Technology

This A.I.-Powered Decision Platform Hacks Local Land Value Cycle

Arx automates the ability to underwrite the future potential of millions of properties in advance, enabling developers, investors, and agents to source and evaluate optimal investment and development opportunities in seconds.

Technology

This A.I.-Powered Decision Platform Hacks Local Land Value Cycle

Arx automates the ability to underwrite the future potential of millions of properties in advance, enabling developers, investors, and agents to source and evaluate optimal investment and development opportunities in seconds.

January 19th, 2024
This A.I.-Powered Decision Platform Hacks Local Land Value Cycle
SHARE:
SHARE:

Were you to spread housing's estimated shortage of 3.8 million homes across and into all the nation's nooks and crannies, a stark reality would become clear.

Virtually nowhere has homes enough. At least enough to make a sufficient number of them attainable to the working households who would choose there to live.

[Listen to Season 2, Episode 2 of the House Party with Ivory Innovations – released in partnership with The Builder's Daily – by clicking here.]

Recently, we wrote:

It's where they come up against challenges like this one – local land-use, zoning, entitlement, and permitting – that residential development and homebuilding organizations' talent and problem-solving competence have an opportunity to improve a great deal:

Source: Census via u/born_in_cyberspace

Noahpinion's Noah Smith writes:

I’m not going to rehash the evidence that allowing more housing supply holds down housing costs. It does. California and New York are driving people out of the state by refusing to build enough housing, while Texas and Florida are welcoming new people with new cheap houses.
In fact, blue states’ failure to allow development is a pervasive feature of their political cultures. Housing scarcity doesn’t just cause population loss — it’s also the primary cause of the wave of homelessness that has swamped California and New York. Progressives’ professed concern for the unhoused is entirely undone by their refusal to allow the creation of new homes near where they live. Nor is housing the only thing that blue states fail to build — anti-development politics is preventing blue states from adopting solar and wind, while red states power ahead. And red states’ willingness to build new factories means that progressive industrial policy is actually benefitting them more.

Erdmann Housing Tracker analyst Kevin Erdmann spells out stark consequences, not just of the housing crisis, but of the level of challenge to homebuilders' ability to generate sustainable profitability:

It might be useful to divide American cities into 3 categories:

  • Expensive, supply-constrained cities
  • Growing cities with moderate, but above-average home prices
  • Affordable cities with below-average home prices

Further, it turns out that the reason for the structural undersupply of homes everywhere stems from chronically under-developing and under-building ground-up residences everywhere.

Under-building and under-developing happen to be joined at the hip, and one without the other makes no sense. Still, at the same time, they face separate and discrete challenges on the financial capital and local policy front.

Where do they share common ground? For residential development's value cycle and construction's value cycle, money and time serve as catalysts or show-stoppers.

Technologies that turn chronic show-stoppers into catalysts by either adding or saving money or time to the development or building process can become game-changers in what would otherwise be a self-perpetuating system failure in U.S. housing affordability.

Innovation comes often from the housing domain's fringes rather than from its center, and just as often comes from individuals who may not be fully aware of – and they're certainly not daunted by – gigantic odds stacked against their efforts.

Such is the case with two brothers who serendipitously evolved their idea for Arx, an AI-driven real estate analytics platform that automates the ability to underwrite the future potential of millions of properties in advance, enabling developers, investors, and agents to source and evaluate optimal investment and development opportunities in seconds.

Co-founders Tomas and Hernan Garcia stood up Arx as a business in 2020, with a mission to catalyze the development of an equitably built world by empowering professionals to instantly understand the regulatory and market forces impacting a region, drastically improving their ability to deliver housing where needed most.

The platform – a 2023 Ivory Prize Top 25 Finalist In Finance – uses an AI-powered recommendation engine to identify projects tailored specifically to the strategy, schedule, and capital requirements of the user. With Arx, developers can significantly reduce the overall time and energy they would normally have to spend to find and source projects.

When a process or technology can "reduce the overall time and energy" of any part of the residential development cycle, it causes two positive impacts in that lifecycle. One, "carrying costs" and "time to cash generation" work in inverse relationship to one another, saving money and gaining faster returns on capital put in place. Two, subtraction of time and energy from one part of the effort allow for that same aliquot of time and energy to pour into an area that can drive greater value.

Hear Hannah Gable, director of Strategy and Operations at Ivory Innovations, going deep into a "How I Built This"-style conversation, in Season 2, Episode 2 of the Ivory Innovations House Party podcast, brought to you in partnership with The Builder's Daily.

Arx’s platform follows the steps below to assist real estate developers and brokers in finding investment opportunities:

●  Market analysis: Arx provides real-time market analysis on property investments to assist with identifying and evaluating investment opportunities.

●  Automated underwriting: Arx’s automated underwriting tools allow developers and brokers to assess the financial feasibility of potential investments quickly.

●  Data-driven decision-making: By integrating market data and financial models, Arx’s platform enables data-driven decision-making to help ensure optimal investment outcomes.

●  Efficient processing: Arx’s platform is cloud-based and allows users to streamline the development process by simplifying communication, file-sharing, and collaboration.

Arx’ algorithm analyzes parcels in a given geographical area to determine what kind of building configurations could exist, and then does financial analysis for each configuration, producing a wide array of metrics including expected sales price, percentage gain in unleveraged IRR, project cost and time-length, and other financial logic.

Arx’s early adopters have been smaller developers trying to get an edge on the large corporate players. A key benefit of the platform is that it offers a means of leveling the playing field for smaller, less capitalized developers.

Here's a selection of highlights from Gable's conversation with Arx co-founders Tomas and Hernan Garcia.

The Origin Story Of Arx

Tomas Garcia

I was an investment banker at Goldman Sachs, not involved in real estate. I was in the natural resources group, focused mostly on renewable energy. This phone call from my brother Hernan changed it all. Hernan, who's an architect, called me one day and he said, 'Would you ever consider getting into doing some real estate development with me?' It piqued my interest because real estate development shares a lot of parallels with investment banking. There's a lot of rigorous financial analysis. There's a lot of data. I was excited by it.
So that's actually how we got started working together. It wasn't initially to build a technology company. It was as operators, boots on the ground, based in Jersey City at the time. That's really how we started with ARX. We built the first version of the ARX platform to help with our development and our ability to underpin deals quickly and at scale to zero in on which properties we should be targeting, where we should be operating, and what we should be doing. It was something that we meant for ourselves originally. It wasn't long though before we started selling projects in the market. At that point other developers and agents we were working with in the area began asking about it. They asked us, 'How are you moving so quickly as new operators?' That's when this light bulb went off."

Hernan Garcia

The original vision of what we were doing was to put together a vertically integrated design and development company that leveraged skills in architecture, and technology to produce more high-quality housing and deliver as much as possible to the market. It was only when other operators started asking us how we were doing things, how we were doing these things so quickly, how we were putting these projects together that that was the 'aha' moment. As Tomas mentioned, we could have kept all this internal and become successful developers and done a lot of projects, and given a lot of supply. But what if we were able to put this in the hands of every real estate professional out there? What would that do to this supply problem that we have? It would allow everybody to be much more efficient, focus on getting as many projects done and delivered and really increase the supply of housing that we crucially need.

The Arx Market Focus

Tomas Garcia

We decided to focus on the residential asset class because the core thesis of what our platform does is that we're underwriting the market in advance to help folks with site selection. We eliminate time: for instance, you're going to scan the 1 .6 million residential properties in Los Angeles for deals that meet your certain return threshold and time criteria for the types of buildings you want to do. With Arx, we let you say, 'These are the 5,000 or 300 or however much you filter down a list of properties that truly meet your investment and development criteria." The challenge seemed better suited to start in the residential asset classes as a result. ... What we're doing is, in simplistic terms, building an artificial intelligence that simulates an underwriter's experience. So instead of an underwriter going site by site saying, 'what's on this site, what could be on this site, and let's build that model and seek it out,' we're training a program to do that."

The Arx Point Of Difference

Hernan Garcia

We're trying to solve the problem from end to end, from not just figuring out the different physical configurations that can go on there, but also doing the financial modeling for each one of those scenarios. Then understand those returns and do all of this in advance. This is because the other solutions that I've worked with, that I'm familiar with, that are in the market are all about single-site optimizations. I have an idea of a market, I can do some searching on it, I can say, "Hey, I want to find..." find sites that are zoned a certain way that have these physical characteristics. But then I still have to go to that site and test different scenarios, and then figure out, 'Okay, if I put a quadruplex here, what's it going to cost? What am I going to sell it for?' I still have to make all those assumptions. And I'm only doing that for one site and one scenario. For us, our goal is to help real estate operators properly deploy their time and capital into a market. The way to do that is to attempt to simulate every potential scenario that could happen on a site in advance and then allow people to search for that. They need to understand, 'Hey, these are my requirements, and this is my risk profile. This is the return I want to achieve. This is my time horizon. What should I do? Should I be doing single-family, build-to-sell projects? Or should I be looking at fix and flip cosmetic renovations?' That map of what are good sites for those types of projects is completely different. That's one of the key features of ARX. We want to be a decision engine to help guide our users into the right asset classes, right strategies, and proper geographies that support those things."

ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

MORE IN Technology

Tech Hack Matches Affordable Projects With Vetted, Diverse Trades

Tough Leaf makes it easier for developers and builders to meet diversity compliance requirements while mitigating performance risks by pre-vetting the firms in the database.


What Higharc's New $53 Million Series B Round Will Power In 2024

We talk with Higharc's co-founders on what the latest significant capital infusion will mean for an enterprise tapping A.I. to help homebuilders transform how they design, sell, and build new homes and neighborhoods.


'No Need To Change:' The Big Barriers To Homes Of The Future

If "no need to change; site built homes work fine for us" is such a strong de-motivator among homebuilders to cross the Rubicon into the future of housing, what does that say about the present and future business viability of vaunted construction tech start-ups?


ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

MORE IN Technology

Tech Hack Matches Affordable Projects With Vetted, Diverse Trades

Tough Leaf makes it easier for developers and builders to meet diversity compliance requirements while mitigating performance risks by pre-vetting the firms in the database.


What Higharc's New $53 Million Series B Round Will Power In 2024

We talk with Higharc's co-founders on what the latest significant capital infusion will mean for an enterprise tapping A.I. to help homebuilders transform how they design, sell, and build new homes and neighborhoods.


'No Need To Change:' The Big Barriers To Homes Of The Future

If "no need to change; site built homes work fine for us" is such a strong de-motivator among homebuilders to cross the Rubicon into the future of housing, what does that say about the present and future business viability of vaunted construction tech start-ups?