I’m here with Aaron Holm today, whose background is in building businesses that transform industries. In 2016, Aaron launched Blokable, a real estate development company that’s unlocking the efficiencies of technological and financial system advances. Previously, Aaron spearheaded Amazon’s first two physical retail businesses, Amazon Go and Amazon Books. Welcome to The Journey of Impact Series, Aaron. Being based in the Northwest and as Founder of a housing impact company, how are you and Blokable meeting the moment in terms of the coronavirus crisis?
This moment certainly changed things very quickly. It turned everything on its head and gave us some insight into what was going on in the world. Blokable is a vertically-integrated real estate developer. We build housing, and we do so with a lot of technological advances and engineering to create a building system that we can manufacture and use to create multifamily housing both at market-rate and not-for-profit. My partner, Co-CEO Nelson Del Rio comes out of the world of development, finance, and real estate. I come out of the world of technological innovation, and we put the company together. We both come from similar backgrounds; we both grew up in low-income, single-mother households. We both reached a point in our careers where we really wanted to change the way development works. That’s the common theme between us two. We started Blokable in 2016 and we’ve made a lot of advances in engineering. We’d prototype, build buildings, and then build connected single-story buildings. We’d done a lot of the technological work to get through all the regulations, the finance and the approval process, everything that you need to do to build something that’s legally considered real estate. We had been in a heavy-engineering, heavy-development phase, perfecting the building system, perfecting the financial and the business model to be fully vertically-integrated developers, meaning we control the process all the way from dirt to completion. Part of that work is to create a universal building system that applies to any type of site while the other part is related to the real estate market. Nelson and I had been talking for a while about a coming real estate recession and looking at the fundamentals that would change in a real estate recession, thinking that those would be ideal circumstances for us to move quickly into the fire. We accelerated a lot of our engineering efforts so that we could get everything that we want into our building system so that we’re ready to move.
One of our buildings was being used as a showcase building at our Seattle office. We got a call from the Washington State Department of Health. They were setting up a quarantine facility in Centralia. This was early on, and people didn’t know what the numbers were going to be. The early stage in Washington hit earlier than it had hit other areas. In the early days, everybody just saw the logarithmic math. We realized early on that it doesn’t matter what your number is today. It’s the growth rate that matters. We had seen it day after day, week after week, that the numbers were going up and up. The Department of Health and the state were scrambling, trying to figure out what needed to be the scale of the response here. They were trying to pull in resources from wherever they could find them. So, they reached out to us and asked us if we had built anything we could contribute. They were bringing in RVs and different things to quarantine people, but they didn’t have anything that was accessible for people in wheelchairs. We had a building and we said, “Yeah, sure! We’ll get it lined up for you.” We arranged the GC and the transport to be able to crane the building up and put it on site. We didn’t charge them anything for it. It was a demo building that we had there anyway, and we let them use it for as long they needed to. We just said, “Great, we’ll give it to you.” No one really knows if there are quarantine people in there or the nature of the building. As of today, people have a much more mature understanding of what’s happening with the virus regarding the potential implications, the real risks, the number of ventilators, the number of ICU units, etc. People have narrowed in on what we need to be focusing on and on real responsibility.
But, in the early days, people were scrambling. That transported itself into companies as well. Nelson and I were on a call with an investor, and they had a lot of their portfolio companies on the call. They were talking about some of the things that you should be doing. Nelson and I realized that we had done all of this in our early days. We’d been through multiple recessions. I was running New York in 2008 when suddenly the bottom fell out of the economy. The first company I started in the States after coming from Canada was at the end of 2001. Nelson and I both had been through recessions and saw some patterns of things that you should do. You need to figure out what you want to do and respond right away. You have to have hard conversations and do the things that need to be done to quickly to set up everybody involved to be successful. It’s an opportunity to step into what’s happening and settle into a new reality to move through it while being very conscious and aware of what’s happening. At times like this, belief systems and lenses don’t necessarily apply right now.
How have you stepped into that reality and checked your proclivity to create a new narrative? What type of visioning has been growing out of this that might not have occurred three months ago for you?
There are two big ways. I’ve gone through the process before and often go through the process of challenging my own belief systems and my own narratives. A lot of that comes from the work of going back and looking at how you grew up, what your belief systems were, and then getting underneath and challenging those beliefs. It’s a vital process. If you’ve done that, it can make you skeptical of things that are in front of you because you know that stories are stories. We all have tendencies and patterns. Being able to see those things gives you the opportunity and the ability to challenge them. I grew up in a chaotic environment. We were constantly moving with different people around, settling with different families or moving in with a different boyfriend. When chaos hits, I tend to be comfortable in it. It’s familiar to me. I know I can navigate it. When things are stable, I get concerned. It’s usually an indication that things are about to go sideways. That’s my own pattern.
That’s what’s happening right now. Everyone thinks in a certain way, but something has knocked the foundation out for everyone. A lot of people are trying to figure out the story they want to apply to this. Once they do, they’ll operate from that point of view for some period of time, be it six months, a year, two years. Personally, I’m consciously not doing that given the uncertainty because the truth is that we don’t know. I don’t know how this is going to unfold. I don’t know where it’s going to go. All I know is what’s happening in the moment each day. We’re dealing with staff and others who we work with. There’s a lot of fear and nervousness out there and how I move through it all is important. In all my conversations, whether it’s with someone at the grocery store or whether it’s with someone who’s on our team or an investor, in any of those conversations, I need to be coming from a deep place.
What does culture potentially look like as a result of this, if we steer it potentially in a more humane, environmentally conscious way?
It’s the opportunity to manifest. Before this reset, there was a lot of noise. We knew certain truths; we knew a lot of things just weren’t working, particularly in the world that we work in – housing. If the market doesn’t work, housing doesn’t work. We looked at it fundamentally and structurally from the bottom up all the way from how the housing is built, to how it is financed, regulated, and incentivized. Putting all of that into a business model, this is how the market should work, right? We’re not trying to put a band-aid on the previous market and sell a widget that’s going to go provide profit for an existing incumbent. We’re saying, no, this is when the market should work like this. Now that’s a big thing to push on. In a scenario like we’re in now though, there are a lot of the pressure points that were there previously that are now really exposed. In terms of housing, people who are vulnerable before are now either on the streets or on their way there. Vulnerabilities have been revealed.
Before the crisis, the market was peaking. People were making a lot of money. Everybody’s doing well in those types of scenarios. The incumbent industry has no interest in things changing. We’re hammering away at it, thinking this is how it should be. This is how it should work. Now all of that just got thrown up in the air where all those baseline assumptions are now challengeable. As people emerge from this, there’ll be a healthcare crisis, and then there’ll be an economic crisis. Who knows how long any of that might last. At the same time, there’s the opportunity to question long-held fundamental assumptions about how the housing market works, how it’s financed, what kind of projects get built, why do they get built, where they built, who gets to live there, what they cost, all those things. For us, when the crisis hit, everything became very clear. Knowing we’d be pushing the rock up the mountain, the areas we need to focus on become clear.
Of course, there will be a period of damage control. Let’s make sure everybody stays alive, and then let’s make sure that we understand what happened. Let’s make sure that we are figuring out what’s going to come next. We have a pretty clear vision of what we think the market should look like coming out of this in terms of housing development. The market generally doesn’t spend anything on R&D, but we’ve spent four years and millions of dollars on R&D. R&D should be a key aspect of developing housing, looking at how the finance should work and what it means to take real estate from land into completed housing.
The question is how do you act? How do you set up a market and a structure that can scale and can function? We looked at it very early as it was happening. It was all very clear; it’s all stuff that we’d been planning for.
I share your belief on how it should work versus the way it’s currently working. Obviously, there’s a lot of inertia in the system. People are going to be open to listening to your new system as a result of this potential collapse. It’s been years that you’ve been beating that drum; what keeps you beating that drum? I want to know the whole composite of how you keep saying “yes”when the world is largely saying “no.”
The first key is to find the right drum. You don’t want to be beating on the wrong drum. We are careful to put this together very intentionally, structured in a way to solve a problem. The problem is housing and how the housing market works. The best approach that I’ve ever heard is that you work on things because you wish they existed. You make it happen. We take that approach. The fact that a lot of incumbent people are resistant is agood sign. One question we ask is does the market work. No, it doesn’t. There’s no way that you can possibly say the market works. Another question we ask is are the people who are generally incumbents in that market resistant to change? Yes. No one who’s made a living and built a career on something wants to challenge the fundamental assumptions of why it’s there. Very few people have the will to look at it and destroy it for something that would be better. That’s very rare that people do that. The other part of the question then is why?
This is something Nelson and I both have in common. When you grow up with nothing, nobody thinks you’ll amount to anything. There are jobs in the world that you could go and hold that would then give you the ability to have a life, pay rent, and exist. That’s the bar. You can do that and not be on welfare and not be in jail. It’s how can you avoid those things. This is where a lot of people go and just exist in the world. You do that, and that seems successful.It’s the same as any other neighborhood, except some of the conditions and the access to opportunities vary from neighborhood to neighborhood. There are bright, ambitious, and talented people, but the world throws every obstacle in their way and creates challenges. When you grow up in an environment like that and you do figure it out, you’re not worried about people telling you can’t do something right or telling you that something’s a bad idea. This is because none of the orthodoxy that you look at resonates. You look at it and you say, all of what I see in front of me is an obstacle. It’s a lens to how you view things. These aren’t necessarily systems that I think are high functioning. In a lot of cases, they’re systems that need to be fundamentally reevaluated and thought about. Then, it’s a matter of what is your lens in doing that? You can see it and say, “well, my lens is that everything is about money,” which is one way to look at it. You can be effective, but it doesn’t get to the deeper part of it.
My makeup is that I’m going to work. I work really hard, and I love working on whatever I’m working on. I just have to be really careful about what I choose. I have to make sure that the thing I choose to work on is something that I’m interested in solving. To answer your question, that’s where it all comes full circle. The drive to do it has always been there; beating on the right drum though is key. If you’re not careful, even with talent, you can end up beating on the wrong drum. A lot of people thought you could take people who are talented and have them work on things that just don’t deeply matter. They’re working on things that are just either intellectually interesting or they’re just about money. You can convince yourself that anything is worth it. You have to ask questions like, “How honest are you?”, “How is it worth it?”, “Is it real?”, and “Can you keep coming back to this as a guiding principle?” On the other side of it, it’s not just that people are going to say “no”to you. It’s that people are going to take your legs out. They’re going to attack and destroy you. It’s not that they don’t want to say nice things about what you’re doing; it’s that they’re actively going to try to destroy it because it’s a threat. When you get to that point, then you’re onto something. When you get to the point where people are spending money to try to take you out, realize this is good.
Are you able to solve the housing problem or is it potentially that housing is a public health issue?You’re working at an engineering level to work on the housing component and you’re working on the systems integration to get something started from scratch, to have something that can be lived in, but let’s look at that as one module of another potential module. What might the vision be for Blokable to actually participate in the public health conversation?
People don’t generally don’t see housing as a system, right? One of the primary issues is that housing needs to be an adaptive in an elastic system of which it is not. Housing needs to be responsive. It needs to adapt to changing demographics and changing realities. It cannot and does not because of the way that it has traditionally functioned. I look at it the other way, that housing is at the base of all those other issues: education, health, wealth opportunity, everything. Housing is the basis. For me, this is lived experience. I know that’s the reality. You can learn so much from seeing where people grow up. If they don’t know where they’re going to sleep, if your home life is not stable, it’s not healthy. When there is a whole bunch of risk factors such as that, you can forget about school. School’s going to be really hard. It’s complicated to commit yourself, devote time, get good grades, and do well in school. You can then look at all the health things that come out of that. The studies are out therelooking at the relationship between unstable, poor housing and outcomes in education and healthcare. We see that, but we don’t look at it as having to enable any individual one of them if we do what we’re doing byvertically integrating the housing process so that we’re not dependent on the existing structure.
We can go as fast as we want. We can scale as big as we want. We control the development process. We control the manufacturing process, we control the finance process, we control the whole thing. By doing that, we remove obstacles to scale. We can develop at a different cost point making the work that we’re doing financeable better than the market. That means that our projects are a better return than what you would see out in the marketplace because we’re the only ones leveraging all the engineering that we’ve done to hit price points that the market can’t hit, a better investment overall. In doing that, it lets us build in places where other things couldn’t get built. A reality in housing is that you have a market-rate housing industry and you have a not-for-profit housing industry. They’re very different. They are financed differently and have different realities. By creating a structure for us that allows us to operate in both worlds by using the same fundamental R&D innovation, leveraging that same efficiency and cost advantage into those two different markets, it lets us operate in the real world of housing. On top of that, we know that opportunity is the real cause of the issue. It’s the issue that enables education and healthcare. It’s that layer of opportunity. Early days of opportunity are created by housing. You can look at disparities in income, geography, and demographics, but it’s all ultimately opportunity access. If you have opportunity outcomes in education and healthcare, they change dramatically.
If you try and push it top-down, asking for example, how does housing impact healthcare? We can’t get to the answer. Or, what can we do in housing to improve what we’re seeing in our education data? We can’t find the answer. We worked with a lot of different groups that are working at the healthcare layer. They see all of this in their data. They see poor housing, they see homelessness, and they’re spending money but they’re spending it top down. Even as a large healthcare provider that may have lots of land, lots of money can’t solve the problem. There’s still have no ability to solve the problem because you have to hand that money over to an industry. Who knows exactly what they’re going to do with it. It’s likely going to be the same answer coming back every time.
Let’s look at a fundamental issue such as price per door to build new housing, a fundamental issue in the Bay Area. I’ve got this much money; I’ve got this much land. But, what’s the cost per door? If you can’t change that dynamic, you can’t change anything. The market is as it exists. Whether you’re a not-for-profit, a healthcare provider or an education provider, you go to the market and ask for something to be built. In these cases, the cost is the cost because all the variables are the same. For us at Blokable rather, we start from the bottom-up, asking how do you and why do you develop housing from the ground up.
Where’s it going to matter? In most cases, it will be in multifamily, middle-density infill because these are the types of projects that have the greatest impact since you can take the education and healthcare part of it. Then, the biggest impact is actually on climate. If you look at the totality of impact to climate in housing, it’s enormous. The first component is the construction process. What does it take to build new housing? It takes 550-600 million tons of material waste every year in the US. Stuff is thrown into the garbage because of how we build because everything’s a one-off construction. Buildings contribute to 40% of climate emissions globally in terms of how they operate. They are wasteful simply because of how they’re designed, built, and operated. Then, you take location andwarehousing into account. Typically, in the US, we keep building further and further out. If you’re income-restricted, if you don’t have the ability to buy or rent close to your work, you’re pushed out further and further. This leads to people building track homes andsuburban developments farther and farther away. People are driving an hour or two hours to get to where they live. Those are vehicle miles traveled. These emissions add up. If you take those three factors together you can take steps to drastically reduce the amount of waste during the manufacturing process. We’re working with NREL on measuring that. In that case, we can create zero-energy multifamily units, and we’re working on validating that process. The trick is to locate them in places that are actually closer to where people work. Right now, climate is not super intuitive, but one day it will be. The effect on climate means that the market needs to work differently. We’re not trying to fix the current market, we’re creating a new market with a totally different process. It needs to be that level of approach for meaningful change. You can’t just move the deck chairs around. That isn’t going to do it. All that leads to that idea of opportunity. This is where we can make the biggest impact. We can address climate, health,education and all that, but the bigger area of impact is access to opportunity and housing. Housing is the leveler.
I love that response; you really have connected the dots. Thanks so much, Aaron. We really appreciate hearing your story, and I enjoy the work you’re doing equally as much as the way that you talk about the work that you’re doing.
Thanks, Gino. It was good to talk.