Transcript

Jack: Welcome back everybody to the OZExpo Podcast. I'm your host. Jack Heald. Joining me today is Barry Stem, who is the president and CEO of Fortified Precast Technologies. Barry, you're the first cement concrete guy I've had on the show. Welcome.

Barry: Thank you, Jack.

Jack: It's good to have you. I don't know a whole lot about construction, so I'm looking forward to this conversation, but before we get into the business itself, let's find out about Barry Stem. Who are you, where'd you come from? How'd you get here?

Barry: Well, I'm a Florida native; grew up in Clearwater, Florida. I've been a general contractor now for probably about 20 years. I graduated from Florida State University with a degree in business administration. I've had two different precast manufacturing companies, Dirt Tech Precast Technologies, and Rapid Precast Technologies. But Fortified is the pinnacle. This is the one that is absolutely gone to knock everything out of the park.

Jack: So why are you so excited? You know what, I'm going to save that question for a minute. Talk about what Precast Technologies is first. And then we'll then we'll talk about Fortified.

Barry: This is a very advanced form of automated concrete precast production. And the Germans have perfected it over a 40 year period. And the company that we felt was the best company in that market sector in terms of manufacturing the computerized robotic equipment that moves everything around the plant, they basically took a page out of the auto industry where, in final assembly, cars go through station-to-station. As they put the car together, they took the same principle and established that with precast manufacturing. There were three factors driving that. One is after World War Two, there was a shortage of men, most of the countries over there continued to lean more toward a socialist and you know, governments, and so they required a very stringent regulations in terms of employment.

And then the third issue was weather, yeah, so basically. They had six months in northern Europe of buildable weather. And by going indoors, they could manufacture year-round. And so they've continued to refine it now over a 40 year period to where it's exceptional. Vollert I believe is truly the best.

Jack: Spell that.

Barry: V-O-L-L-E-R-T

Jack: Vollert. Okay.

Barry: Vollert Group, they're in Germany. I first met Hans Volar, I think in 2004 and I went back on sequential trips. I have been to Finland, Norway, Germany, Austria, and I have visited 25 different carousel manufacturing facilities in precast. I didn't intend to though.

Jack: Is that what this category of manufacturing it's called?

Barry: Yes. It is called a carousel manufacturing simply because it basically goes in a big circle right from the start of production to the completion and then it starts over again.

It's in a big circle. These steel tables are 14-feet wide by 45-feet long. And in our plant and Vero Beach, we'll probably start out with 45 tables. And so we have a curing chamber. It’s a really unique process that we'll be able to produce 16, 2,000-square foot homes a day.

Jack: Now see, that's the thing that just stopped me in my tracks last night when we first started talking in this plan, you're going to be able to produce from the start of the day to the end of the day, 16 homes.

Barry: 16 homes.

Jack: I don't even have a word for that.

Barry: If you think about ongoing construction methodology and, and current building systems in central and south Florida, masonry block, CMU block is king, right? Florida has the most stringent wind-borne debris and wind load criterion for construction as any state in the country.

Jack: Which makes sense, given what normally happens in Florida every year.

Barry: Yeah. As those wind load criteria continued to increase the design criteria for construction, it's made it more and more expensive for a CMU block to keep up with that they have to do, besides installing the block, they have to do a concrete downpour, reinforced every third course.

Jack: They're not just the normal hollow core bricks there. They've poured concrete.

Barry: They have to pour concrete down every third course. And so when they have these flying debris, a test where they actually are firing a two-by-four, just to see the impact resistance on walls without a doubt, a wood frame wall that has a masonry block wall, that two-by-four can penetrate even the block wall.

Jack: I'm not surprised.

Barry: Except for the area where they have the downpour, so two thirds of the wall was, is vulnerable.
But when it came to the precast, it absolutely shattered that two by four, matter of fact. He even had a hard time finding the mark that it made on the impact. So the difference with a high strength 9,000 PSI concrete steel reinforced wall is that there's no comparison. There’s not a building product out there that’s stronger than this. So we look at it as 70 years ago in Florida, when CMU block started to simply displace wood frame construction and then it became the dominant form of construction. We think that our precast wall will displace block wall like block displaced wood frame construction.

Jack: The benefits of, of this particular kind of construction methodology are many. The first one is speed. You can create an entire house, 16 of them in a day. The second one is wind resistance there. I suspect there's a whole lot more go through the benefits.

Barry: Well, understanding that you can really build a wood frame home that is designed to withstand wind loads. Unfortunately, it doesn't work that way in the real world because a thing called flying debris, 80% of the damage is caused by hurricanes. And when they pass through an area is from...

Jack: Not the wind.

Barry: It's flying debris. It's what the wind picks up and it's just throwing up against a wood frame house, which cannot withstand it.

Jack: Right.

Barry: You know, and some block houses will. And I think we’ve see the results of devastating results of Hurricane Michael after it hit Panama City last year.

Jack: Yeah.

Barry: It just flattened Mexico Beach. There was one house that survived, that stood out there as a beach house and we have it on our website and it had precast components. So that was designed for a 220 mountain or a wind load and it survived.

Okay. Beyond the speed of construction and survival from windblown debris, what are some of the other advantages of this building style? It's termite free. Termites don't like high-strength precast concrete. It lowers your energy costs, that lowers your insurance costs. And the insurance industry recognizes that this is something they don't have to worry about. So, across the board there's some major benefits and we're talking to the major developers. We're talking with DR Horton and Fulton DLNR and they're very anxious for us to get this first plant operational and then they want it in their backyard. So we have a schedule where we're going to be building a new plant a year for the next five years.

We're going to build five plants. It's going to be in Vero beach, Tampa, Orlando, Fort Myers to Jacksonville.

Jack: I guess you do you have transportation costs with these things that are, I would assume, a little higher than a normal stick-built house.

Barry: Yeah, the transportation is a major cost. And it really takes about four truckloads of precast walls for one house.

Jack: Okay.

Barry: So, from your plant location, if you have a-40 mile radius, that is 80% of your work, then you can get there three times in a day.

Jack: Right.

Barry: Okay. If it's anything beyond that, then you're down to two. And if it's a hundred miles, you're down to one. So location is key and you really want the footprint of this to be build it in the path of progress, you want that plant.
You can't look at what happened last year. You got to look at what's going to be happening in the next four or five, ten years.

Jack: Last night as we were talking, I got all excited about the manufacturing side of it. There was one other question I wanted to make sure we addressed. How long does it take to put up?

Barry: A 2,000-square-foot home will take five, six hours. And that's just the perimeter walls.

Jack: Right.

Barry: Garage.

Jack: That's the shell.

Barry: That's a shell. Yeah. It takes about five to six hours to install.

Jack: As opposed to?

Barry: If you were to do block with different stop, go, stop, go inspections and all the different things that you're looking at, it’s five or six weeks.

Jack: Right. So massive time savings.

Barry: Yeah. And that reduces the developer’s holding period, his interest costs, his insurance costs and he can dry in that house easily in three days. And we can ship it with windows and doors. We can add those components to the wall.

Jack: You could ship because you're not gonna get any shifting. I mean that's square.

Barry: Yeah, we can absolutely cast the windows and doors in place and there they have multiple stages.

Jack: I've seen the panel-built stuff, but you'd never in a million years want to ship that stuff. The things I've seen, but I didn't occur to me. You could actually have the windows and doors in it. Yeah.

Barry: And as well as conduit for electrical. I mean, if you take a look at how some of the Europeans value, for example, in Germany there are 40 existing plants today and last year they built 200,000 homes, of which 55% were from the precast manufacturers.

Jack: It has 40 plants building 110,000 homes. It's 2,000 homes a year per plant.

Barry: Yeah.

Jack: Holy Smokes.

Barry: This one that we're building is going to have the horsepower to put out 4,250 homes a year.

Jack: Yeah. I didn't do my math very well there, but, but now you calculate that's about…

Barry: Some of the plants in Germany are relatively small because land is tight, it's expensive, and some of those plants are probably 30- to 35-years old too. I was there and '05 and I saw what they claimed was the first plants. It was 30 years old and that was in '05. So that was 14 years ago and it was operating. Now obviously, they have made some significant improvements and technology and so this is one of the advantages that we have.

This will be Vollert’s first plant in the U.S. They just took an order for eight plants from China. They're building plants all over the world. But we'd been slow. This is something I wanted to do 15 years ago, but this Opportunity Zone is really going to give us the chance to put this thing together.

Jack: I got so interested in the technology, I forgot, completely forgot to bring the conversation around the Opportunity Zone. How does Fortified fit into the whole Opportunity Zone space? Let's talk about that.

Barry: Well what's interesting is, you know, it is quite frankly difficult to go to a bank and say, “Look, I'd like to borrow $18 million to build this plant. And they're saying, “Well, how many do you have?” We have none right now. “What would you like to do?” Well, I'd like to build this plant.

“Well, how much money do you want to put down?” Well, if I put down $8 or $9 million, would that make you happy? “Maybe, it's challenging.” Funding is a major factor. So I think that this bill, this ordinance that they passed is absolutely remarkable and is going to allow us to the, this is a disruptive building methodology that's going to change construction, not just in Florida, but throughout the sunbelt and Opportunity Zone is going to accelerate that dramatically. I mean, we've set up our fund to where we can build five plants.

Jack: Drop that in here. You got to remember..

Barry: I can't do that…

Jack: Folks who are listening don't know that we've had this conversation before. Yes, you can do that. Barry, you have this fund that you've put together as well.

Barry: Yes.

Jack: There we go.

Barry: Yeah. It's called Fortified Precast Technologies. Inc and it is a fund. It's a Delaware Corporation it’s earmarked for $100 million, but we're going to do it in $20 million increments, which is one plant. So, we're going to build it the next five years. We'll build five plants. Now, here's the other side of the equation: the revenue that we can generate per plant is north of $150 million each. And the other side of the equation is that we will employ a 100 t0 155 people per plant, of which most of the people are going to be out in the field doing the erection of the homes. You have a one shift, you have 23 people on the plant floor, which would include three guys out in the yard, but you'll have a back office of 10, 12, 14 people between accounting and some of the technology where a developer will give us a model of a house and then we have to break it down as to how we will cast that efficiently on the table and ship it and install it.

Jack: Sure. You said something that I didn't follow up on last night when we were talking about it, but I need to do that now. In order to gain the step up in basis, you've got to have your money into a fund within 180 days of taking a capital gain. And then there's the fund has got X number of days. I don't remember the time on that, but at some, there's that 31-month rule.

Barry: That's right.

Jack: But once the 180 days has passed, you got 31 months to deploy the 90%, I think is the rule there. How's that fit in with your five-year plan?

Barry: Uh, it takes us 14 months to build one plant. From the time we say go to the time that it becomes operational. The schedule that we're going to hit on this first plant, we should be operational by late July, August, early August next year.

Jack: An asset-specific fund or is it going to be a pool that you're going to build five different plants? Is it going to be five funds or one?

Barry: It's going to be an asset-specific fund. We're going to separate each plant with each fund.

Jack: Okay.

Barry: Okay. The rate of return in terms of what we can provide is really exceptional for the investors. In essence, if you go all the way out through the 10-year holding period and we were to liquidate the plant, the investor would end up with six-and-a-half to seven times their investment.

Jack: And how has the show been for you? 

Barry: Excellent. Matter of fact, I'm thrilled. Matter of fact, I'm thinking I might go ahead and go to the show in New York in August. There's a lot of excitement here. A lot of interesting people. I’ve met some terrific people. I had one guy that approached me about doing the entire fund, not just the 20, but the 100.

Jack: Alright, well let's take this conversation in a slightly different direction because I like to know a little bit more about how my guests think about the rest of the world. I suspect I'm going to get a much more interesting answer out of you then I get out of some people. This question you get to imagine for a moment that you're king of the world for a day. Alright?

Barry: Alright.

Jack: King of the whole world, just one day. And during that one day you get to solve one problem and one problem only. What's the problem you're going to solve?

Barry: Well, using my knowledge and my area of expertise, I think that we can put a major dent in workforce housing, affordable housing across the globe. This technology is been snapped up everywhere. Like I said, the Chinese just placed an order for plants. I know because I have some leverage with Vollert and I've known him for 15 years. I was concerned that we would be pushed down the line behind the Chinese. And he assured me that he wants to break into the U.S., so we were a priority.

Jack: I was right about my gues that this would be a more interesting answer. You've been as king of the world that they might, if you actually do that, they might let you stay for another day or two.

Barry: You know Florida last year issued 142,273 residential building permits and 2018.

Jack: Multi and singles?

Barry: It was something like 97,000 single family. And then the balance was multifamily. This plant at full production will produce 3% of current market demand.

Jack: Wow.

Barry: If you turn around in any build 10 plants of this magnitude, that’s 30%.

Jack: Yeah.

Barry: You can see that the upside of this thing is simply phenomenal. And this will simply disrupt and change how homes are built in the sunbelt.

Jack: A question I haven't asked you is, you talked about how important location is in terms of being able to deliver these panels to where they're going to be erected. Does the cost to build the plant, does that include your land cost?

Barry: Yes.

Jack: Okay.

Barry: Yeah.

Jack: Alright. Well good. Well Barry, this has been a fun conversation. Have you gotten any last words for us?

Barry: Well, I appreciate the opportunity, Jack. Thank you very much for having me on and I am absolutely thrilled with, with the way this show has gone and, and the kind of reception that I've been given now. Now I'll, I'll say this one thing is that my experience seems to be 97% of all real estate-related projects.

Jack: Yeah. It is.

Barry: And for us to come out with a business-related project that has a replication with a high return in revenues and of changing a major industry is construction. We’ve had a very, very good reception.

Jack: Well, I can imagine you would, you've got an ongoing business concern that can be replicated really across the country with a disruptive business of a pretty solid fix. You know what your costs are going in. You know what the, the dollars are coming out of the bottom of the funnel. I can believe that you've generated some interest. I don't have any trouble with that at all.

Barry: It's been a lot of fun. Oh, one guy, just recently in the last hour was really twisting my arm to build a plant in northern California close to where they had 17,000 homes that burned down.

Jack: Boy, I can imagine.

Barry: He's got me convinced. I might end up doing a partnership with that guy, you know, just to appease him.

Jack: Just to get him off my back. I'm going to build a plant. Okay. That's what it takes. Well, Barry Stem of Fortified Precast Technologies. Thank you for being with us today. It has been a real pleasure. I am Jack Heald for the OZExpo Podcast. Oh, I've completely forgot to ask you for contact information. How do folks get ahold of you? If they want more information, want to know about the fund or about the technology that builds these houses, what's the best way to do that?

Barry: They can reach me directly at barry@fortifiedprecast.com.

Jack: Very Good.

Barry: My cell phone number. Can I give that out and do that?

Jack: You can do that, yeah.

Barry: 352-299-0221. And they really want to see what the fund is about and how we have it structured. They can Google fortified.fund and that will take them to our fundraising page. That gives a lot of information and it shows a lot of pictures in terms of how this thing works.

Jack: Do you link to the stuff that you showed me? 

Barry: Yes. I will tell you, listeners, you really need to go watch these videos of this technology in action. It's seriously cool. Alright, now we've got that contact information I’ll remind my listeners that the information will be printed on the podcast website so you can get it off of there.

Jack: For Barry Stem. I am Jack Heald for the OZExpo Podcast. Thanks for listening. Be sure to subscribe and we will talk to you next time.

Announcer: This podcast is for informational purposes only and does not constitute legal tax or investment advice. For specific recommendations, please consult with your financial, legal, or tax professional.
 

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