Episode 1 - Kaveh Khatibloo, CEO of Stillwater Dwellings

The Prefab Pod

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- Prefab Review (PR)

Hi my name is Michael Frank and this is the Prefab Review podcast presented by Prefab Review where we interview leading people and companies in the prefab housing industry to learn more about them and make it easier for buyers to make the best decision about your next prefab or modular project. Today we're interviewing Kaveh Khatibloo. Sorry if I butcher the name. He is the co-CEO of Stillwater Dwellings and they are a luxury prefab home designer based in Seattle. So welcome Kaveh.

- Stillwater Dwellings (SD)

Thank you. Good to be here Michael.

- PR

Great. Well just to get started, I know a little bit about Stillwater Dwellings but I really honestly don't know very much about you. It'd be great to understand how you got started in this business.

- SD

Sure absolutely. Hello everyone. I actually started in this industry when I was quite young. I was born in a family of architects in my immediate family as well as cousins, uncles, and extended relatives. So at a very young age I actually grew up in housing with designing our own homes and working in my father's design studio as a teenager just as a draftsperson for many, many years. So when I decided to start my own career, I attended Worcester Polytech in Massachusetts and studied structural engineering and to sort of complement the design skills that I had acquired and after a few years I moved into the prefab industry. And even as a young teenager I was fascinated by the industry itself and I always found that that's a more progressive way of building a house and to a large degree much more sustainable approach to the custom building industry. And I found the company Massachusetts named Deck House that had been around for many many years.

- PR

Is that Acorn Deck House now?

- SD

That's correct yes. When I joined them in the early 90s they were just deck house, they acquired ACORN which was the competitor a few years after that. And my attraction to that company was they were more of a design centric prefab company and I always personally believe that design should be the forefront of every company even if it's prefab and their philosophy and approach sort of matched my personal beliefs and I worked for them for many many years and until mid 2006-07 I became director of client services for the west coast operation, moved most of the operation to San Francisco Bay Area and Seattle. Then subsequently partnered with Dwell Magazine and some outside architects that were actually very successful in the prefab and we developed a series of homes called Dwell homes by Empyrean and very successful until the housing crash of 2008. After that I consulted for some of the bigger companies in the industry and 2013 joined Stillwater which is a local company at that time quite viewed as a startup and was a very early stage of it. And as a chief sales officer for the company I helped the company grow and then eventually bought the company from the founder and with my current partner John Morgan, we have successfully been able to extend our reach throughout the United States and kind of provided an innovative approach to mid century modern design that I personally am very attracted to throughout the country itself.

- PR

Can you tell me a little bit about Stillwater for those who haven't seen them. And I would encourage you to check out their website or we have some coverage of them on our site as well to see the photos in person. But what do you try to do? What I've seen in the past is very aesthetically nice mostly single family homes. It's a pretty high end product. Can you Tell me more?

- SD

Oh absolutely. Stillwater Dwellings is essentially a design studio concentrating on currently our product line is a mid century modern butterfly roofs that were quite popular in Palm Springs and Central Coast California. And our intention was to be able to sort of update this iconic design and bring it to you know today. Today's lifestyle it kind of adapted to today's lifestyle. We chose pre fabrication as a predictable delivery system for our homes in order to be able to control timeline design cost with a predetermined set of details that we use and incorporate into every one of our homes. Right now in this day and age the prefab is such a broad terminology that a lot of different companies use but in reality we're closer to what we call the system built house. We have a set of design construction and fabrication standards that we use in every one of our homes. And using those systems we're able to come up with the right to different floor plans from something as small as a 700 square foot to you to a six thousand square foot completely custom designed home. We feel this approach allows the clients who want to build a custom home. to explore different options fit different sites different budgets different wish lists and complement that with it with a first class customer service throughout the United States. We can have a series of successful projects throughout the country.

- PR

So just to be clear when you think system built you're saying that it is certainly not modular correct ?

- SD

Yeah, correct.

- PR

So it's not going to look like a shipping container getting shipped down the highway before it gets installed. Are you actually prefabricating the kit or is that being done by independent factories? How is that sort of construction?

- SD

That's a good question. We actually can do both modular and the current system of use as a panelized construction. Modular is what you refer to and is what you see on the highways you know as shipping containers and driving to different job sites. Although it's a it's a much faster when you're building a house. It does impose certain design restrictions and dimensional restrictions on the actual design of the house. And we felt like the initial projects that we tackled back in know from 2002 -2007 till 2013 lack the diversity and the flexibility that our architects wanted to have. So soon after in 2013 we incorporated and started using panelized construction into our homes.

- SD

We are currently partners with two different fabrication facilities both in Washington and in California and in a very near term future we actually are about to open up our own facility and then bring that under our own roof if you will and control the process from beginning to the end.

- PR

Got it. That's interesting. And that'll I assume be in the Pacific Northwest. Is your new facility also going to be in the Seattle area?

- SD

We don't know yet. Most likely not, as a national company would try to find a location that can service most of our primary markets. Right now primary markets is essentially west of Colorado, west of the Rockies. So we want to have a facility that can minimize the shipping costs and have it reach to the edges of the property market. Although we've done projects in Massachusetts and Hawaii and we have beautiful projects in throughout the United States the primary market that we essentially ship to and design for is the West Coast United States.

- PR

Got it. Yeah. Yeah it seems like we we've probably received like a dozen announcements this year at our site from people opening up factories kind of. I think that inland California I guess it's the sort of way of describing it it seems like. I don't know if that's what you're looking for that's where we've seen a lot of these happening in the past.

- SD

That's correct.

- PR

And then so basically so you're creating a panelized solution. re you only building the shell of the house? Does that mean a local contractor is then building the foundation and doing the interior of the house or what sort of the division of labor?

- SD

The material that we provide for the House are essentially the shell plus siding, interior doors, hardware, roof system and some of the specialty components such as the canopy and the visor and the specialty sheet metal elements that are incorporated into our designs. Those are provided by Stillwater throughout the United States. The general contractor is going to be responsible typically for the site work,foundation, assembly of the package if you will and all the finishes are done by the contractor including mechanical work. However there is a there's a there's a considerable amount of specifications that we provide the contractor for all the finishes whether it's light fixtures to towel bar holders to kitchen cabinets essentially. We do provide the contractor a complete set of specs for the finishes as well so they don't have to chase a client for months on end to be able to figure out what kind of light fixture that they want to do.

- PR

That makes sense. Are most of the contractors you work with people from your own personal network?

- SD

Yeah. That's actually an excellent question. To make this process even more pleasant for the clients. We work very hard to retain the contractors that we have worked with in the past. There are contractors that I've been personally working with in California that have been building panelized homes for me for about 15 years. We actually do receive inquiries from a lot of contractors that have heard about us through either the building department or financial institutions or clients and neighbors and friends that want to join a cadre of professionals in our primary markets. We train new contractors all the time. They are well taken care of. It's actually part of our success. I can easily say is because of the contract network contractor network that we have throughout the country. They have been well served by our clients and by us as well. And the combination of what they do and what we do is what makes the entire project successful.

- PR

Got it. That makes total sense. So we get at our site and you probably get well over 10 questions today from different readers and figuring out the local contractor if they're working with an architect who's not as experienced in prefab as I would say probably the number one pain point source of questions. So that makes total sense. So does that mean that I'm kind of in the Western half of the United States you have pretty strong networks throughout and maybe a little bit less developed on the east coast?

- SD

On the West Coast Unite says we have a very strong network of contractors. You're absolutely correct. However through my previous affiliation with Deckhouse/ Acorn and it essentially became Empyrean. I do have access to a large court network of builders throughout the United States where I know from time to time I access and I talk to them. And even in areas where we may not have new contractors we essentially tell our clients that you know as their partner it's our job and responsibility to assist them in finding a contractor - Unlike some companies who essentially wash their hands from selecting a contractor because of liability of whatever it is we actually are heavily involved in not only contractor review/ interviews, oversee their pricing, make recommendations to the customer, and actually forge a relationship with that customer for our future growth and as well as making the existing project more successful.

- PR

Got it that makes sense this definitely something of value. So what's your average price point? I understand that it probably varies a bit and everybody needs to say average price point but the way we like to try to coordinate our site which most manufacturers get upset with us is we try to say what does it cost to build a house? So it's possible to kind of break down how much will a Stillwater Dwelling end up costing on a dollar per square foot basis on average. And then what is the kind of local contractor cost?

- SD

Oh absolutely.

- PR

If you want to make it easier we can say on a flat lot in the San Francisco Bay area to start and I understand the San Francisco Bay area is a very expensive area.

- SD

I'll actually give it to three different examples and probably look a little bit easier. The national average for our projects is about four or five hundred dollars a square foot. Okay. And considering some areas in Texas for example you can build still build something for about 350 square foot and San Francisco Bay Area as is most likely over $500 a square foot. But the constant element in this is the cost of the Stillwater package price and that's roughly about depending on the size of the house. It varies from a hundred and eighty to two hundred twenty five dollars a square foot larger homes tend to be less expensive as you know on smaller homes tend to be on the high side cost perspective. Contractor price which varies between 200 to 400 all a square foot. So if you're building in San Francisco Bay Area on a typical lot I mean even if it's a flat block the foundation costs and all the seismic regulations and the higher labor costs for some of the work has a tendency to increase that costs. So with my clients in the Bay Area which actually we're doing 40 or 50 different projects there right now those projects has a tendency to start at five hundred dollars a square foot and up and they do go up to $550, 600 depending on some upgrades and windows and some selections that they want to have. But usually starting at a $500/$550 would be a reasonable cost for about a two thousand twenty two hundred square foot house.

- PR

That includes soft costs?

- SD

That includes all costs. Yeah. That's actually an excellent question. One of the things that we emphasize in our design seminars that we conduct nationwide is as a company a long time ago we have decided to include the total project cost and in all my career I have never been able to distinguish between the soft cost on a hard cost as far as the client concerned. These are all costs. I mean it's easy to distinguish between them but in reality it's our responsibility to tell our clients to know how much they have to spend in order to move into the house. And that's what we do for them.

- PR

So we deal with quite a few companies here and one of the things that we hear it's almost become cliche sometimes and I'm not sure if this is true for you is the plans we have on our site are never the plans that get built meaning like you know a lot of the prefab companies have very nice looking plans on their site. And I'd say those serve kind of more inspirations than is actually what gets built. Most things get customized. Is that true for you as well or would you in the back in building a lot of the plans on your site?

- SD

The business model changed a little bit since the recent fires in California. You were correct in assuming that the times that we have on our Web site or we do publish in our plans book we're more of an inspiration for our clients and as a full service design studio we actually make modifications to these plans internally so it's very for us easy for us to make custom design or modify design based on those. However with the recent fires in northern California and also in southern California, Malibu has created a path for our customers who want to accelerate the design process significantly. So we have introduced a series of what we call the pre engineered homes so these homes are not only designed but they're also engineered for different parts of California and then in most cases they've already been built in one or two different locations. That engineered version of these plans allows the clients to cut six to eight months from design and engineering so they could literally take one of those plans and as soon as we modify the foundation to fit the existing site in a matter of weeks we can apply for a building permit.That has become a very attractive option for a lot of our clients who've lost their homes and they want to take advantage of the speedy process.

- PR

That's great to be you can actually get homes built in like six months or so?

- SD

Yeah, from the beginning to the end, including design ,engineering, pricing builder selections and moving in it's maybe about 12 months 13, 14 months they can do it. It never goes that way but it's essential even for California to build something under a year and a half is almost unheard of. But recently we've been able to do it quite successfully.

- PR

It's great. It sounds like you've really helped scale the company since joining about how many houses are you building a year these days?

- SD

Right now we have 50 active projects in our queue and active projects are the ones that we're working on. It's either under construction or permitting or engineering or schematic design or different phases. And that number is actually increasing significantly on an annual basis. We are adding new architects and professional interior designers. So we're becoming even more and more full service in what our offerings are to our clients because they constantly ask for more services from us.

- PR

So you're doing interior design for clients as well?

- SD

We do. That's a new service that we just started providing our clients full service interior your design services. We find that a lot of our homes a lot of our clients even though we provide a comprehensive package of finishes for our clients they choose to hire outside designers and interior designers to some color selections or when they want to deviate from our standard package

- PR

Are you helping with furniture selection and art as well?

- SD

Absolutely.

- PR

That makes sense. At your price point in the sort of tech world that I come from, a lot of times we talk about people having more time than money or money than time and I think it seems like at that 500 dollar plus square foot package, a lot of these people are really happy to pay for the expertise.

- SD

So that makes total so they don't have the time to be able to do it and then we have the expertise and knowledge and or know how to be able to manage these projects in from soup to nuts for them.

- PR

So just for this next session it's been great to learn a bit about Stillwater dwellings, We have what we call a quickfire round so this is more general prefab stuff. We'll give you a question to try to answer the questions in one minute each question one that are less. And we'll go through a few. Sure. This is mostly my chance to become smarter about things I want to understand more about. So building on hills, what do clients have to be aware of and how do you and local contractors help with that and feasibility etc.

- SD

Hillside building is actually a little bit more challenging than flat site. The slope of the hill will impact obviously it's on the foundation increased square footage on a lower level. And then the stability of the hillside is always a big element that we have to consider. So a comprehensive geologic study of the site is always needed in order to be able to estimate the cost of the foundation early on and subsequent design of the foundation itself. We can however adopt and modify any of our designs to be on a hillside and we do that very easily.

- PR

Will you be the main point of contact if I say I buy land in Marin near here. Would you be the main contact or would you connect me with a local contractor who is the main contractor for that feasibility?

- SD

No we actually are the main point of contact for every one of our projects even during the construction where there is conversation between the owner and the builder to always get a symbol for sometimes the conversation goes to us to the contractor. Even though the contractor is hired by the by the client independently we are always a main point of contact before after and during.

- PR

Got it. All right. So you said you partner with two or three factories right now for prefabrication of your shells. What are the things you look for when you're doing diligence on a factory? What are the what are the key aspects in terms of saying this is a good partner versus this one might not be for us.

- SD

Sophistication and fabrication is actually a key element. Most of our homes actually all of our homes are designed and fabricated to much higher tolerances than anything else. We usually use sixteenth of an inch tolerance so they first they have to be able to have the ability to work with the software that we use. Well fabrication software that we develop in order to be able to make these panels or all the elements in the house itself. Second they have to have access to the much high grade of lumber than what you find in typical Home Depot or what most custom projects work with. Those are the key things. And also some fabricators generally like to work with more commercial aspects of prefab vacation. So standardize 8x 10 panels is something that's very typical with most fabrication companies. However custom prefab vacation is a is a rather unique and intense industry. It only slows down the fabrication process and the facility has to be able to understand the economics of custom building which is different than commercial building which is very standardized and typical panels that get flushed out of there like a fabrication company can produce eleven hundred to twelve hundred linear feet of wall panels but by the time it gets to something as highly customer specialized as Stillwater that production is reduced to about 650 to 700 linear feet and they have to understand the economics are going to have to be willing to to work with us at providing our customers with a first class service.o

- PR

Do you end up using SIPs (Structural Insulated Panels) like a lot of these other companies as well for your panels?

- SD

No we do not use SIPs for a variety of different reasons. One of the main feedback that we get from a lot of contractors is that they are uncomfortable working with sips especially if they have to run plumbing through it, electrical, you know ductwork they always have to be able to find a route different areas through the installation to get that equipment through. Secondly the value of our homes especially the wall assemblies and roof assemblies are actually higher than what sips products offer. So which is kind of surprising because sips are known for you know as an insulated panels apply themselves but we actually need to have a much higher R value specifically because of the amount of glass and glazing that we use throughout our homes. There's a specific number that we have to hit that far exceeds even title 24 in California.

- PR

And title 24 is the zero net energy mandate?

- SD

That's right.

- PR

OK. And then finally, I don't know how often you see this, we see this very frequently on our site. Do you have people who end up basically building Stillwater dwellings home either as developers or for the purchase of kind of doing what I would call a long fix and flip? Like an 18 month fix and flip meaning I still buy a piece of land, build a Stillwater Dwelling house for whatever you said, $500 a square foot and then you know selling it for nine hundred or fifteen hundred dollars a square foot. Do you have experience with people doing that?

- SD

No we don't. It's interesting we have had developers actually partner with us. You know we have discussions with them and in the past you know it looks like the economics could work but we really have not had a chance to work with developers and you know to build a Stillwater home. The custom residential industry that we specialize in has a different economic equation than what the developers are looking for and the services that we provide is generally duplicated by what a developer does and for an end user that becomes very beneficial for a developer. Essentially it is something that they are going to be paying for and they've never bought them out. We have a lot of hand holding that we do through our clients for small visits and contacts with as you said for a professional in the Bay Area becomes quite useful. But for a developer they're set up to do exactly what we do. So it's really redundancy of effort.

- PR

That makes total sense. OK. So final question what are you most excited about both for Stillwater dwellings and kind of for I guess the prefab industry as a whole going forward for the future.

- SD

Yeah that actually as a prefab industry in my career which is expanded you know multiple decades. I have seen a tremendous growth in the higher end market which is essentially what prefab can actually do even more service than a mid-range market. There's more of an acceptance especially on the West Coast. The East Coast was a little bit more established the pre fabrication was more stable than it was in the West Coast until 2003 essentially but now we are actually seeing you know four, five, six million dollar client we have clients that are millions of dollars and want to spend on prefab and for them there's the pejorative term of prefab has been eliminated and now they are actually beginning to realize this is actually a much higher quality home with much better design features than even some stick built home and traditional architectural firm. At Stillwater we are excited because our decade long effort to establish this company as a recognizable brand has really paid off. We have been diligent about maintaining a certain standards without compromising it just for the sake of the next house also so if you will. And now we are recognized throughout the country as one of the best brands and this is quite valuable. This is what actually gets me up every morning to come to work is just how we've been received throughout the country. So it's one of the best companies out there.

- PR

That's great. Thank you so much for taking the time to tell me and the audience about Stillwater dwellings. All the best of luck to you in the future. If you want to learn more about Stillwater dwellings go to StillwaterDwellings.Com or check out the content we have about them on prefab review. Thanks Kaveh and speak to you soon.

- SD

Thank you very much Michael and I just want to thank you for the services you do by the website that you have is very educational I've gone through it and a lot of clients have visited I'm sure they're gonna benefit quite a bit from it.

- PR

Thanks again. Thank you very much.