Recently, William Sankey, former real estate developer and Northspyre CEO and co-founder, sat down to chat with Northspyre’s resident Storyteller Julie Lonich to discuss where the market is headed in 2023, how a recession will impact the sector, and how technology can help project teams prepare for the market’s next growth cycle.
Julie
Hi, I'm Julie Loncich. I'm the managing editor here at Northspyre. Northspyre was founded in 2017. We are a proactive intelligence platform that empowers real estate developers to achieve easier, more predictable outcomes on complex projects. I am thrilled to say that today we are joined by the CEO and founder of Northspyre, William Sankey, who himself is not just an accomplished entrepreneur, but rather one that was born out of a critical need that he identified early on in his career to really solve a problem that he was seeing William, can you tell us a little bit more about yourself, your background and how Northspyre came to be?
William
Oh, definitely. And thanks, Julie, for taking the time. I'm excited to be talking with you today about topics I care a lot about.
Like Julie said, I started my career in the traditional side of the real estate development industry. And if I were to go back a little bit further, my educational background is studying architecture. So [when] I started, I was always interested in the built environment, how can we build our cities better, whether that meant the aesthetic, whether that meant our placemaking. And as a real estate developer, there's often that financial aspect of how do you do that while also being able to make a return for investors and for your organization.
I spent my career prior to Northspyre as a real estate developer in New York City running all types of projects. I was the assistant to the product executive when they were doing the billion-dollar transformation of Madison Square Garden, the arena. I worked on hundreds of units [for] multifamily housing, mostly rental, but I also worked on large condo projects on the Upper East Side in New York. I worked on historic adaptive reuse of hundreds of thousands of square feet of historic adaptive reuse near the Brooklyn Navy Yard in the South Bronx.
So, a lot of different types of asset classes. I did that across a couple of different real estate development firms, really big ones like Jones Lang LaSalle, and their product development service group. Family companies like Harry Macklowe, are coming up with some pretty iconic projects. And then more finance-minded guys, like the guys at Madison Realty Capital, and their development are so different companies, a lot of different types of projects.
But I noticed they all had a lot of the same recurring problems around; how do you get predictability around project delivery? How do you make it easier? How do you make it repeatable? And I was fortunate to have some insight, having seen the variations and an understanding that they all suffer from some of the same issues. A lot of these arise from delivering hundreds of millions of dollars in capital, all managed on convoluted error-prone spreadsheets.
Northspyre is a SasS technology that leverages technology, automation, data analytics, and proactive intelligence to help these teams, hopefully, evolve and leverage the same technologies that other sophisticated industries started [using], like finance, and advanced manufacturing. They started using these types of processes and technologies to get predictable results and improve productivity ten years ago, right? And I think now we're leveraging that in the largest part of the world's largest industry, the design, development, [and] construction of commercial real estate. I hope I didn't go on too long about who I am, Julie. But that's my intro.
Julie
No, it's a really interesting trajectory. And it's one that you should really feel quite accomplished for because a little birdie told me that you are actually up at night to coding, from what I understand. So, what you've accomplished is quite impressive.
William
I like to say I was a real estate developer by day, software developer by night for about four years there. So, yeah, fun, fun times. But they don't let me code at Northspyre anymore.
Julie
Awesome. Thank you for sharing all of that. We're getting into today's topic, which is, unfortunately, not necessarily one that a lot of people want to talk about right now, but it is the reality that we're facing. Although both are leveling off right now, record-high inflation and rising interest rates have been a recipe for an uncertain economic future as we turn the page now into 2023, particularly in commercial real estate, as the investment environment remains unsettled. Now economists have been forecasting this recession for several months now. But the consensus does, indeed, point to one that is hopefully short and shallow.
While there is some evidence that inflation has peaked here in the U.S. and really potentially across Europe, historically, high inflation does often precede a downturn. The good news here, economists believe that recovery from any impending slowdown will be swept from the commercial real estate industry perspective, all of this, unfortunately, does have the potential to affect both existing and future funding. William, I think we've established by now that, you know, this industry inside and out, how do you see the real estate development [industry] faring in 2023? Are we indeed headed toward this mass delay? Or are these fears overblown?
William
That's a really good question. I think most real estate developers, companies, and financial partners that invest in real estate development projects are thinking about that pretty seriously, given all these are pretty capital-intensive endeavors. And it's an unusual environment. I guess, given the past, you know, probably, we've been in this Great Moderation phase, I think it's called, for probably the past four decades, almost where we didn't have a lot of inflation, and we had steady, steady growth. New developers who have not experienced some of these prior cycles, a lot of old school developers, they're like, been there, done that. It's to dust off that playbook from the '70s and '80s. Most of the industry, unfortunately, was around for the '70s and '80s.
Most of us commercial real estate development professionals today have not been in this type of environment, although they have been in down cycles and downturns. And there are things that you can learn from those down cycles regardless. I'll add to that. What's interesting is real estate is a cyclical industry. So even in good times, real estate is going from periods of oversupply to undersupply and tightening of supply. It's just generally cyclical, and development companies are built, in some ways, to think about how do you evolve an industry where it's not always a linear line straight up and to the right.
To get back to your core question, there's quite a bit of inflation, there's some risk for commercial real estate. What does it mean in this downturn? I think I look at it two ways, it's a bit of a mixed bag. On the one hand, historically, people like to think of real estate as this hedge against inflation. And they're right. If you look at rents, especially on the multifamily side, and even in a few other important sectors, rents are actually strong. Because rents often are a reflection of inflation as well. There's the value of the real estate asset, and [there's] inflation.
One side of the equation, [it's] going pretty well, aside from a few sectors like office, which has some secular demand potential risks due to the pandemic. On the other side of it, the revenue side, not bad. On the other side of the equation is how do you get these projects underwritten because of the cost of capital? That's where you have some issues, like the cost of construction. A lot of the cost of construction has gone up. You know, we saw during the pandemic, lumber prices, like 4, 5, 6 x [increases] in many cases, which made it just unsustainable because it's one of the most important materials. And you saw that across even labor costs for construction.
Some of that is coming back down as the Fed has hiked interest rates. Lumber's definitely falling back in line. But then, on the cost of capital side, we've not seen any relief there, things have gotten worse. Real estate development [funding], like a lot of forms of financing, is very much correlated with the increase in the federal interest, the federal benchmark, on rates.
So, what does that mean? What we're hearing from our customers at Northspyre, where we talked to hundreds, if not thousands of developers across the U.S. every single quarter, is a couple of things. A lot of projects are teed up. They have good demand fundamentals in terms of the revenue side of the equation. But a lot of lenders are a little bit wary, primarily because of how cap rates are moving. How you value real estate's is based on cap rates. Cap rates are sliding between 4% and 6%, and cap been correlated with how interest rates are moving, that movement makes it very difficult to value commercial real estate.
As interest rates move pretty drastically due to the Fed, and that's caused cap rates and move as well, somewhat drastically. A lot of financial partners, lenders, private equity funds, and banks that invest in commercial real estate development on the debt and equity side, are sitting back wondering, what will the value of this project be worth? Because I don't know what cap rates are going to be. I don't know what they are today, [and] I definitely don't know where they are going to be two years from now on this project is complete.
There's a reason a lot of them are sitting back and saying, "let's keep this keep this conversation going" with the developer, and the operator. "We're interested, but let's just wait a few months to see what's going to happen." You're seeing that across the U.S. and across a lot of asset classes, our financial partners are being a little bit patient about whether they're going to put that capital into the market now, and this sort of sitting back to make sure that cap rates and the valuation potential in the underwriting makes sense.
And then I think, you know, the other side of that's just like construction costs. The rapid rise is definitely leveled off, the costs are probably still somewhat elevated. You have to think in development, the equation is often such that you're trying to decide, does it make more sense to build something new from the ground up or to acquire an existing asset that's already built? That equation has been relatively clear-cut for a while now, especially with the odd demand. [What] we've seen is, should we build new things, we can't build new things because there's no demand.
There's some question marks, especially in certain asset classes, like does it make sense to even replace this? Or replace it by building new versus just acquiring and repositioning assets? I won't paint a picture of saying everything is perfect, but if you take those two sides of the equation, the revenue side looks good. Getting financing, and the cost side is a little bit risky.
If I were to pull out our crystal ball, which we like to try to do at Northspyre. We've completed $75 billion in projects in a relatively short amount of time. And that's over 2000 projects, so we have a pretty good sense of what's happening out in the market and across the country. If I had to pull out my crystal ball, I would think that the first half of the year is probably a little bit more difficult than we've seen in prior years in terms of getting financing and making sure projects pencil. And lenders coming off the sidelines and deploying that capital into projects.
But because the fundamental demand is there if the Fed pulls back on raising interest rates, hopefully, if inflation levels off, let's say at the end of Q1, so at some point in Q2 of this year, cap rates will stabilize. And we might have a bit of a boom. All these great projects are lined up; they're ready. Some of them are shovel-ready, and they're just waiting for the bank to sign off. We have a bit of a boom in the second half of 2023. But no one has complete visibility into the mind of the Fed and Jerome Powell. So, I'll caveat my prediction on that.
Julie
Amazing insight. So essentially, what I'm hearing from you is that, yes, there are some, perhaps rocky, uncharted waters ahead. But it's not all going to be bad. And we're not churning toward that iceberg if you will.
William
This is not 2008 and the Great Recession, I don't think.
Julie
That leads me to my next question. Because you were talking about how this is all cyclical, how do you feel that this is different from the Great Recession of 2007-2008?
William
Again, I don't want to make too many predictions. But it looks like, as the Fed has hiked interest rates, we will have a soft landing and that the rapid escalation in interest rates isn't going to break anything fundamental in our financial markets, which is always a risk. If something breaks unexpectedly, and then you have a financial crisis on your hands, that's a lot harder to unwind. That can cascade into demand-side issues, which in a lot of ways, can be harder to deal with.
We had a financial crisis in 2008, and a lot more things were broken in the system then. And on the demand side, the demand wasn't there whether it was for housing from the people who could afford the houses that were getting built, or the multifamily, all of that. [There] were a lot more demand-side problems. Again, for developers, that's always worse, when there's no demand for the end product. We can ride through market cycles, where there's some demand.
I hope this will be a bit of a blip, where it's temporary. Yes, we're trying to figure out how to price commercial real estate. Yes, we're waiting for construction costs to level. But if you look, real estate is highly correlated with demographics [and] positive things happening. Population growth rates in the U.S. in the pandemic got a little bit tough. But you've seen natural emigration, natural births, rise post-pandemic. You see positive demographic trends coming back. And despite the drop in the stock market on Main Street, things aren't disastrous.
You still have, in a lot of cases, very solid earnings in different segments of the economy, like health care and others. Fundamentally, there's nothing broken on the demand side of the economy that sort of filters back onto people needing real estate, whether that's places to live, places to work, places to build and create things. In industrial, to distribute things, distribution centers. Or science, places to discover the next great vaccine. There's demand for all of that. The one segment that has big question marks right now is office, which we could maybe talk about that.
I don't know what the future holds there. I like to be an optimist. I think things will change in that asset class in terms of what tenants expect, and what employees and office workers expect. But generally, this is not 2008. That was a long, sustained downturn. Again, I expect we could be in a boom in the second half of 2023, assuming interest rates stabilize the demand, and the demand remains there. You know, [look at] job growth. Despite this rapid rise in interest rates, job growth has continued, and unemployment is still extremely low.
So, if we can just hang in there, inflation slows down, and a soft landing does happen, we could actually have a really good second half of the year. And the first half might not even be that bad. We can navigate it.
Julie
That's wonderful to hear. As you alluded to, it's this weird recipe that some might say the Fed has created, this manufactured recession, if you will. So, in that regard, it is vastly different from what we experienced 13 - 14 years ago now. It's something you know quite a bit about, technology. How do you see technology playing a role in real estate development in 2023? As it relates to this impending recession and [beyond].
William
I read an interesting study, a couple of years ago by McKinsey, a top management consulting firm, they work across a lot of industries. What was interesting [about the study] was that real estate development and construction was one of the few industries where productivity over the last half century has barely increased.
It was pretty remarkable. So much has happened in that timeframe; the internet has come up a lot. You've had this transition to the knowledge-based economy in a lot of ways. The total transformation in our world. But real estate development and project delivery, especially at the owner, real estate developer level [has stayed the same.] Even in construction, In the past decades, you've seen a lot more software, new tools starting to come online, and robotic tools have been demoed. All that type of stuff. You're starting to see technology creep into the construction side of things. At the real estate owners’ level, If you were to take away email, and maybe Excel, I don't know if they're things are being done any differently than they were in the 1970s. It's pretty much the same.
At least, what we've seen at Northspyre, we've come around at a good point in time. We're a team of not just technologists. I'm not the only person that comes from the real estate development industry at Northspyre, a lot of us used to do that. We're real estate developers building technology for developers. Because we understand, we've felt the pain ourselves.
And how in the past and even currently, for most developers, you're completely reliant on oftentimes backward-looking spreadsheets that tell you, maybe, what happened 30 or 45 days ago. But they don't know where your product is going to be two years from now. They don't help you manage that risk ahead. It's like driving fast in the fog. And then on top of that, even getting a backward-looking view is taking your staff 30, 40, 50% of your [...] staffing hours to produce that.
Not only are people completely bogged down in these sorts of administrative, low-value, tedious tasks, the end result ends up being, you get information about where your project was two months ago, not where it is today even. And not where it's going to be with certainty, in the future. Those are the management questions you need to ask to be able to make course corrections. Being able to think creatively and produce, not spend your time doing data entry or spend your time compiling tedious reports because you need those reports as draw requests to get funding from your financial partners.
What if you could take all of that the 30-50% of like staffing power that's going into this tedious, low-value administrative work that's not really producing the desired results and predictability? What if you could take all of effort and redeploy it into creative value creation? So that in 2023, where things are shifting fast, you don't feel like you're an ostrich with your head in the sand. You feel like, as a team, your heads are in the sand, your heads are in a pile of paperwork, trying to do a lot of administrative tasks just to keep the project running, but you’re not really producing new value.
What if everybody is forward-looking? Imagine a world where they're getting these proactive digital insights in real-time, based on their project-specific data. Maybe if you're a project lead today, you're getting hundreds of data points flying at you every single month. Then there's documents, hundreds of documents, getting emailed to you.
Hundreds of people asking questions. Hundreds of vendors negotiating change orders or asking for adjustments. All of this is happening at any given time. And a human, even the best project leads, can only focus on so much, right?
The great thing about automation and robotic intelligence is that it's this augmented intelligent force that can comb through all this data. It can extract data off of documents, serve up proactive insights, and indexes data, so it's searchable and easier for you to find information. And now you make smarter, faster, better decisions, and you free up your team to focus on, how do I create value? How do I navigate in difficult times? How do I go out and compete and win new projects as well? Instead of being completely mired in the quagmire of how products used to run. There's this huge world of potential to leverage technology, especially in a downturn. And I could definitely say more about that, Julie. I know you're probably thinking, "whoa, William's going pretty far on this." But I can say more on this topic, certainly, if we want to keep talking here.
Julie
You know, it's interesting. You touched upon this, it's kind of the dirty secret in this industry, right? That we're so slow to adopt these new technologies. But as it relates to this downturn in the economy. I mean, you alluded to this a bit, but if you can just expand upon that. How critical are technologies like Northspyre, for example, in keeping your head above the water as we navigate these rough waters?
William
Yeah, so maybe we could talk about three scenarios. One is your existing project. The other is staffing and headcount reductions. Which, you know, we don't want to talk about but let’s assume in a downturn, that might be the case at some development firms. And let's talk about winning the next cycle, the next real estate development upcycle.
I shared a little bit about these existing projects you have going on. You want to take your team out of the weeds and just be more focused and strategic in how you operate. And you want a machine proactively serving up insights to help you do that. Like when is something going to cause you to go over budget? What vendor bids low to get on the job and then hits you with a lot of change orders? You have two project managers in your large organization, and they have no idea that the same vendor, across different projects, has the same type of change orders. They're not able to leverage institutional knowledge to negotiate more effectively when cost control is super important.
You need technology. Technology can help you do that. It doesn't have to just be you, your spreadsheet, and hopefully, a really experienced old guy that's been through the fire. He's been a developer for three decades or four decades, and they're there to help. But if you don't have that, there is a technology that can help you on existing projects. On the staffing, headcount reduction side, let's assume that across the industry, with interest rates rising, there's a need to be more efficient, and more effective with the teams that we have. More lean. Can we take on more projects with the same staff we had before? Do we have to downsize in some ways to make sure we can ride through this recession? I think developers are asking those questions.
The great thing about modern technology is that it used to be every single person on your team that had a separate spreadsheet. Even if your company was savvy enough [say], "Hey, we're going to use a similar template," every project is different. You get these variations, and then it's hard [when] one person leaves the company. Sometimes, they take [the spreadsheets] with them. It's not organized. You don't have this benchmark database. Even if you saved the spreadsheets, you don't know how to [read them]. I don't know what "Frankie" was doing on this spreadsheet; I can't read "Frankie's" mind, and with this convoluted web of a spreadsheet, I can't figure out what lessons were learned as we prepare for the next project.
When those people are leaving companies, oftentimes, a lot of your institutional knowledge is leaving. The thing about real estate development is it's an experience and institutional knowledge game. It's very easy to run into certain change orders or problems or mistakes because you haven't seen them before. You get burned and lost. But the bad part about real estate development is projects take a long time to complete. They can take over a year. Even the best project managers, they've rarely have done more than two dozen projects across their whole multi-decade career.
Those people, by the time you meet them, [they say], "I've been burned enough" And sometimes, they still don't know all the potential things that can burn you. The great thing when you're using technology is, what if you could leverage institutional knowledge across everybody in your team? And be able to index that, retrieve it, and easily search it.
When you're planning a future project, even if people have left the company, your firm isn't getting dumber because of it. Everything is there easy to get to. And this takes me to my next point. What about the next cycle? How do you prepare for that? Really good developers know this, all the best development projects, in terms of not just, the building was great, and the placemaking was great, but the returns, they had to deliver to their investors. The ones that have the best returns are ones that often started, or the deals got put together in market downcycles, when the land basis was lower, and that makes these deals pencil.
What I'll say about using technology here is that the best and smartest development firms are the most competitive firms. They're actively scouring the market to find what are the choicest sites, where I can get the highest and best use. And that exercise, on any given site, can take weeks and months. You're iterating through; what if I build a hotel here?
What is 12 versus 16 stories? You're running quick back-of-the-envelope budgets to see; does it pencil and make sense? All this can take weeks and months. We're going to be in a place where we're at the top of the cycle, land basis is high, and construction costs are high. We're seeing land and acquisition prices pull back, which is going to create a really healthy market to acquire and assemble new project sites. And sometimes you don't see the benefit of the next day. It can take years to go through assembling these sites, negotiating deals, getting them re-entitled and upzoned, or whatever it might be.
But two or three years down the road, these are the flagship, iconic projects that are getting built. And you're saying, "Wow, how did this development firm pull that off? We can't buy land and make these numbers." Well, it's often because they did it in the down cycle. The best and smartest firms see this as an opportunity.
What if you have a technology that can help automate a lot of that? What if you had a technology that, if you were thinking about a project site and you want to see four or five different scenarios of what this could be and what the budget can be? And you could produce that automatically based on historical data from your firm. You could say, "Hey, spin me up a budget based on historical data from my projects from this timeframe?" Or from this city? Or even market conditions based on what Northspyre is seeing? Can you spin me up a sample project budget, very quickly, a scenario with this square footage and this number of units, and then I can iterate from there?
So, now instead of it taking me weeks and months to be iterating on all these scenarios, and then saying, I want to get this site under contract before another developer does. Or I understand the implications If I can bid the highest because I've iterated enough through enough scenarios to know I have the highest and best use. Whereas someone that's still pencil, paper, Excel, maybe they've only run a few models, they can't bid as high as you because they don't know as much about the world as you know.
It's possible that they don't know as much about the possibilities as you do. Or they're just slower, and you've gone and got that site under contract, and they don't even know it, for six months, because they're putzing around. So, speed is king in a lot of things, but especially in real estate development. The best, most choice sites are the ones you can get under contract quickly. But you can't get it under an expensive contract if you don't have the ability to iterate on scenarios and understand what the implications are.
Technology, Northspyre, is helping you to do that in a matter of minutes and seconds by again, leveraging automation, and then tapping into this library of historical data in your own firm, your own firm's institutional knowledge, or even Northspyre's broader understanding of the market. We're in every major city in the U.S. We've done over 2,000 projects in a pretty short amount of time, $75 billion of projects. Actually, probably more than that; that was a few months ago. We're probably way beyond that now. And if you think about that, that means if we can feed you data quickly and help you iterate quickly, that is what development is looking like moving forward.
This is a fundamental transformation. This revolution, where even if your firm was one of the better firms that won the last down cycle using traditional tactics, now you have a person at another firm that is using robotic intelligence, proactive intelligence. They're indexing all this historical knowledge; they have access. I like to call it market omniscience. They're sort of all-knowing. They have this person who has access to $75 billion worth of data. And not just, "Hey, I've been around for 20 years, and I run $2 billion of projects, but some of those are from 10 years ago." They have active information about what's happening today, and their historical data in their firm. And they can automatically create scenarios and plan for the future and track towards that.
Those are the firms that are going to win the next market cycle. If you're so inclined, and most developers want to keep developing, you're inclined to stay into the next cycle; this is the time. Two years from now, we'll be looking back and saying, "How did this developer pull together this assemblage that transformed the skyline of Chicago or Dallas, or New York?" It's probably happening now. And they're probably leveraging [technology]. The best firms are smart. Savvy firms are the ones leveraging these advanced technologies to be better, and faster than the competitors, who might be a little bit more old-school in their approach.
Julie
Awesome. So it's being proactive, it's seeing the potential, and it's really preparing for what's to come. Those are the people who are doing it right. Those are the most savvy firms, as you alluded to. What about the ones who are currently still a little bit meeker in their approach? How can they bounce back fast when there is a market upswing if they haven't done all this preparation?
William
Yeah, I should never tread into expressions, because I'm always clumsy, but they say what's the best time to plant an oak tree for shade. Fifty years ago, right? But the next best time is now. If you are those firms - I'll separate them into two categories. One is successful development firms, historically, but stuck in, what got me here over the past 20 years is good enough, and I don't need to change.
They're probably missing this fundamental transformation. In the same way, there were some construction companies that were, when I started in the industry, a lot of construction companies were using spreadsheets to do everything. A lot of them were, "Well, I got to be a great construction firm using these spreadsheets. I don't need to think of software! Where are some of those companies now? They're not in a good place. They got passed, or they were eventually forced to adopt the technology.
Software's great technology for construction companies out there. Procore. Great tools for construction companies. That wave hit that industry a decade ago. Now, everybody knows, by default, you wouldn't hire a contractor operating the same way they did in the 80s. In development, in that lane where it's "Oh yeah, I've been successfully doing it this way. Why change?" Well, those are similar to those construction firms. They'll be forced to change. They'll probably lose some deals; they'll lose some opportunities. [With] their returns, they may have enough sustained success to stay alive. But they won't be the market movers.
They won't be the new breakout stars. If you go back 20 years ago, Related development was one of the biggest developers in the country. They were a breakout star. If you go back to the New York market and look at RXR, where they were this breakout development star. They weren't what they are today.
They were always a bit ahead of the curve. Now, if you look for who's going to be the next firm to break out like that? Well, it's those firms that are doing things differently and not repeating the same processes. And then I'll say the other group is just firms that are small. They're newer; they're upstarts. Maybe they've done one or two projects to moderate success or a degree of success, but now not quite enough of a track record to where they're just sitting on a pile of money and can ride through things. Or know that their next project is going to be just as great. They've established themselves a bit, but there's still uncertainty about the future. There are a lot of firms out like that. We work with a lot of awesome developers like that across the country. In some ways, they are some of my favorite developers because they are scrappy visionaries.
They are holding a lot of interdisciplinary things together, and they're making it work. The good thing about what those firms can do is the greatest thing about technology, making the world a little bit more egalitarian. If you go back and look at how things were, the biggest firms had a bit of an advantage. Because even if they only had like 2% of the market, the biggest real estate developers in any given city have no more than 2% market share, and that's a long tail from there.
It's not like they know everything, but knowing that 2% versus someone that knows a 100,000th of a percent knowing a lot. But what if everybody could tap into the market of knowledge? At Northspyre, we have enough data to where we have more data than the biggest developers in any city. We know a lot.
Now, having access to that technology sort of levels the playing field. Things are more egalitarian. Because now, a lot of firms can operate more lean and efficient and get massive output by coupling their experience and knowledge with robotic assistance and intelligence and automation, and data. They can even upload their historical projects and levers at Northspyre.
So, they didn't do it in the past, but it's not too late. Tech companies like Northspyre, we will go back up all your historical data for you and index it automatically. Robots will index it. And it'll be like life before Google existed. Now that you have Google, it’s hard to remember. But that's out how it will be for even the smallest firms. A lot of our customers are these firms that have done one or two successful projects, but they're not massive. They're two-person shops or five-person shops. They're able to tap into the same digital transformation, and sometimes they're able to get even bigger results. And they're able to do it easier.
There are advantages, sometimes they don't have a lumbering I.T. department that might be a bit slow because they don't understand it. No offense, but they don't always understand the pains that the developer or project manager is suffering. Oftentimes, they're a little bit like a decade behind in understanding what the end user is trying to do. The good thing about small companies, is there's no barrier between you. The good thing about modern technology in this era of the cloud, which Northspyre belongs to, is that it's easy. It's off the shelf. You can have this massively powerful technology, that I'm describing. And it's not "Well, I don't have a five-person I.T. team, so I can't really do that. Anybody can do it. We have one-person teams that are doing it, and they're massively successful.
There's an incredible developer in the New York Metro; maybe I'll say his name; I didn't get permission. But his name is Justin Dubrow. And he builds incredible residential projects, and he does some other things. And it's a lean, small team, but the amount of work they're doing, the ability to do things in a predictable, repeatable fashion. If you were to go back a decade ago, before they were leveraging this technology, it'd be really hard for a small team to pull that off.
Now, you look at the outside, and you're like, "Wow, this must be a really big firm. It's Justin. Justin is incredible. He's really smart. He's super experienced. If you want to work with a developer, he's the one to work with. But it's not some massive army behind him. He has embedded technology and data, and automation into how he delivers projects.
And that's where the magic is. I'm not just talking to the 1,000-person firm. I'm not talking just to Hines or Boston Property. Those are great firms, but I'm talking to all these developers out there. Everybody. It's the democratization of data information technology. And it's easy.
Julie
Yeah. And in a lot of ways, not having that five-person I.T. department is almost beneficial to adopting this technology, right? It eliminates the bureaucracy, the red tape, and fewer cooks in the kitchen. And I think it empowers those that are still cooking in the kitchen to be that much more ahead of the game as compared to others who are not. So, you talked about the developers buying into this right now. What about those that are not taking these measures? What do you think is the barrier? What's preventing them from doing so?
William
Yeah, it's a couple of different things. On the one hand, some firms were really; some firms were really smart a decade ago. What they observed was that you have your project leads that are executing on these projects. They're making a lot of decisions every day about how do I increase the return on this project? How do I bring it in on budget, on schedule, to increase returns? And those same people were doing a lot of legwork to make the product run.
Our average developer works with about 230 vendors. You don't think about it; you think about the big vendors. But that's what we see across our data set. People like Door Harbor Consultants, you don't think they exist, but there are all these vendors. When they are working across all of those types of vendors, you have this broad array of tasks that you have your highest-value project leads working on.
The shortcoming is if they're spending 50% of their time doing administrative work, just to keep the project funded, paying all these different vendors. Well, yes, it's valuable. In the past. Because you don't have a project if you don't pay your vendors quickly, but today, those teams, often they were able to be savvy enough to say, "Let's build a whole department that can do some of the legwork, and we'll let these project leads focus on just running a project.
Those teams sometimes ended up with two separate teams. You have the development project leads, and then you have the chain that's doing a lot of the leg work around keeping the project funded. What I noticed is, what's tricky, is that sometimes those companies, some of them are very easy to adopt technology because they're like, "We have to have this fundamental transition; we have to do it quickly."
But with some of them, it can be difficult because some of these technologies are automation technology. If you can reduce the amount of administrative work by 80-90%, that's good for the company as a whole might, but it might not be good for a department that is doing that, and they don't necessarily want to do anything different. Some departments say, "Well, this is our chance to do higher-order work." But some of them also see it as a bit of a fiefdom.
What we see, and we look across a lot of real estate organizations, is sometimes, if you have an archetype that's not completely uncommon, you see companies where there's a bit of resistance internally because this technology is automation technology. And you have to reposition your staff internally. And that's hard. Those are hard conversations to be had whenever that needs to happen, unless you have a very willing, visionary team. Because some people are very happy doing what they do, even if it's rote and tedious, they don't want to shake that up. We see that's an archetype that sometimes makes it hard for some teams to adopt the technology.
For most others, the archetype is firms that have gotten really big, and maybe they invested in proprietary solutions in the past. It could be clunky, but we often see it at these companies. If you go and talk to the people running the project, they're like, "Oh, yeah, I still use Excel on the side, but my boss, I teach him they need visibility. So, at the end of the month, I make sure I dump all the information into the system we built, but it's not flexible. I need to move fast. It's clunky. I'll do it because it’s in my performance review."
But you know, they're still using a shadow Excel file they're using the run the project. Then they have this whole proprietary convoluted system that they've invested millions of dollars in. That can be difficult, to upset the applecart, so to speak. If you've invested a lot in this, even if it's not efficient, oftentimes, the most senior leaders in this big organization, they might not be on the frontlines, understanding the pain points and the inefficiencies. And there's a bit of a top-down proprietary solution, invested millions of dollars. It exists, and it's hard to unwind, even when something, clearly, that is better exists, and that people would use without a lot of training and leverages advanced technologies.
It's not just; it's not cloud 1.0. We're just taking what you're doing and putting it in the cloud. But it's cloud 2.0. It's eliminating the administrator with A.I. It's bringing proactive insights. It's dynamically combing through data and flagging, making early warnings before your team makes mistakes. A robot doesn't miss mistakes all the time. People will look at that and say, "Well, this is obviously better. But how do I get from the island that I'm on to this better little paradise island, where you have all these great technologies?" Not so easy, right? I do think that happens. And then, lastly, you have teams that just don't know that this type of technology exists for developers despite how fast Northspyre's grown.
We've grown incredibly fast. If you go back, since the start of the pandemic, we've grown more than 10x. That means a lot of developers know us, and we're in every single city across the country; there's not a major city that we're not in. We're even in places where you wouldn't expect us to be working, like Montana and Iowa, things like that. There's development happening in those places, too. Great development. But you still have a lot of firms that don't know. We did a survey of the industry, and we found out that only 7-8% had heard of Northspyre.
They probably don't even know that there's a company using robotic intelligence, proactive intelligence, and data analytics. They don't even know that "Hey, I can index and make all my historical data searchable, and I can slice and dice it in an incident," rather than having all this fragmentation and lack of visibility and understanding. Or just a lack of institutional knowledge being collected. Now, firms that are in the know are transitioning.
They're stepping into the 21st century. I know the 21st century started two decades ago, but some of them are. These advanced industries like finance, and others, they were there. Developers in the know are like, "Now we're not just real estate developer, a filing cabinet real estate development company. We're a data and power enterprise. We're getting smarter with every project we've run historically. We're getting smarter, and better about it. And we're learning, and we're not repeating any of the same mistakes just because our team has changed. We still have that data accessible. It's happening; more and more teams are learning.
Those are the ones that don't know what exists. They don't know the possibilities. And that's hopefully what, you know, I think we're trying to get out there more. You know, not to...well, you know, I'll brag on Northspyre because I'm biased. But I'd say if you were to go look at a lot of our testimonial videos from customers, that's something we weren't really asking, but our customers were talking to people, and we got a lot of referrals coming in.
But we weren't necessarily trying to record those or put those out there to customers. A lot of customers raised their hands to say, "Hey, this was this worked wonders for my company and me; I want to share." You go and look at our video testimonial library on our website. You can see that we now have developers all over the country that are talking about what this has done for them. How it's improved profits, how it's reduced cost overruns. How it's given them confidence, and reduced stress. It made things more predictable. I won't repeat their words, go watch it, go listen to it. That 91% of developers don't even know this type of thing exists.
Hopefully, they will know. And that, you know, the first step is knowing. And when they know, it will make it much easier to adapt to these technologies and new ways of operating.
Julie
Yeah, oftentimes, a lot of people have to see someone else take the first step right in order to really effect that change. But overall, as we all know, it applies to all facets of life; without change, there is no growth, and without growth, you simply can't get better. But sometimes, as you said, you know, you have to you have to hear it from somebody else first; you have to watch somebody else take that first step. William, thank you so much for your time; you've painted a much more positive outlook on 2023 than a lot of people have in the back of their minds. As I said, they don't really want to talk about it.
Nobody wants to talk about an impending recession. But moving forward, leveraging this technology, people can really put themselves in a good situation. I know your time is short; you're the CEO of a very successful company.
But I did want to ask you, is there anything else that you really have up your sleeve here at Northspyre? I think that maybe next month, you might have a couple of tools that you might be introducing?
William
You're making it so I can't keep the secret, Julie. A lot of people that know about Northspyre, know that we are always trying to push the limits of what's possible and to help developers in ways that they maybe hadn't even imagined in the past.
We're working on some things that I've seen some internal versions of that'll be transformative around how people deliver projects and knowledge and how they access the knowledge that they have. We're going to have a special event pretty soon. I don't have the exact date yet. But let's say a timeframe of weeks, where, hopefully, we will be unveiling some things to the public. Stay tuned. I want to say more, but I'm going to be tight-lipped, so I don't get in trouble internally. But, if you want to know more about how I think our industry and the world and how people build cities are going to change, be there or be square.
Julie
Mysterious. I love it. Looking forward to it, William. Again, thank you so, so much for your insight, your time, and your perspective. To the audience, thank you for watching. This video will be accessible on all of our social platforms as well as our website. And again, stay tuned for that exciting unveiling, if you will. But hopefully, we can get William, twist his arm, and get him to reveal a little bit more for you in the coming weeks. Thank you.
William
Thank you, Julie.
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