weather adds
another variable for on-site construction. If wood gets wet, the
water can become trapped and cause damage later as it leaks. For
off-site construction, Factory OS uses kiln-dried lumber and
builds indoors, so trapped moisture isn’t a problem and the
company ends up “with a much better shell and weather-tight
building,” Holliday says.

According to a
2017 Wall Street Journal story
, Google finalized plans for
300 apartment units to be the first order for the modular home
startup. To date, Factory OS has completed jobs for four
customers in the Bay Area and one in Truckee, where they worked
with Cyrus Youssefi, president and owner of CFY Development,
which is based in Sacramento.

The Truckee Artist Lofts project consists of 95 modulars built by
Factory OS.

Youssefi has been in construction for 35 years, building about 45
projects, he says, but this was his first experience with modular
construction. His two-building project, the Truckee Artist Lofts,
consists of 95 modulars with energy conservation and noise
mitigation components. Similar to his Warehouse Artist Lofts in
Sacramento, this development is a mixed-use, affordable housing
community for artists and local workforce.

He notes that with modular buildings, sequencing is important
because each part has to be delivered and installed in the right
order. Youssefi praises Factory OS for its precision and said the
whole thing worked “like magic, like LEGO” in the way it all came
together. “In our case, it is unique because Truckee has really
bad winters,” Youssefi says. “If we would have gone stick-built,
it would’ve taken us over a year longer.”

The installation took 12 days in total to complete. After this
project, Youssefi admits he has “become a believer.” In a
situation with extreme weather or high costs, he believes modular
construction is the answer and he plans to go this route whenever
he has the chance.

Factory OS has been able to get big investments from Citibank and
Autodesk, a digital platform to make designing and constructing
buildings easier. The team has about 450 workers. A second
125,000-square-foot facility opened in September on Mare Island
to meet demand for more high-quality affordable housing. In
November, Factory OS raised $55 million in Series B funding from
six tech and finance industry giants.

“The public is getting frustrated with high costs,” Holliday
says. “We’ve got to find ways to do it more efficiently to make
the money go further.”

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