Concrete Prefabrication and Offsite Construction in Brazil: A Development Case Study in Mato Grosso
by
Daniel Smicka
B.Sc., International Trade, 2011
University of Economics in Prague
M.Sc., Entrepreneurship and Innovation, 2014
EMLYON Business School
Submitted to the Program in Real Estate Development in Conjunction with the Center for Real Estate in Partial Fulfillment of the Requirements for the Degree of Master of Science in Real Estate Development
at the
Massachusetts Institute of Technology
February, 2021
©2021 Daniel Smicka All rights reserved
The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created.
Signature of Author______Center for Real Estate January 8, 2021
Certified by______John Kennedy Lecturer, MIT Center for Real Estate Thesis Supervisor
Accepted by______Professor Siqi Zheng Samuel Tak Lee Professor of Urban and Real Estate Sustainability Faculty Dicrector, MIT Center for Real Estate & Sustainable Urbanization Lab
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2 CONCRETE PREFABRICATION AND OFFSITE CONSTRUCTION IN BRAZIL: A DEVELOPMENT CASE STUDY IN MATO GROSSO
by
Daniel Smicka
Submitted to the Program in Real Estate Development in Conjunction with the Center for Real Estate on January 8, 2021 in Partial Fulfillment of the Requirements for the Degree of Master of Science in Real Estate Development
ABSTRACT:
With a large, growing, and young population, Brazil suffers from a chronic shortage of affordable housing. This crisis, in particular, negatively affects new and economically ascending entrants to the housing market. This economic crisis is unfolding concurrently with the global environmental challenges associated with climate and sustainability.
This thesis explores the application of modular construction in an affordable housing project in Cuiaba, Brazil. This thesis is comprised of three distinct sections.
Section I provides a historical overview of offsite construction with a particular focus on precast concrete in modular construction. It describes the forces and some of the most notable projects and figures that shaped precast construction - especially in its European cradle. It further provides a comprehensive classification of current modular construction and discusses its benefits and limitations.
Section II analyzes Brazil’s ongoing housing crisis and Brazil’s economic trends and realities. It discusses Brazil’s National Housing Policy and its flagship program – Minha Casa, Minha Vida.
Section III takes the reader to Cuiaba, Mato Grosso's capital, and proposes a 528-unit affordable housing development project there. It explores the establishment of a mobile concrete precasting plant and analyzes the production and application of a novel modular concrete system in the project. Particular attention is paid to the financial viability of the project.
Thesis Supervisor: John Kennedy Title: Lecturer, MIT Center for Real Estate
3 TABLE OF CONTENTS
1. INTRODUCTION ...... 8 1.1. GLOBAL TRENDS ...... 8
2. WHAT IS MODULAR, WHAT IS OFFSITE, AND WHAT IS PREFABRICATION ...... 10
3. A BRIEF HISTORY OF CONCRETE PREFABRICATION ...... 11 3.1. THE BEGINNINGS ...... 11 3.2. INDUSTRIAL REVOLUTION ...... 12 3.3. BAUHAUS ...... 14 3.4. LE CORBUSIER ...... 15 3.5. AFTER THE WWII ...... 17 3.5.1. Eastern Bloc ...... 17 3.5.2. The Camus System ...... 18 3.6. AFTERTHOUGHT ...... 19
4. CATEGORIZATION AND CLASSIFICATION ...... 19 4.1. VOLUMETRIC MODULES ...... 22 4.2. NON-VOLUMETRIC MODULES ...... 23 4.3. 2D & 3D HYBRID ...... 23
5. TRANSPORT AND LOGISTICS ...... 24 5.1. ON-SITE LOGISTICS ...... 24
6. THE BENEFITS OF MODULAR CONSTRUCTION ...... 25 6.1. TIME SAVINGS ...... 25 6.1.1. Design ...... 25 6.1.2. Foundations ...... 26 6.1.3. Offsite construction ...... 26 6.1.4. Onsite construction...... 26 6.1.5. Rework ...... 26 6.2. COST SAVINGS ...... 27 6.2.1. Construction costs ...... 27 6.2.2. Site overheads ...... 28 6.2.3. Materials...... 28 6.2.4. Labor force...... 29 6.2.5. Transportation and Logistics ...... 29 6.2.6. Factory costs ...... 29
7. BRAZIL ...... 30 7.1. ECONOMY OVERVIEW ...... 30 7.2. ORGANIZATION ...... 33 7.3. POPULATION...... 34 7.4. INCOME DISPARITIES ...... 36
8. REAL ESTATE MARKET...... 37
4 8.1. RESIDENTIAL MARKET ...... 38 8.2. HOUSING DEFICIT ...... 39 8.3. HOUSING POLICY - MCMV ...... 40 8.4. HOUSING FINANCIAL SYSTEM AND ITS ACTORS ...... 40 8.4.1. Federal Government ...... 41 8.4.2. The Ministry of Cities (Ministério das Cidades) ...... 41 8.4.3. Caixa Econômica Federal ...... 41 8.4.4. States and Municipalities ...... 41 8.4.5. Private Sector ...... 41 8.5. MORTGAGE MARKET ...... 42
9. DEVELOPMENT PROJECT ...... 44 9.1. MATO GROSSO ...... 44 9.2. CUIABA ...... 44 9.3. RESIDENTIAL MARKET IN CUIABA ...... 45 9.4. THE SITE ...... 49
10. THE FACTORY ...... 55
11. THE PRODUCT ...... 62
12. AREAS A & B ...... 69
13. FINANCIAL ANALYSIS ...... 72 13.1. IMPACT ANALYSIS ...... 76 13.2. CAPITAL STRUCTURE ...... 77
14. CONCLUDING THOUGHTS...... 79
15. BIBLIOGRAPHY ...... 80
5 ACKNOWLEDGMENTS
I would like to sincerely thank my thesis advisor, John Kennedy, for his encouraging words, patience, and wisdom. I would also like to thank him for introducing me to Campbell Mayer. Campbell, thank you for all your invaluable feedback and perspectives! Special thanks go to Martin Maas of Progress Group, Samuel Goncalves of Summary Architects, and Jennifer Cookke – you have been a great support; thank you for your thoughts and pointing me in the right direction.
I will always be grateful for the knowledge and support provided by my professors, classmates, and the entire community at the Center for Real Estate and MIT at large. The time at MIT flew by far too fast, but I will forever cherish the memories and experiences we shared.
Thank you to my loving girlfriend, Elena, for being patient and putting up with my process throughout the research and completion of this thesis. Thank you also to the whole Cavalca family – especially Aigle and Arlindo for making my (unusually long) stay in Brazil absolutely unforgettable.
Finally, thank you to my family – my mother Olga, my dad Bretislav, and my brother Jakub for always being there for me. I do not know where I would be without you.
Mens et Manus
Daniel Smicka
6 PREFACE
Rarely is there an event that affects every living person on this planet. The 2020 COVID-19 global pandemic has been such an event. It has affected every single one of us – some of us less, some of us more.
I am grateful to say that the effect on me has been rather unexpected. I left my beloved MIT campus for a Spring break and what was supposed to be a week-long trip turned out to be an unexpected four-month adventure in Brazil.
While in Brazil, I kept my eyes open, as would any other entrepreneurially-minded student of real estate at MIT. I could not but notice that virtually all new residential construction (including 40+ stories high-rises in Balneario Camboriu, where I spent most of my time, while in Brazil) still uses old fashioned bricks and mortar as the primary building method. How is that possible in a country plagued by cost and time overruns and an alarming housing deficit, was I thinking. Why is it that, paradoxically, the countries with housing deficits do not utilize that advancements in offsite construction, so prevalent in my native Czech Republic? So, when an opportunity presented itself to get access to a large affordable housing project in Cuiaba, deep inside the Brazilian hinterland, I dug deeper. The results of my findings are this thesis.
Daniel Smicka (writing again from Brazil)
7 1. INTRODUCTION
It’s without a doubt that industrialization and standardization have shown us their capacity to offer to the vast majority of people, at a relatively affordable price, almost all the products available on the market today – such as automobiles, fast consumer goods, computers, etc. Why is it then, that standardization and industrialization haven’t affected the construction industry much more? It’s true that some construction materials and components are already industrialized – such as trusses, slabs, curtain walls, windows and doors, it is still not the case, however, for a building as a whole. Conventional construction hasn’t changed much in centuries. We no longer have the master-builder, but at its most profound level, construction is still a client-initiated, very labor-intensive endeavor. A different architect–engineer team, a new set of designs and drawings for each project, a different general contractor and myriad of various sub-contractors are formed each time a building or a group of buildings is built. It is as if every new building was as a prototype, developed from scratch.
Whenever a new car or a new iPhone (or any other technically complex product) is rolled out and launched in the market, it’s sold with a long list of features that are supposed to make our experience with the product better, safer, or that are supposed to solve some of our problems or needs. This has been the case in the automotive industry for over 50 years and in the consumer electronics sector since its inception. Moreover, the last couple of decades have been characterized by customization and individualization of these mass products. We have long since accepted a high degree of standardization in our products – from cars to furniture, from clothing to electronics. In spite of this standardization, advertisements for these products suggest they can express a great deal of individuality and feature a wide variety of designs.
This begs the question: if standardized mass products can successfully meet individual needs, why do we keep designing buildings from scratch? We do we insist that buildings be different from one another at all costs? Why do we insist on individualizing the most costly and complex part of our everyday tasks – that of accommodation and living?
1.1. GLOBAL TRENDS This is happening at a backdrop of much bigger, secular trends:
▪ Growing and rapidly urbanizing global population ▪ A construction sector that has been increasingly inefficient ▪ Declining construction rates ▪ And rising house prices
8
Figure 1.2 Global Average House prices Source: How housing became the world’s biggest asset Figure 1.1 Houses Built per 1000 people class. (2020, January 16). The Economist. Source: How housing became the world’s biggest asset https://www.economist.com/special- class. (2020, January 16). The Economist. report/2020/01/16/how-housing-became-the-worlds- https://www.economist.com/special- biggest-asset-class report/2020/01/16/how-housing-became-the-worlds- biggest-asset-class
Figure 1.3 Productivity in Manufacturing and Construction Source: McKinsey Global Institute. (2017). Reinventing Construction: A Route to Higher Productivity.
The construction industry is infamously one of the least efficient and seemingly untouched by disruption happening in other industries. This, among other factors, means that for the average person, it is oftentimes impossible to purchase a home within her lifetime. As a result, the building rates and deliveries of new housing have been steadily declining and housing deficits across the world have been growing. Could standardization and modular construction be the answers to the above woes?
9 2. WHAT IS MODULAR, WHAT IS OFFSITE, AND WHAT IS PREFABRICATION
One can get easily lost in the myriad of terms such as modular construction, off-site construction, prefabrication, modern methods of construction, etc. Smith and Quale1 define offsite construction as “Planning, design, fabrication and assembly of building elements at a location other than their final installed location to support the rapid and efficient construction of a permanent structure. Synonyms: prefabrication, industrialized construction, modular, manufactured construction, pre-assembly, systems building, modern methods of construction.”
In broad terms, modular construction (or any of the above synonyms) involves a production or manufacturing of standardized components of a building in an offsite factory, and their subsequent assembly on the project’s site.
Modular construction, under certain conditions (more on them later), can provide significant benefits over traditional methods of construction. The most significant and sought-after benefits are:
▪ Overall cost reduction (lower cost to build and lower building maintenance costs) ▪ Shorter construction times (and thus cheaper construction financing and faster income generation) ▪ Greater certainty on both build times and costs ▪ Higher building quality, including better energy and/or seismic performance
These benefits are amplified when there is a degree of repeatability in the product (i.e., a module), the module is designed as such that it can be relatively easily transported from the factory and the cost savings of offsite production outweigh the logistics costs. Therefore, the decision to implement modular/offsite construction in a project (i.e., in a building’s design) needs to be made a priori. Any building being manufactured needs to be designed for the manufacturing process and hence constrain the number of different variations required. Despite these benefits, there are of course barriers that are slowing the rate at which modular construction is adopted in the industry. Somewhat limited flexibility in the design process is the obvious ones. The American Institute of Architects, however, mentions a limited supply chain as the main one2. Currently, many modular manufacturers focus on specific market segments and on low-to mid-rise buildings and are not readily able to produce a wide range of project types and sizes. A general lack of experience may also keep owners and project teams from feeling comfortable with modular construction. But this is likely to change over time as more in the industry gain familiarity with the approach.
1 Ryan E. Smith, and John D. Quale (2017). Offsite Architecture: Constructing the Future. Taylor & Francis Group. 2 AIA American Institute of Architects. Design for Modular Construction: An Introduction for Architects. https://www.aia.org/resources/6119840-modular-and-off-site-construction-guide
10 3. A BRIEF HISTORY OF CONCRETE PREFABRICATION
It may seem that modular construction is a recent trend but in reality, it is nothing new. Whole cities have been built with modular construction in my native Czech Republic (former Czechoslovakia), and of course in many places around the world. For us to better understand modular construction, I think it’s essential we look back in time – especially at the discourse that was happening in architectural circles in Europe in the early 20th century.
3.1. THE BEGINNINGS It’s hard to pinpoint who built the first fully prefabricated building. Some of the first recorded examples are tied to the military that needed to rapidly deploy hospitals on the battlefield. In 1788, the Austrian Imperial Army sent twenty military hospitals to the front lines via the Danube river during the Austro-Turkish wars.3 By the mid nineteenth century, prefabricated military hospitals became relatively wide-spread. For instance, in 1855 during the Crimean War, a British engineer Isambard Kingdom Brunel4 was commissioned to design a prefabricated modular hospital. In five months, he designed the Renkioi Hospital5, which was a 1,000-patient hospital, with innovations in sanitation, ventilation and a flushing toilet. The 16-unit hospital was shipped directly to Dardanelles and used only used from March 1856 to September 1857. During that time it reduced the death rate from 42% to 3.5%.
Some of the first prefabricated building elements started to appear around the mid nineteenth century. At that time, the first industrial revolution was in full swing, especially in the UK and northern Europe and many minds were exploring how to creatively harness the newly invented manufacturing techniques also in the construction sector.
For instance, the Crystal Palace in London was designed and built for the Great Exhibtion in there in 1851. It was designed by Joseph Paxton (a former greenhouse designer). His design could be built within just a few months, which was crucial for its selection, given the limited time available for construction. After the end of the exhibition, the Crystal Palace was dismantled and moved with minor modifications to Sydenham Hill in London. It stayed there until it was destroyed by a fire.6
3 Meuser, P., & Albus, J. (2020). Prefabricated Housing: Construction and Design Manual. DOM publishers. 4 https://en.wikipedia.org/wiki/Isambard_Kingdom_Brunel 5 https://www.thebrunelmuseum.com/hospitalatrenkioi/ 6 https://www.britannica.com/topic/Crystal-Palace-building-London
11
Figure 3.1 Crystal Palace Source: https://www.britannica.com/topic/Crystal-Palace-building-London#/media/1/145293/5089
It’s clear that these examples, however, do not qualify as standardized, widely built architecture or a building system adopted en masse.
3.2. INDUSTRIAL REVOLUTION The second half of the nineteenth century saw drastic social changes with the ongoing industrial revolution and the growing social inequality. Large parts of the population, lured by higher incomes and shifts in the overall economy, moved to the cities, which were not prepared for this level of population growth. The global population increased by a third between 1850 and 1900 alone.
This was also the time when engineers discovered the basic materials that would later be used to make precast concrete parts, blocks and panels. Portland cement7 was invented by Isaac Charles Johnson in the UK, and Joseph Luis Lambot wove together iron bars and covered them with cement (so called ferro-cement)8, in order to make the structure withstand tensile forces. It wasn’t until Joseph Monier9 (a trained gardener) who perfected ferro-cement with processes of reinforcing and stiffening concrete with iron, and thus invented reinforced concrete. These first sprouts of modular construction were generally manufactured at a temporary construction site or a workshop near the construction site.
At the beginning of 20th century, a British civil engineer John Alexander Brodie10, who is famous for inventing the goal net for use in football, also built a small story house for the Cheap Cottages Exhibition in London. Brodie had a personal experience with the slums of the working class in the British cities, which motivated him to invent a construction method that could be used to build affordable, sanitary housing for the poorest classes, in the
7 https://www.britannica.com/technology/portland-cement 8 https://en.wikipedia.org/wiki/Joseph-Louis_Lambot 9 https://en.wikipedia.org/wiki/Joseph_Monier 10 https://en.wikipedia.org/wiki/John_Alexander_Brodie
12 shortest time possible. This effort became a house on the 158 Wilbury Road11 and is now a listed building and one of the first residential buildings made of prefabricated reinforced concrete in the world.
The provision of sanitary, affordable housing for the population was not only an urgent social need, but it was also a political issue that in the post-war era even became a matter of survival for political systems. Therefore, the need to provide low-income housing became a central part of the public discourse after the First World War and the fall of the monarchies (after 1918) and shaped the course of mass housing schemes in Europe and the newly established Soviet Union.
Across the Atlantic, the prefabrication efforts were led by Grosvenor Atterbury12 who began to experiment with prefabricated building elements made of concrete. Atterbury successfully completed the Forest Hills estate project in Long Island, which was built from approximately 170 standardized precast concrete elements. He subsequently exported his system to the Netherlands and Germany, where it was used to construct the Splaneman Siedlung13 in 1926 – Germany’s first buildings constructed with large, prefabricated panels.
Figure 3.2 Splaneman Siedlung nowadays Source: https://de.wikipedia.org/wiki/Splanemann-Siedlung#/media/Datei:Splanemannstraße_3-10.jpg
Probably because of the novelty of the system, the architects, didn’t consider a crucial part of prefabrication – the transportation. The panels were large (7.5m x 3m) and heavy. They were also pre-fitted with doors and windows, which made them sensitive to damage. The gentry cranes back then, were not flexible enough and difficult to maneuver. Therefore, the logistics of the project ultimately proved to be very timely and costly. The project was also not large enough (only 140 flats in 27 buildings) and the technology not yet fully developed. Berlin’s chief city planner and the proponent of the project – Martin Wagner – later acknowledged that the small scale of the project was one of the main obstacles to implementing this “rational and economic building process”.
11 Meuser, P., & Albus, J. (2020). Prefabricated Housing: Construction and Design Manual. DOM publishers. 12 https://en.wikipedia.org/wiki/Grosvenor_Atterbury 13 https://www.berliner-woche.de/friedrichsfelde/c-bauen/die-splanemann-siedlung-war-der-versuch- industriellen-wohnungsbaus_a198046
13 Meanwhile, industrialization was proceeding at full speed and reached one of its milestones when a car rolled off the assembly line for the very first time in Henry Ford’s factory. This new production method enabled ford to reduce the purchase price of the Model T from USD 900 to USD 36014. He would go on to produce 15 million units of this model by 1927. In producing the black Model T, Ford introduced a new aesthetics of car manufacturing in the first quarter of the 20th century.
3.3. BAUHAUS The beginning of the 20th century in architecture was marked by departure from excess ornamentation, floral motives and various decorations with their apex in the Art Nuveau movement. One of the most prominent architects and architectural theorists of the time was Adolf Loos (born in Brno, what is now my native Czech Republic). His essay Ornament and Crime advocated smooth and clear surfaces in contrast to the lavish decorations of the fin de siècle15. In the essay, he explored the idea that the progress of culture is associated with the deletion of ornament from everyday objects. He called for the elimination of ornamentation altogether “ornamentation is wasted labor and wasted health. This has always been the case. But now, ornamentation is also wasted material, and both of these represent wasted capital”.16
The discourse continued the Staatliches Bauhaus School (aka Bauhaus) that became famous for its approach to design, which attempted to unify the principles of mass production with individual artistic vision and strove to combine aesthetics with everyday function.
One of the key figures was the school’s founder and first director - Walter Gropius17. Among other pivotal buildings, he designed and oversaw the construction of the Dessau-Törten Housing Estate18 (built between 1926-1928), where he applied an innovative approach to construction. In total, 314 two story houses were built with precast concrete elements. Each house had its own kitchen and garden measuring from 350 to 400 m2 to grow vegetables and practice animal husbandry, thus promoting self-sufficiency. The construction was site organized like a production line at an industrial plant, which allowed the last 130 houses built in staggering 88 days (including the production of all parts at the construction site).
14 https://en.wikipedia.org/wiki/Ford_Model_T 15 The turn of the century 16 Meuser, P., & Albus, J. (2020). Prefabricated Housing: Construction and Design Manual. DOM publishers. 17 After his emigration from Germany, he lived in Cambridge, MA and taught at Harvard Graduate School of Design and sat on MIT’s visiting committee 18 https://www.bauhaus-dessau.de/en/architecture/bauhaus-buildings-in-dessau/dessau-toerten-housing- estate.html
14
Figure 3.3 Dessau Torten Estate Source: https://www.fostinum.org/bauhaus.html
After Walter Gropius, Mies Van der Rohe became the director of Bauhaus. He continued with Gropius’ efforts to further implement modern materials into housing construction (such as reinforced concrete). Van der Rohe emphasized the fact that reinforced concrete forces architects to plan all details of the final building in advance. He points out that an architect working with reinforced concrete would even need to consider installation of electrical and heating systems during the planning phase, which was usually not the case back then,
Another Loos’ devotee and a proponent of standardization, prefabrication and concrete in construction was Le Corbusier, who famously asked “as so many cannons, airplanes, lorries and wagons have been made in factories, why not make houses?”
3.4. LE CORBUSIER Le Corbusier invented (and patented) the Dom-Ino19 (acronym by combining the words domus and industry) system already in 1914 – a reinforced concrete structure with recessed columns. The system was originally designed to provide large numbers of temporary residences after World War I, producing only slabs, columns and stairways, and residents could build exterior walls with the materials around the site.
19 https://en.wikipedia.org/wiki/Le_Corbusier#Dom-ino_House_and_Schwob_House_(1914–1918)
15
Figure 3.4 Dom-Ino Source: https://www.archweb.it/dwg/arch_arredi_famosi/Le_corbusier/maison_dom-ino/Sistema_dom-ino.htm
In 1921, Le Corbusier designed the Maison Citrohan as an experiment in mass housing. The name intentionally evokes associations with the French automaker Citroen. “A house, like a motor car, conceived and carried out like an omnibus or a ship’s cabin. The actual needs of the dwelling can be formulated and demand their solution. We must fight against the old- world house, which made a and use of space. We must look upon this house as a machine for living.”
In 1926, Le Corbusier received the opportunity he had been looking for; he was commissioned by a Bordeaux industrialist, Henry Frugès, to build a complex of worker housing, the Cité Frugès20, at a suburb of Bordeaux. Le Corbusier took into account prevailing social and economic factors and was determined to build the plan to provide people with low-cost, predetermined, homogeneous cubist structures. The Frugès project became his first laboratory for a residential housing; a series of rectangular blocks composed of modular housing units made of concrete, located in a garden setting.
Le Corbusier wrote “there’s no shame in living in a house without a pointed roof, with walls as smooth as sheet iron, with windows like those of factories. And one can be proud of having a house as serviceable as a typewriter”21.
One of Le Corbusier’s buildings that embodies the notion of ‘the machine for living’ is Cite Radieuse in Marseilles. The building is an extension of his Dom-Ino system and Cité Frugès and was built by inserting prefabricated elements into a concrete skeleton of beams and columns.
The debate between architects and engineers on industrialization of construction methods, and the various trial projects in Europe during the first four decades of the 20th century, were the intellectual foundations and paved the way for the wide-spread use of prefabricated housing in Europe and the Soviet Union after WWII. That was coupled with new manufacturing technologies and materials along with social revolutions and political
20 https://en.wikipedia.org/wiki/Cité_Frugès_de_Pessac 21 Meuser, P., & Albus, J. (2020). Prefabricated Housing: Construction and Design Manual. DOM publishers.
16 reforms that enabled what were once experimental designs to become the basis for one of the largest housing programs in history. Demand for new homes increased at an unprecedented pace after 1945, particularly in war-torn Europe and the Soviet Union, where urbanization was rapidly taking place. It is therefore no surprise that architects and city planners turned to industrial production methods in order to meet housing targets.
It was the ruin that virtually all of Europe and Soviet Union found themselves in that was the pivotal moment that called for the mass adoption of standardization, rationalization and prefabrication in the construction industry. Most of Europe had to be rebuild and millions of people had to be housed rather quickly. A standardized building system based on an assembly with buildings made of concrete and steel seemed to be the answer.
3.5. AFTER THE WWII There are two figures that stand out in the widespread adoption of prefabrication (with concrete) after the WWII - Hans Schmidt and Raymond Camus. 3.5.1. Eastern Bloc Hans Schmidt, a Swiss architect was the theoretical mind that pioneered radical standardization in GDR22 . was also the head architect of Institut fur Typung (Institute of Standardization) in GDR and had extensive experience with planning cities in the Soviet Union, where he had been invited as an expert to help with the transfer of expertise from the west to the east (similarly as Le Corbusier).
Raymond Camus was a French engineer and inventor of the globally successful Camus System – a concrete prefabrication system.
The push for mass adoption of prefabrication of course needed a political backing, which came from Nikita Khrushchev23 in 1955, with his core demand to introduce prefabrication methods in order to solve the housing crisis. After this, prefabrication became the virtually the sole method of housing construction in the Soviet Union and its satellites (including GDR and my native Czechoslovakia). In the Eastern Bloc, the first prefabricated-panel factory went into operation in Hoyerswerda (East Germany) in 1957, which put the GDR at the international cutting edge of construction technology.
Between 1.8 – 1.9 million homes were built in GDR during the 1970s and 1980s using large, prefabricated panels. This method of construction was extremely economic, since the wall and floor elements, which formed a closed building system, were mass produced with a high degree of repetition. Political pressure and a sole focus on efficiency and quantity led to the construction of buildings with major aesthetical and architectural shortcomings. The form of these buildings was very large which was another factor that led to the skepticisms towards prefabricated buildings from a general society. Nowadays, these shortcomings are easily avoidable.
22 German Democratic Republic (aka East Germany) 23 Led the Soviet Union between 1954 - 1963
17 3.5.2. The Camus System In 1951, Raymond Camus, a former Citroen24 employee, built first housing with his system of prefabricated concrete panels. The project was a success, so he went on to build a first precasting factory (modelled on the processes he observed while at Citroen) in 1954 and in 1956, received a French government contract to build 4000 homes25.
Each of his panels was of high quality enough to make any post processing or modification on site unnecessary, which essentially eliminated the practice of rotating different trades on site, the coordination of which was prone to causing delays.
The economic success of Camus’s large, prefabricated panel system, it was one of the means by which the French government reached the very ambitious objective of constructing 20,000 dwellings a month26, can be attributed to a number of factors.
First, it made it possible to construct buildings in far greater numbers at a constant rate of production. Second, the system prefabricated larger, high-quality building elements with finished surfaces and built-in windows, doors and installations. Third, machines (for example, stationary molding machines with heat treatment systems and slip formers) extensively replaced manual work. Fourth, the system drastically reduced the work required for assembly and finishing. Fifth, the large concrete panels made it economically viable to even erect buildings with up to 20 floors.
Camus then went on to build factories in other French cities and was producing enough building parts to building approx. 20,000 residential units each year. He also licensed his system for use in Austria, Germany, the Soviet Union and French overseas territories and former colonies in Africa. By the mid-1960s, Camus had six factories in France and 16 factories in other countries, such as the U.K., Germany, Italy, Russia, and Algeria.
Concrete prefabrication was not, of course, centered solely on Europe and Soviet Union. In the 1960s and 1970s, architects and engineers started experimenting with spatial modules (3d volumetric modules). Some of the best examples are Habitat 67 and the Nakagin Capsule Tower. Habitat 67 was designed and built by Moshe Safdie for the Expo 67 in Montreal and Nakagin Capsule tower by Kisho Kurokawa in Tokyo.
24 A French car manufacturer 25 Meuser, P., & Albus, J. (2020). Prefabricated Housing: Construction and Design Manual. DOM publishers. 26 http://postwarbuildingmaterials.be/material/heavy-prefab-systems/
18
Figure 3.5 Habitat 67 Figure 3.6 Nakagin Capsule Tower Source: Source: https://en.wikipedia.org/wiki/Habitat_67#/media/File:Habitat_67,_southwest_ https://www.archdaily.com/110745 view.jpg /ad-classics-nakagin-capsule-tower- kisho-kurokawa
3.6. AFTERTHOUGHT Our architectural culture in Europe holds reservations towards standardized construction systems. And these reservations stem from futile attempts of the past to build mass housing that would be accepted by broader society using a uniform construction method. We can find many examples in Czech Republic, Germany, France, where pilot projects, celebrated by politicians, very often led to socially deprived areas, or even ended up being demolished.
Prefabrication methods have been used and are still used particularly during times of crisis – such as during the post-war housing shortage. Historical examples of mass prefabricated housing have therefore often neglected the aesthetic and creative aspects for the sake of greater efficiency, which has in turn lead to the poor reputation of prefabricated buildings
But we cannot blame these architectural plights on the construction method – on prefabrication – itself.
4. CATEGORIZATION AND CLASSIFICATION
Nowadays, all conventional construction materials are used for prefabrication (steel, wood, concrete, and hybrids/alloys). Concrete is still the predominant material in prefabricated housing in Europe. In contrast, in North America, timber is the most predominantly used material in prefabricated housing.
We can categorize modular or prefabricated construction in a myriad of ways. In the following text, I will explore the most common classifications: The most basic distinction in prefabrication is between
19 ▪ Volumetric (3-D) ▪ Non-volumetric (2-D)
We can further divvy it up into four broad building methods, that all utilize various materials. These methods are:
▪ Block construction ▪ Panel construction (i.e. ceiling height self-supporting elements) ▪ Skeleton frame construction (a frame/skeleton with infill walls) ▪ Modular (prefabricated volumetric/spatial/three-dimensional modules)
McKinsey and Company then distinguishes the above classification (which is based on scale) by its complexity - as we can see in the following figure.
20
Figure 4.1 Classification and complexity of prefabricated building systems Source: McKinsey & Company. (2019). Modular construction: From projects to products. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects-to-products
In the left bottom corner, we can see the simplest single elements that are clipped/bound together using standard connections and interfaces. As we move up on the y-axis, we find two-dimensional panels (which can be part of open or closed end systems) with increased complexity in the form of pre-fitted fixtures (such as doors, or windows) and services (HVAC, electrical/network). The x-axis moves us from single blocs to three-dimensional volumetric units with full fixtures. When applied, modular projects often involve multiple types of prefabrication. For instance, volumetric modules can incorporate non-volumetric materials such as structural components, cladding, partitions, ductwork, etc. Other designs might include large-scale
21 volumetric modules (e.g., apartment buildings, or hotels) that in turn include smaller volumetric modules for restrooms or mechanical rooms.27
These classifications can be of course extended to consider the distance of the factory to the construction site. The current trend are near-site factories (as it had been at the beginning of last century).
The choice of a particular prefabricated system depends on the project requirements and its value proposition. For instance, projects that should express the owner’s individuality will require a higher design flexibility – for such projects, high-end, fully fitted panels will be a better solution than fully premade 3D modules. On the other hand, projects that are driven by costs, volume, and repeatability, will likely benefit from factory made volumetric units (modules).
Figure 4.2 Classification by decision factors Source: McKinsey & Company. (2019). Modular construction: From projects to products. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects-to-products
4.1. VOLUMETRIC MODULES As maximizing factory production is the normal path to industrialization, the factory-made 3D module divides a building into volumetric modules completely finished at the plant and easily connected to the infrastructure once at the site.
The factory-made 3D module category implies that all spaces and all components of the building are entirely made, assembled and finished at the plant as structural 3D modules, requiring only a simple onsite assembly, which involves lifting the modules into place and connecting them to the foundations, to services such as electrical and plumbing and simple connections between the modules.
McKinsey notes that a 3D volumetric approach delivers the potential for maximum efficiencies and time savings. But there is a flipside too. The trade-offs include increased
27 Ryan E. Smith, and John D. Quale (2017). Offsite Architecture: Constructing the Future. Taylor & Francis Group.
22 transportation costs and size limitations of the modules due to traffic regulations. The maximum width for road transport that does not require a special escort is typically around 3.5 meters in width. This either limits the size of the modules or increases the cost of transporting larger modules because carrying the 3D module from the factory to the site implies paying for transportation of “air”, since most of the volume is occupied by empty space and since transportation is usually calculated in terms of volume. In terms of product uses, 3D modular prefabrication is currently mainly applied in affordable housing projects (both multifamily and single-family buildings) and hotels (such as CitizenM)28. It is also advantageous for rooms with a more complex finishing, such as bathrooms and kitchens. As already mentioned, 3D volumetric approach is most suitable for projects with a high level of repeatability, which does not mean that all products need to look the same. Instead, a variety of standardized modules can be pieced together differently to produce a customized end result. Strategically, significant capital investment is obviously required to initiate and operate a 3D module plant.
4.2. NON-VOLUMETRIC MODULES A 2D panelized solution resembles a flat-pack assembly approach used in home furniture. Where necessary, panels contain the necessary conduits for services such as heating, ventilation, and air conditioning (HVAC), and plumbing that can be linked together with standard connectors. The assembly work onsite is much simpler than a traditional build, but it is more complex than putting together 3D modules and requires more internal finishing (and thus labor). On the upside, it is much easier to transport panels than bigger 3D modules – especially for longer distances. In an ideal case, the components required to build several rooms can fit in a single ISO container. 2D panels therefore make it possible to transport materials for a significantly greater floor area at one time. 2D panelized solutions offer greater flexibility than 3D modules: large open-plan offices, for example, are not very suitable for single 3D modular elements. 2D panels are more relevant for high-end residential projects, whether single-family homes or apartments, that require higher design flexibility since differentiation matters and the ratio of wet areas to dry areas is lower than for instance in hotels.
4.3. 2D & 3D HYBRID It is also possible to use a mix of 3D modules and 2D panels on a project or to combine those approaches with traditional site work (for instance, for the basement and first floor of a larger project). Typically, bathroom pods/kitchen areas are prefabricated, while the remainder of the building is made from 2D panels. According to McKinsey, this optimizes the process for the two different areas of the building. However, the manufacturing process required to deliver both solutions become more complex as most likely multiple
28 https://www.jll.cl/en/trends-and-insights/workplace/why-prefab-methods-stack-up-for-hotels
23 manufacturers/suppliers with multiple systems get involved, as does coordination of the rest of the supply chain.
5. TRANSPORT AND LOGISTICS
Transportation plays such a crucial role in prefabricated construction that I want to devote a separate segment to it. In the end, whatever is prefabricated offsite, must be able to be transported and assembled on site; transportation and logistics therefore represent an important consideration and constraint.
The cost of transportation is an integral part of offsite fabrication that determines the feasibility of the specific applications. Generally, the growing distance between the job site and prefabrication facility makes offsite production less effective compared to conventional construction.
The maximum operational radius varies by country, its quality of road networks, cost of fuel and the type and material of the modules (for instance, concrete is approximately four times heavier than timber per cubic meter and thus a lot more costly to transport). There is not a consensus what the maximum operational radius is. The range varies between 150 – 300 km. Generally, allowing one transportation cycle per day (i.e. ±200km) is advisable. According to industry expert opinions from a UK engineer at Buro Happold and Pulte Home Sciences in the US29, about 200 km or 125 miles from the plant are proposed as the limit of cost-effective shipping, which coincides with the regional distribution of modular builders.
As such, transportation is an important factor in determining the viability of prefabrication approaches. As previously mentioned, it does impact the size and shape of elements (linear, flat components vs. volumetric modules) that can be economically shipped. Therefore, on- site or near-site prefabrication approached should be considered also.
5.1. ON-SITE LOGISTICS We must consider not only transportation from factory to site but also transportation and logistics on site. In case of precast concrete elements and modules, weight is a significant constraint the requires the use of various types cranes.
A wide range of different types of cranes can be used on construction sites as means for lifting and moving materials and other building elements from place to place. The choice of crane for a given site will depend a number of different factors, including:
▪ The weight of the loads that need to be lifted. ▪ The height and horizontal distances that need to be covered. ▪ The radius of the swing. ▪ The time period of the lifting operations.
29 Ryan E. Smith, and John D. Quale (2017). Offsite Architecture: Constructing the Future. Taylor & Francis Group.
24 ▪ The degree of mobility required.
We can differentiate between mobile (truck mounted or gentry cranes) and static/tower cranes.
In general, mobile (truck mounted) cranes are used for smaller or medium sized projects (lower to mid height). The main advantage of mobile cranes being their flexibility (mobility), lower cost to rent, and a quick site preparation. The disadvantage are the limited lifting capacities, although it’s not uncommon that mobile cranes can lift around 50t.
Static cranes are required when building vertically (tall towers) or lifting especially heavy elements (such as bespoke trusses, etc.).
6. THE BENEFITS OF MODULAR CONSTRUCTION
A modular construction method is more likely to succeed if the industrial production process is considered from the outset, during the preliminary design stage. If implemented properly, modular construction can provide significant efficiencies and benefits to the project’s stakeholders.
6.1. TIME SAVINGS As we have seen in some of the previous examples, and as McKinsey30 observed, early modular projects have a mixed track record of cost savings, however, they have consistently been completed 20–50 percent faster than conventional onsite builds. Let’s divide a construction project into three main stages (Design, Foundations, Construction/Production) and describe the benefits when built with volumetric modules. 6.1.1. Design The design and planning phase initially take longer when building with modular construction as opposed to building with conventional methods. Design decisions need to be made upfront, need to be more detailed (concept design, architectural design and technical drawings need to be completed before moving into production) and changes later in the process are not possible or more costly and more difficult. This can also be an advantage that can prevent revisions and change orders. Needless to say, that the industry is currently not used to working in this way. McKinsey notes that modular projects currently tend to take longer to design than traditional projects, as designers learn to align to the manufacturing process. However, as potential repeatability is one of the a priori factors that affect the use of modular construction, the design period can be shortened on any future projects that re-use the same modules. The design period will likely shorten in the future as designers develop libraries of various modules for the manufacturing process.
30 McKinsey & Company. (2019). Modular construction: From projects to products. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects- to-products
25 6.1.2. Foundations The effect on the time that it takes to build the foundations of the project very much depends on the type and size of the project and type of modules used. Modules made from lightweight alloys/cross laminated timber might require less complex foundations. The biggest advantage of offsite construction is that it can begin simultaneously with the foundation work, whereas conventional construction can logically begin only with completed foundations. 6.1.3. Offsite construction The lean offsite manufacturing process is significantly faster than the equivalent building process onsite. Factory environment is enclosed and controlled, activities can be better planned and coordinated, some of them also automated (which is currently difficult on site). Capacity and output are also impacted by the number of shifts; factories can work theoretically with three shifts on multiple projects and are not affected by adverse weather conditions. 6.1.4. Onsite construction. The construction work on-site, when building with 3D modules, is significantly simplified from conventional construction methods. As previously mentioned, it boils down to transporting the modules to their location on site, connecting the modules to their foundations, services and between each other. McKinsey writes that “typically, one team of five workers can assemble up to six 3D modules, or 270 square meters of finished floor area, per day. This is significantly faster, and therefore cheaper, than traditional construction”. 6.1.5. Rework Quality control is much easier and better in a factory environment than on a construction site which has a big impact on rework. The repeatability of work in a factory environment improves the quality of the output. Reducing or eliminating rework significantly improves construction schedules, potentially by up to several months.
Shorter project timelines have a huge impact on the overall financial performance of the project. Developers can start selling or renting out the project sooner, which means a faster revenue generation, which in turn improves the project’s IRR (internal rate of return) and reduced market cycle risks. Shorter project timelines also mean cheaper construction financing (less interest paid). In the end, all stakeholders benefit from certainty in schedules and costs.
McKinsey observes 20-50% faster building schedules when building with prefabricated 3D modules, compared with conventional construction.
26
Figure 6.1 Time Savings and Benefits of Modular Construction Source: McKinsey & Company. (2019). Modular construction: From projects to products. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects-to-products
6.2. COST SAVINGS Economies of scale and cost savings are some of the fundamental benefits of a manufacturing/industrialized approach in other industries. But based on McKinsey’s report and my conversations with modular manufacturers (DMD Poland, Progress Group) there is not a clear track record of consistent cost savings among projects built with modular construction following this model. However, there are two further aspects relating to costs that are important to consider: the first pertains to the full life-cycle costs and the impact that modular construction can have on them; the second is the cost of the factory investment itself and how this impacts the overall cost savings that can be delivered. 6.2.1. Construction costs The integrated processes involved in modular construction remove the need for engaging various subcontractors on site and the margins that they include in their quotes. Next, significant cost savings can be achieved on onsite labor (and the rework / inefficiencies caused by different trades) These savings, however, can be offset by an increase in logistics costs.
27 Modular projects also tend to have higher upfront design costs (at least for the initial project) against lower costs for rework and redesign. Therefore, the projects which are most likely to deliver the greatest cost savings are those that have the highest proportion of labor-intensive activities and the greatest levels of repeatability (such as student accommodation, hotels and affordable housing). As noted above, high-end apartments and office buildings are examples of where significant savings are currently harder to achieve.
Figure 6.2 Potential Cost Savings of Modular Construction Source: McKinsey & Company. (2019). Modular construction: From projects to products. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects-to-products
6.2.2. Site overheads As noted above, modular construction can reduce project schedule by up to 50%, which in turn reduces the costs associated with site overhead (e.g. construction management). 6.2.3. Materials. Material costs represent a major variable. On one hand, their costs can be reduced by centralized and bulk procurement for a production in factory (rather than for a single project). Factory production can also lower costs by reduction of material waste, which can
28 be achieved by planned production, repeatable processes and the overall controlled environment. On the other hand some duplication of materials is required to produce a transportable product. Buildings need to be structurally sound in situ, but buildings built using offsite construction methods also need to be structurally sound while being raised and lowered throughout the transportation and assembly stages on site, which increases the amount of material needed for their construction. 6.2.4. Labor force. McKinsey notes that in a modular construction, up to 80 percent of the traditional labor activity can be moved offsite to the manufacturing facility. Some of the most skill-intensive and expensive types of work (including mechanical, electrical, and plumbing) can be handled by lower-cost manufacturing workers, reducing the wage bill.
More importantly, the more standardized, automated, and controlled operating environment of a factory can increase productivity above what can be achieved with traditional builds and eliminate a great deal of down time onsite due to coordination between different trades. Additional benefits (time savings) in offsite construction can be establishing because of simplified, repetitive processes or advanced automation equipment. Overall, McKinsey estimates a transition to offsite manufacturing to reduce the labor costs on a project by up to 25 percent. The savings are more substantial when more of the high- value activities such as electrical, plumbing, and HVAC installation can be migrated offsite. This is, however, country dependent. 6.2.5. Transportation and Logistics As discussed above, transportation and logistics play a crucial role in modular construction. According to McKinsey, the total cost of a project can increase by up to 10 percent in locations with restrictive transport regulations or poorly managed transportation. 6.2.6. Factory costs Last but not least, the cost of building the factory needs to be considered against any cost savings. Repaying the capital investment and the ongoing operational expenses of running the factory need to be included. By building a business case for the factory itself and assuming a reasonable rate of return on the facility as well as depreciation, operating expenditure, and machinery replacement a cost impact can be estimated. McKinsey notes that depending on the type of modules and the level of the factory, factory costs can make up between 5 percent and 15 percent of total costs on a construction project.
29 7. BRAZIL
7.1. ECONOMY OVERVIEW Brazil is the world's fifth-largest country (and the largest contiguous territory in the Americas); it is the sixth-largest country by population with its 212 million people31 and currently the ninth32 in terms of nominal GDP. It is currently the world's eighth-largest economy and is expected to be the world's fifth-largest economy by 205033.
Brazil is the world's largest exporter of beef, orange juice, sugar, coffee, and iron ore and competes with the US to be the world's biggest soya bean exporter. Almost half these soya bean exports go to China, and the share is rising due to the US-China trade war.
Brazil's economy has become much more diversified in the past decade. Agriculture employs 12.6% of the workforce. Manufacturing accounts for 11.0% of GDP and employs 11.0% of the workforce. In comparison, Brazil's service sector makes up 72.7% of GDP, of which the tourist sector, with an estimated 6.7 million tourist arrivals in 2019, accounts for around 8.1% of total GDP.34
The country still depends on the production of minerals, farm products, and other raw materials, but this dependence is much less than in the past. Economic success brought significant improvements in poverty reduction, but inequality remains relatively high for a middle-income country. Brazil's GDP per capita is ± USD 15 000 in PPP terms and has been following a recovering path since 2016, with a dent caused by the COVID-19 pandemic.
The real GDP contracted by 3.5% and 3.3% in 2015 and 2016, respectively. It grew on average by 1.2% between 2017 and 2019. However, Brazil's economy will contract substantially in 2020 (between 5-6%). The domestic activity has been affected by measures taken to contain The Coronavirus (COVID-19) pandemic, although there are signs that a recovery got underway in quarter 3. Assuming the pandemic is contained, the Brazilian economy should bounce back in 2021, with real GDP growth of 3.2% in 2021 and annual growth averaging around 2.4% per year in 2025-2027.35
31 https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population 32 https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) 33 https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html 34 Economist Intelligence Unit 35 Euromonitor International
30
Figure 7.1 Brazil GDP Growth Rates: 2000-2020 Source: OECD. (2020). OECD Economic Surveys: Brazil 2020. https://www.oecd- ilibrary.org/content/publication/250240ad-en
The recorded unemployment rate in 2019 was 11%; however, this year's (2020) unemployment rate is expected to reach almost 16% and then stay above 10% until 2024.
Figure 7.2 Unemployment and Employment in Brazil: 2012-2020 Source: OECD. (2020). OECD Economic Surveys: Brazil 2020. https://www.oecd- ilibrary.org/content/publication/250240ad-en
Low inflation (from 2016, inflation stayed below 4%) combined with more disciplined fiscal policy and global deflationary pressure have allowed Brazil to practice all-time low-interest rates.
The following figure shows the four major economic indicators with a forecast based on three scenarios. The blue line depicts a baseline scenario; the green line depicts a favorable scenario with better improvements in the economy (for instance, by better-than-expected containment of the pandemic); while the orange line depicts slower improvements in the economy (for instance, caused by prolonged global pandemic).
31
Figure 7.3 Projection of key macroeconomic indicators in Brazil (Real GDP Growth Rate, Inflation, Interest Rate, Unemployment Rate) Source: © Euromonitor International 2020
Lastly, let us take a look at the evolution of the Brazilian currency – the Real against the US Dollar. Brazilian Real is currently at all-time historic lows against the US Dollar, as shown in the following exhibit. However, the Economist Intelligence Unit expects the currency to strengthen against the USD and stay below the psychological line of five Reais per USD in 2021 and 2022.
Figure 7.4 Evolution of the Brazilian Real agains the US Dollar Source: Economist Intelligence Unit. (2020). Country Report: Brazil. http://country.eiu.com.libproxy.mit.edu/brazil
32 7.2. ORGANIZATION Administratively, Brazil is divided into 27 federal units or states, including the federal district with Brazil's capital Brasilia. We can group the states into five broad geographic regions – the North, Northeast, Central-West, Southeast, and South. The regions vary considerably in size and characteristics. Several Northern states (those in the Amazon Basin) are very new, having formed only in the past few decades. The Northern states are growing yet remain very small, underdeveloped, and remote. In contrast, Sao Paulo state alone would be the second-largest economy in all of Latin America (after only Mexico) if it were a separate country. The state of Sao Paulo contributes over a third of Brazil's GDP
Figure 7.5 States and Regions of Brazil Source: https://en.wikipedia.org/wiki/States_of_Brazil#/media/File:Brazil_Labelled_Map.svg
33
Figure 7.6 Per-capita Incomes in Brazilian States Source: OECD. (2020). OECD Economic Surveys: Brazil 2020. https://www.oecd- ilibrary.org/content/publication/250240ad-en
7.3. POPULATION As previously mentioned, Brazil is the world's sixth-most populous country with approximately 212 million inhabitants. The population is relatively young (especially for an upper-middle-income country), and it is growing. Brazil's youthful demographic profile is a tremendous asset for its real estate investment potential. The median age in Brazil was 33 in 2019 and is not forecast to surpass 40 before 204036. This is a positive sign that household formation should remain strong and thus demand for new housing too. Furthermore, Brazil is aging at a much slower pace than Europe, Japan, North America, or emerging markets such as China or Russia37.
36 Euromonitor International 37 https://www.kkr.com/global-perspectives/publications/emergence-brazil-unfinished-story
34
Figure 7.7 Population Growth vs. Median Age Source: KKR. (n.d.). InsIghts Global Macro Trends: Brazil. Retrieved December 19, 2020, from https://www.kkr.com/sites/default/files/KKR_Insights_120509.pdf
Figure 7.8: Brazil Population by Age Group Source: OECD. (2020). OECD Economic Surveys: Brazil 2020. https://www.oecd- ilibrary.org/content/publication/250240ad-en
Brazil is a highly urbanized country with some 86% of Brazilians living in cities, a proportion that rose from 36.2% in 1950 to 75% in 1990. Urbanization is expected to continue to grow going forward, although at a slowing pace, reaching approximately 90% by 2030.
Cities thus became the core of economic activity (90 percent of gross domestic product, GDP), with large cities becoming diversified, taking advantage of large markets for inputs and ideas.
According to the national census, Brazil had approximately 67.2 million households in 2020; 86.5 percent lived in detached homes, and the rest in apartments. In 2020, 73 percent of households (83% of urban) owned their homes, 19% lived in rental housing, and the rest in
35 shared accommodation. As we can see, Brazilians have a propensity to homeownership, and the shift to homeownership has been a response not only to culture and believes but also to favorable government policies. Homeownership is quite high even among the poorer strata of Brazilians, and this is achieved because their housing is of poor quality and is often self- built.
7.4. INCOME DISPARITIES Income inequality is a negative feature of Brazilian society and has been entrenched in the country for centuries. Brazil exhibits one of the world's highest (and the highest in Latin America) Gini coefficients38 (53.9 in 2018 and 63.3 in 1989).39 A statistical measure of income inequality within countries.
The richest 10% of the population earn more than four times as much as the bottom 40%. The following exhibit shows us that inequality and poverty have fallen over the past two decades due to strong growth, improvements in education, and social transfers. However, the 'double-dip' recession from 2014 – 2015 and 2020 somewhat stopped the poverty reduction, which has stabilized at around 20% of the population.
Figure 7.9 GINI Coefficient Source: OECD. (2020). OECD Economic Surveys: Brazil 2020. https://www.oecd- ilibrary.org/content/publication/250240ad-en
The middle class has expanded rapidly in the last decade, and as of 2020, it comprises approximately 55% of the country's total population. In the period 2002–2014, the middle class expanded considerably, and the lower segments have decreased even more, from 43% of the total in 2002 to 32.5% in 2008 and down to approximately 20% in 201440. Such a positive development in Brazil contrasts with the erosion of the middle classes in some
38 The Gini coefficient measures the deviation of the distribution of income (or consumption) among individuals or households in a given country from a perfectly equal distribution. A value of 0 represents absolute equality, whereas 100 would be the highest possible degree of inequality. 39 World Bank 40 https://www.wsj.com/articles/middle-class-brazil-lifts-voice-1411511724
36 developed countries where high debt burdens, job insecurity, and falling values of household assets are translating into weaker real estate demand
Figure 7.10 Middle Class Population and its Growth Globally Figure 7.11 Middle Class Growth in Brazil Source: KKR. (n.d.). InsIghts Global Macro Trends: Brazil. Source: https://www.wsj.com/articles/middle-class- Retrieved December 19, 2020, from brazil-lifts-voice-1411511724 https://www.kkr.com/sites/default/files/KKR_Insights_120509.p df
8. REAL ESTATE MARKET
Brazil's stock of real estate has not kept up with the quantity and quality required by businesses and households. The country has enormous catch-up potential relative to the developed global economies and ample opportunity to innovate and build market share.41
Investment has been primarily focused in the markets of Rio de Janeiro and Sao Paulo; however, secondary markets also offer compelling growth dynamics. Growth in Brazil is underpinned by surging global and local demand—GDP growth, incomes, population, urbanization, demand for a higher quality product, and other factors are strong and will continue to fuel real estate.
The for-sale residential industry has boomed in recent years and should continue to enjoy healthy fundamentals as demand continues to outstrip supply. Mass housing development in the for-sale category should continue to do well as Brazilians have little propensity to participate in the rental market. Lynn believes that home builders targeting developments in well-located submarkets of first- and second-tier cities should continue to do well in the coming years.42
This view is shared by analysts at IMERI capital, who write, "Brazil has a growing pent-up demand in the residential segment: every year ±1.4 million new families are formed, whereas new constructions are limited to a total of 800 thousand. This 600 thousand household deficit is concentrated on the low-income segment. Homebuilders focused on this
41 Lynn, D. J. (2010). Emerging market real estate investment: investing in China, India, and Brazil. Wiley. 42 Lynn, D. J. (2010). Emerging market real estate investment: investing in China, India, and Brazil. Wiley.
37 segment have been enjoying both sales growth and high returns (50%+ IRRs and 5x MOICs) on the back of the unprecedented low cost of capital levels."43
Figure 8.1 Annual Family Formations in Brazil and Demand for New Housing Source: IMERI Capital. (2020, July). Brazilian Real Estate: Market Overview. https://imeri.com/wp- content/uploads/2016/01/20200706_Imeri_Real.Estate_Insights.original.pdf
David Lynn further notes that "The quality of the competition ranges considerably. Most are new companies lured to the high returns and the perceived glamour of real estate development. Most of these companies are inefficient, have little knowledge of best practices, and produce a dubious-quality product. There are few regional players and national firms. Many firms are relatively unsophisticated, with most personnel having limited real estate experience. However, by and large, the real estate and construction industries are characterized by inefficient techniques and technology, resulting in sub–Class A product. Sao Paulo and Rio de Janeiro tend to have the best developers and construction capabilities and are attracting the vast majority of foreign investors and developers."44
As is the case in many emerging markets, the market is not entirely transparent. It is relationships driven. Relationships must be developed with business partners as well as with local, in case of major developments, regional, and national governments.
8.1. RESIDENTIAL MARKET The residential sector can be characterized by three (four for international investors) favorable patterns:
▪ First, there is a deficit of more than 6 million units of housing.
43 IMERI Capital. (2020, July). Brazilian Real Estate: Market Overview. https://imeri.com/wp- content/uploads/2016/01/20200706_Imeri_Real.Estate_Insights.original.pdf 44 Lynn, D. J. (2010). Emerging market real estate investment: investing in China, India, and Brazil. Wiley.
38 ▪ Second, the highly unequal nature of Brazil's society has meant that the shortage is most acute in the lower-middle-class, working-class, and affordable housing strata. ▪ Favorable monetary policy and all-time low-interest rates (discussed above) ▪ Weakness in Brazilian Real, which is at historic lows against the US Dollar (discussed above)
Let us take a look at the housing deficit, as I've described the other three forces in the previous chapters.
8.2. HOUSING DEFICIT The housing deficit in Brazil is comprised of units that meet the following criteria, including (a) excessive spending on rent (more than 30 percent of household income); (b) involuntary cohabitation (when more than one household living in the same premise); (c) quality of building and access to infrastructure; and (d) a number of persons per unit or over- crowding.
Brazil's housing deficit is one of the largest in the world. Since the former president Luiz Inácio Lula da Silva, governments have been taking significant steps to address this problem. In 2003, the "Ministério das Cidades" (Ministry of Cities) was created, and the "Política Nacional de Habitação" (PNH) was approved. These measures signaled a broader effort to deal with urban development challenges and housing in general.
Between 2007 and 2014, the housing shortage in Brazil increased from 5,8 to 6,1 million dwellings, ranking as one of the country's major social problems.
Fundação Getulio Vargas (FGV), a renowned Brazilian university, was hired to conduct a study to estimate scenarios for housing demand until 2025. The analysis projects a need of 14.5 million units between 2015 and 2025 on top of the existing housing deficit (of ±6 million units) to house the growing population and newly formed households.
The analysis projects a needed annual increase of the housing stock for the five regions as follows: the Northern region 2,21% p.a., followed by the Center-West (2,13% p.a.), Northeast (1,98% p.a.), Southeast (1,63% p.a.) and finally the most developed Southern region with 1,59% p.a.
In terms of income, the most significant increment (6.8 million units) should occur for the lowest-earning households (Faixa 1) with incomes between R$1.600 (U$488.27) and R$3.275 (U$999.42), followed by 3.3 million units for Faixa 2 households with incomes between R$3.275 and R$5.000 (U$1,525.83) and 1,6 million units for Faixa 3 households with an income higher than R$10.000 (U$3,051.66).45
45 Hamilton de França Leite, Elsinga, M., & Hoekstra, J. (2016). LAR: a new affordable housing rental system for Brazil. http://www.hamiltonleite.com.br/lar.pdf
39 8.3. HOUSING POLICY - MCMV To address the aforementioned housing deficit and housing needs, "Programa Minha Casa Minha Vida" (MCMV) was created in 2009 with Federal Law number 11.977. It has been the most extensive housing program ever implemented in Brazil.
The MCMV was conceived to have three phases. Since the program's inception in 2009, 3.75 million housing units have already been commissioned. The first stage of PMCMV, between 2009 and 2011, achieved the Government's goal of providing one million homes. During the second phase of the MCMV, funding of R$ 125.7 billion was targeted, and another 2 million homes by 2014 were promised. In fact, only 1.7 million houses were delivered46. President Rousseff, in July 2014, announced that the goal of the third stage was to build more than another 3 million units by 2018, which has not been realized to date.47 In November 2019, the Government announced the continuation of the program by securing additional funding.
The MCMV accepts families with monthly income up to ten minimum wages, which are distributed in three brackets (Faixas). Bracket 1 (Faixa 1) accepts families with household income up to 3 minimum wages, and in phase 2 of the program, the price ceiling per unit varied from 54 000 to 76 000 Brazilian Reais (US$17 000 to US$ 23 000) depending on the location of the development. Faixa 2 accepts families with total income between three and six minimum wages, and Faixa 3 accepts families with total income between six and ten minimum wages. The price ceiling per unit was 300 000 Brazilian Reais (US$ 57 000) for F2 and F3 brackets.
8.4. HOUSING FINANCIAL SYSTEM AND ITS ACTORS Brazil has a well-established housing finance system. Since the 1960s, the bulk of mortgage finance has taken place within the Housing Finance System (Sistema Financeiro de Habitacao). The system is divided into two48:
▪ National Social Housing System ▪ National Market Housing System.
The National Social Housing System focuses on providing housing for low-income households; the National Market Housing System targets families with higher income that can be served in the private market.
46 Otto, S. (2015). Real Estate Policy in Brazil and Some Comparisons with the United States. Stanford Center for International Development. https://kingcenter.stanford.edu/publications/real-estate-policy-brazil-and- some-comparisons-united-states 47 Otto, S. (2015). Real Estate Policy in Brazil and Some Comparisons with the United States. Stanford Center for International Development. https://kingcenter.stanford.edu/publications/real-estate-policy-brazil-and- some-comparisons-united-states 48 UN Habitat. (2013). Scaling-Up Affordable Housing Supply in Brazil: The “My House My Life” Programme. http://unhabitat.org/scaling-up-affordable-housing-supply-in-brazil/
40 8.4.1. Federal Government is the main actor in the planning and implementation of public policies. In institutional terms, the Government, through the executive, disciplines and controls the main housing funds (the Brazilian Savings and Loans System and the Workers Severance Fund) and trace the guidelines of the national policy, defines subsidies allocated to housing from the federal budget and, is responsible for the main housing promoting agent, CAIXA. 8.4.2. The Ministry of Cities (Ministério das Cidades) is the Government body responsible for elaborating the guidelines, setting priorities, and defining the strategy for the implementation of the National Housing Policy (Política Nacional de Habitação). 8.4.3. Caixa Econômica Federal (CAIXA – The Federal Savings Bank) is the main operator in Brazil's housing finance system. CAIXA operates, almost singlehandedly, the social housing provision market, controlling 73 percent of the country's housing credit. The bank is able to distribute resources nationwide through its extensive branch network. CAIXA is present in all of Brazil's cities. 8.4.4. States and Municipalities are subordinate to the Federal Government in terms of availability of resources. Very few states have their budgets for housing. Municipalities are responsible for managing social programs, including housing, which they can undertake either on their own initiative or by joining a program offered by another level of Government. Municipalities are legally responsible for urban land uses and the implementation of housing policies at the local level. Municipalities also enjoy significant planning autonomy. Master plans and local housing plans are the mechanisms that local administrations can apply to guide urban development as well as the use of land and housing interventions at the local level. 8.4.5. Private Sector along with the Government, the construction sector plays a central role in the housing policy. It is recognized in the National Housing Policy's scope that the contribution of private investment, capable of securing the attendance of solvable demand in market conditions, is essential. In recent years private sector participation has been more emphatic, and the trend is also catering to income groups that were historically served only by public resources.
41
Figure 8.2 Overview of the National Housing Policy Source: UN Habitat. (2013). Scaling-Up Affordable Housing Supply in Brazil: The “My House My Life” Programme. http://unhabitat.org/scaling-up-affordable-housing-supply-in-brazil/
8.5. MORTGAGE MARKET Mortgage penetration in Brazil is small at around four percent of GDP. This is much smaller than in the other emerging markets, except for Russia (India—mortgage penetration is 8 percent of GDP; China—12 percent of GDP; South Africa—30 percent of GDP).
As described in the previous chapter, the lending market for housing is dominated by public sector institutions that account for about 73 percent of loans (CAIXA). Private sector institutions provide the rest. Tiwari and Rao attribute the small size of the housing finance system to the country's legal system, which provides little protection for borrowers or lenders; a less informative credit information system, which disregards negative information; an onerous and time-consuming property registration system, the remnants of an unstable macroeconomic environment, which has made private sector financial institutions highly conservative in lending. Private sector lenders have not lent more than is required by law49.
This is, however, expected to change with the historically low-interest rates. Mortgage lending is expected to grow 5-10% in the coming years50, vs. 4% CAGR of previous years. Banks are competing for this demand, which causes a drop in interest rates and facilitates access to mortgages, which is amplified by the proliferation of digital access to financing, which is improving mortgage approval processes and the overall user experience
49 Tiwari, P., Rao, J., & Day, J. (2016). Development Paradigms for Urban Housing in BRICS Countries. Palgrave Macmillan UK. https://doi.org/10.1057/978-1-137-44610-7 50 McKinsey & Company, Brazil 2020 Opportunity Tree Report
42
Figure 8.3 Mortgage Market Size as a Percantage of GDP Source: Otto, S. (2015). Real Estate Policy in Brazil and Some Comparisons with the United States. Stanford Center for International Development. https://kingcenter.stanford.edu/publications/real-estate-policy-brazil-and-some- comparisons-united-states
43 9. DEVELOPMENT PROJECT
9.1. MATO GROSSO Mato Grosso is a Brazilian state, the third-largest by area (903 200 km2, approximately the size of Texas and Nebraska put together), located in the western part of the country. Its population in 2020 was 3.5m people. It is one of the least densely populated states in Brazil. Agriculture is the largest component of the state's GDP at 40%, followed by the service sector at 40%. The industrial sector represents approximately 20% of the GDP51.
In 2020, Mato Grosso was the leader in the national grain production, with 28.0%. It's the largest producer of soy in Brazil, with 26.9% of the total produced in 2020 (33.0 million tons); the largest producer of maize in the country; the largest producer of cotton in Brazil, with around 65% of national production (1.8 out of the 2.8 million tons harvested in the country); the 3rd largest producer of beans, with 10.5% of Brazilian production, and the 6th largest producer of sugarcane in the country.52 The state has the largest cattle herd in the country (at around 30 million pieces), representing almost 14% of national production alone. Gold and diamonds are also mined in the state.
Brazil can be considered the breadbasket of the world and Mato Grosso its most important agricultural state. The state has benefited tremendously from the rising global demand for food (especially given China's rise). Almost half these soya bean exports go to China, and the share is rising due to the US-China trade war. This has resulted in one of the fastest GDP growth rates in Brazil over the last decade, as we can see in the following exhibit. The average GDP year-on-year growth rate was 10.4% between 2012 and 2018.
Figure 9.1 Mato Grosso GDP Growth http://www.seplan.mt.gov.br/-/10948750-produto-interno-bruto-de-mato-grosso?ciclo=cv_gestao_inf
9.2. CUIABA Cuiaba is the capital and the largest city of Mato Grosso with its 612 000 residents. It is part of a conurbation along with the neighboring town of Várzea Grande (the second largest city). The metropolitan area has a population of ~1 million people (approximately a third of the state's population lives there). As the state capital, Cuiaba often serves as the central
51 https://en.wikipedia.org/wiki/Mato_Grosso 52
44 location for farmers from smaller towns within Mato Grosso to travel to in order to purchase goods and services that they cannot in their hometowns. Outside of its immense agricultural production, the Cuiaban economy particularly benefits from food processing as many of the commodities produced in the state are processed in the capital. Cuiaba is also known as the "Southern Gate" to the Amazon. The city has been expanding rapidly, from a population of roughly 50 000 in 1960 to its current population of more than 600 000. Due to the rapid growth, a large part of the housing stock is of relatively low quality and does not meet the current demand in terms of quality, space, and amenities.
9.3. RESIDENTIAL MARKET IN CUIABA The city can be split into four administrative regions. Região Norte (North), Região Oeste (East), Região Leste (West), and Região Sul (South), as we can see in the below exhibit. The map (and following analysis) focus solely on Cuiaba and excludes the neighboring Varzea Grande.
45
Figure 9.2 Administrative Regions in Cuiaba Source: Secretaria Municipal de Desenvolvimento Urbano – SMDU. (2012). Perfil socioeconômico de Cuiabá: Vol. V.
The following exhibit shows the urban evolution of the city. From its inception in the eighteen century (1717) to 2010. Between 2001 and 2010, the city expanded primarily in the northwest (Region East) and northeast directions (Region North) – both shaded in dark green. Based on Google Earth satellite imagery and my visit to the city in June 2020, it seems that the city's expansion in the northern direction is still strong.
46
Figure 9.3 Urban Evolution of Cuiaba Source: Secretaria Municipal de Desenvolvimento Urbano – SMDU. (2012). Perfil socioeconômico de Cuiabá: Vol. V.
Obtaining historical data about the residential market in Cuiaba has been a challenge. It seems that any formal collection of reliable data started only in 2015 by a local chapter of Secovi (Housing syndicate / Real Estate chamber of commerce).
The residential market in Cuiaba traded approximately 10 416 units in 2015. 2015 was also when Brazil entered a recession that lasted until 2017, which meant a decline in sales. The sales started to pick up only in 2019 when the market traded 8546 units,
Figure 9.4 Residential Sales in Cuiaba: 2015-2019 Source: Indicadores Mercado Imobiliário Cuiabá—2018. (2019). http://secovimt.com.br/wp- content/uploads/2019/05/Pesquisa-Anual-2018.pdf
47 The total value of the residential market in 2017 was R$ 2.4bn, with 8422 units sold. In 2018, the value was R$ 2.575 bn, with 8113 units sold. Although, the number of units sold was 3.8% lower, the value appreciated by approximately 6.7%. The median unit price was R$ 285 000 (US $ 54 600)53 in 2017, and 317 500 R$ (US$ 60 800) in 2018.
The following table shows a breakdown by administrative region in 2017 and 2018.
Figure 9.5 Residential Sales by Region Source: Indicadores Mercado Imobiliário Cuiabá—2018. (2019). http://secovimt.com.br/wp- content/uploads/2019/05/Pesquisa-Anual-2018.pdf
The above sales data confirm our hypothesis that the city is expanding in the north-eastern direction. The East Region was the region with the most units sold in both 2017 and 2018.
Furthermore, the projects with the most units sold (Jardim Vicentina and Area Exp Leste) are both located in the East Region. The average sale price per unit was also the highest in the East region, both in 2017 and 2018 (at R$ 348 000 and R$ 417 000 respectively). This is encouraging because we can infer that the market in Cuiaba can absorb large projects (e.g., Jardim Vicentina) and that our site (which I will talk about in the next chapter) is in the aspirational part of the city.
What is not so encouraging is the proportion of new units sold. Only 1066 units out of the 8113 (13%) were new; the rest was existing stock. Out of the 1066, 463 were located in the East Region, i.e., 43.4% of the new houses sold in Cuiaba in 2018 were sold in the East Region.
We can attribute the lack of new housing supply to several factors. First of all, it takes years to successfully deliver a project in Brazil. The 2014-2015 recession and the relatively sluggish growth thereafter certainly took its toll in developers’ confidence and willingness to begin new projects. Combined with high interest rates (at 14.25% in 2015 and 201654) meant that almost no new projects were started and thus delivered in the subsequent years.
53 Conversion rate as of Dec 27, 2020 54 https://www.bcb.gov.br/en/monetarypolicy/selicrate
48 Interest rates have been declining since then and currently stand at 2% (their historic low), we can expect new development starts and also supply from previous years hitting the market.
This could be somewhat discouraging; however, our project is located in the desirable part of the city, and we know that the project is viable with our projected price point of US$ 44 000 (R$ 235 00055) per unit. This is approximately half of the average price per unit in the Oeste Area and approximately 20% below the average price of similar new properties (new 80 m2 single family homes trade around R$ 300 000 56.
9.4. THE SITE My development partner owns a large tract of land in the city. The development site is located roughly two miles north of the city center in the East Region. As described above, the city has been expanding in the direction of our site, so we expect the location to become more attractive over the course of our development and beyond. Our site backs up to a newly constructed four-lane street and is within driving distance of the city center, shopping malls, and hospitals. This new street is particularly critical to the project's viability as it provides access to other parts of the city and ensures that our development is not isolated.
55 1 USD = 5.3425 BRL 56 https://www.zapimoveis.com.br/venda/casas/mt+cuiaba/
49
Figure 9.6 Site location within Cuiaba – Varzea Grande metro area Source: Rother Arquitetura
The gross area of the site is 402 455 m2 (or roughly 99 acres). It is zoned for residential and commercial use. On the site, there are two patches of wetlands that take up roughly 13 600 m2 that are protected, so we will not be able to develop them. However, we plan to utilize some of the green space as parks for our residents to boost the community's livability. The area is sloping upwards from the four-lane road, with a gradual cant of approximately 50 meters. It, therefore, makes sense to reserve the upper portion of the site for more affluent clientele.
50
Figure 9.7 Wetlands on the Site Source: © Rother Arquitetura
The site's developable land is further reduced by a series of avenues planned by the municipality. These avenues will connect the site to the existing road network. The following map depicts the avenues in These avenues are depicted in the following map – dashed lines in blue, green, red, and yellow.
51
Figure 9.8 Planned public roads on the project site Source: © Rother Arquitetura
These encumbrances affect the preliminary master plan's design, which can be seen in the following exhibit.
52
Figure 9.9 Master Plan Source: © Rother Arquitetura; modified by author
The land area is large and asks for a multiphase mixed-use development rather than a single-use monolithic development. The current master plan splits the site into multiple sections. Sections A, B, and C are designed to become gated residential communities (horizontal condominiums). While sections A, B will target younger customers (families) with starter homes, section C more affluent customers. The proposed master plan works with ample greenery, community areas, and various amenities in the form of playgrounds and sports facilities. There is also a retail area strategically located at the intersection of the four-lane access road with future avenues. The following table shows a breakdown of uses at the site.
53
Figure 9.10 Project Uses
As the focus of this thesis has been predominantly affordable housing and modern methods of construction (offsite construction), the focus of my further analysis will be Areas A and B, where we plan to develop affordable housing communities for the Minha Casa Minha Vida program. Area C will be developed as a higher-end gated community, and the parcels therein sold to individual customers. Area C is not part of the forthcoming financial analysis.
It seems that the countries with the largest housing deficits do not have or do not make use of advancements in prefabrication and modern methods of construction. I will entertain an idea of developing these two parcels of affordable homes that will be built with prefabricated precast modules.
The following table shows the uses of each area and the possible number of lots therein. Put together, and we will be able to build up to 528 houses.
Figure 9.11 Area A and B Uses
54 10. THE FACTORY
The project is designed to be undertaken in two parts. The first aspect of the project involves the procurement and construction of the precast modular factory on the property site.
Customers in Brazil prefer 'solid' building materials, and the predominant building material in residential construction is bricks (as opposed to timber, as is the case in the US). At the same time, the local contractors still use en large traditional buildings methods. Most residential units are built, as they have always been built, using brick and mortar. This results in unnecessary long project timelines, high costs (as both labor and building materials are getting more expensive), increased overhead costs, and overall uncertain project delivery and costs. As discussed in the previous chapters, we would like to rationalize and standardize residential construction in Cuiaba by introducing prefabricated precast modules and reaping the discussed benefits of cost savings, quicker construction times, and increased certainty in the project delivery.
Germany is a global machinery powerhouse; this technical prowess, combined with the housing needs after WWII and already established aesthetical acceptance of minimalism/rationalism (discussed in Chapter 1), led to the founding of companies that specialize in the production of precasting machinery. The majority of the leading global suppliers of precast machinery – companies such as Vollert, Progress Group/EBAWE, or Weckenmann, come from Germany.
In summer 2020, I visited both Vollert and Progress Group in Germany and liaised with their representatives regarding the supply of a carousel production facility for precast concrete elements (solid wall panels, slabs, and other elements) for our project in Cuiaba.
The precasting machinery has come a long way since the 1960s, and most of the production can be, nowadays, fully automated. A similar analogy is again that of the car factory and its evolution from the first Ford carousel setup to today’s fully automated robotic factories.
However, we are introducing a novel building system to the market and want to limit our risk/a chance of failure. Therefore, we want to optimize our investment in the machinery while keeping the optionality to expand and automate the factory in the future, should our endeavor be a success.
All the above suppliers can provide turn-key simple carousel systems. Such a system is described in the following exhibit.
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Figure 10.1 Carousel Line Source: © EBAWE / Progress Group; private communication
After importing the machinery for the factory from Europe, it will take approximately twelve weeks to get it to the site, have it commissioned and tested (confirmed by the suppliers). The factory will be installed directly on-site, in the location of the future retail units. This will significantly reduce the costs associated with transportation of the modules from the factory to their location on site.
The carousel system for the production of wall panels, slabs, and other precast elements is relatively simple. Most of the work is done on a stainless-steel table (1) that moves through the carousel. The table (palette) is cleaned; shutters (Lego-like magnetic steel forms) are placed on the table and fixed to it with magnets either manually or by a robot arm (3). The form is then fitted with steel mesh for reinforcement of the concrete and other features (such as pipes and various conduits). After that, concrete is finally poured (again, either manually or via a robot) into the forms. The prefinished panel is then compacted (by oscillation) and cured – depending on the climate – either in a curing chamber or in an open environment; smoothened for any imperfections (5 and 6) and tilted via a tilting table (8) so it can be manipulated. The finished panel is then transported into a storage yard or directly onto a truck and then off to the site's location. During my visit to the Progress Group factory in Bergen, Italy, the following photos were taken in summer 2020.
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Figure 10.2 Shuttering robot Source: Progress Group factory visit; August 2020, Brixen, Italy
Figure 10.3 Shutters with steel mesh and conduits in place Source: Progress Group factory visit; August 2020, Brixen, Italy
57
Figure 10.4 Pouring of concrete Source: Progress Group factory visit; August 2020, Brixen, Italy
Figure 10.5 Curing Chamber Source: Progress Group factory visit; August 2020, Brixen, Italy
58
Figure 10.6 Tilting of the finished panel Source: Progress Group factory visit; August 2020, Brixen, Italy
As each factory is a turn-key solution, various factors affect the final price. The most important factors are the number of tables (pallets) that circulate in the carousel system (and level of output), the desired level of automation (almost all steps can be automated or performed manually), and various other upgrades (such as machines for steel mesh fabrication, concrete smoothing, cleaning, application of patterns, colors, etc.).
The following two exhibits show a comparison of basic precasting systems (stationery, TCT, central cart, and compact carousel). For the purposes of this analysis, we have chosen the compact carousel system, as it provides the best investment/performance value and the highest level of future expandability and automation.
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Figure 10.7 Comparison of precasting systems Source: Private communication with Vollert Group, September 2020
Figure 10.8 Comparison of precasting systems 2 Source: Private communication with Vollert Group, September 2020
Both Vollert and Progress Group quoted similar prices for the compact carousel system (EUR 580.000 – 620.000). The quote includes CIF (Cost Insurance Freight) transportation from the EU to Brazil, installation, and testing, commissioning of the machinery on-site, and staff training during a ramp-up period. However, the quote does not include the cost of the batching tower (for concrete), crane, and the structure that will house the facility.
Furthermore, and this is a crucial element, the machinery can be upgraded so it can be disassembled and transported to another site. Such an upgrade costs approximately an additional 10-15% of the base price. We believe this is an essential upgrade. The ability to transport the factory could give us a tremendous competitive advantage as we could opportunistically move the factory and develop sites in other markets in Brazil as needed.
60 Given Brazil’s mild climate (and the lack of natural disasters), the machinery could be protected from the weather (mainly the sun and rain) with a light industrial tent, or a shed, which could be moved together with the machinery. The tent’s lifespan, however, would be shorter than the estimated 10-15 years of machinery and would need to be replaced sooner.
I will be counting with a double of the quoted price – EUR 1.2 million (or ±US $1.5 million) investment for the subsequent financial analysis. This should be sufficient to cover the cost of the 'mobility' upgrade, the cost of an industrial tent to house the machinery, and a gantry crane to transport the panels/modules and leave some contingency buffer. The batching tower can be rented from local concrete suppliers.
An expandable, collapsible and reusable industrial shed (steel columns with PVC canvas covers – as can be seen in the following images) costs between R$ 250 – R$40057 per square meter. These sheds can be upgraded with various features, such as air conditioning, industrial lighting (should we decide to run two or three shifts). The concrete slab/base can be built for R$ 35058 per square meter. Therefore, the total cost for a 2800 m2 shed (to house the quoted carousel system) should be around R$ 1 700 000 – 2 000 000 (or US$ 320 000 – 375 000). A new single girder gentry crane with up to 20t capacity can be purchased for ± R$ 200 000 (or US$ 39 000).
Figure 10.9 Sansuy Industrial Shed Figure 10.10 Single Girder Gentry Crane Source: https://vinigalpao.com.br/?lang=en
57 https://vinigalpao.com.br/?lang=en; https://cobertex.com.br 58 http://www.cavalcaengenharia.com.br/index_en.php
61 11. THE PRODUCT
In the first chapter, we noted the importance of the design phase and having the product designs and technical drawings fully finalized before moving into the construction/production phase.
For this thesis, I will be using the 'Gomos' system as a proxy design to give the houses in our project a more tangible look. Gomos system was designed in Portugal by Samuel Goncalves of Summary Architects. The system was first introduced in 2016 at La Biennale di Venezia – 15th International Architecture Exhibition in Venice and won a prestigious Red Dot design award in 2017. It is a precast concrete system, which presents an accurate and efficient answer to the current need for simplified and accelerated building processes. Each module leaves the factory completely ready, from the interior and exterior finishes, insulations, window frames, water and electricity installations, right down to its fixed furniture pieces. Assembly consists of simply joining these modules on-site, shortening building times from months to mere days.
Samuel describes the factors that drove the system's design, "flexibility, ease of transportation, energy efficiency, and construction speed and quality. The modularity of the system allows for the concrete modules to be combined and adapted to different needs and spaces, while their dimensions were optimized to facilitate transportation and comply with all applicable legislation. Designed to be energy efficient, each module features natural ventilation methods and low-energy solutions to insulation and lighting. The system relies on components that are all produced in tightly controlled factory environments, avoiding construction problems that stem from human error and poor craftsmanship."59
The below exhibit describes the four steps in the production of a Gomos building. Step one is producing precast modules; these are then fitted with hardware (pipes, furniture, and fixtures), cladding. Each module is designed to fit a standard ISO container and thus can be easily transported by trucks, trains, or ships. Modules are then assembled on-site by a simple connection to a pad connected to utilities (water and electricity). In our project, we would produce only the concrete modules, pre-fitted with piping/conduits. In the first phases of our venture, fixtures such as windows, lights, kitchens, and bathrooms would be fitted on site. Only if the venture proves successful will we move the fit-out into the factory.
59 https://summary.pt/works/gomos-house-with-gomos-system/
62
Figure 11.1 Gomos System Source: © Summary Architects
As we can see in the following exhibit, these modules can be assembled to form various configurations and meet different customers' needs. For instance, a young family without kids can opt for a smaller house and then expand it with additional modules, if needed. This is potentially a great advantage. It could allow us to offer the product to a broader range of customers and possibly tap into multiple Faixas (income brackets) of the Minha Casa Minha Vida program.
In its essence, this ‘optionality’ of adding modules when needed is very similar to informal communities who build as needed and when can afford. We believe that this system could ‘rationalize’ a behavioral pattern that’s part of the Brazilian culture – UN Habitat estimates that a staggering 41% of Brazilian urban population in 2010 lived in informal and precarious settlements and inadequate housing60. With this system, we could extract one of the few advantages inherent to informal settlements and turn it into a standardized product.
60 https://unhabitat.org/brazil
63
Figure 11.2 Two-bedroom layout - five modules Source: © Summary Architects
Figure 11.3 Three-bedroom layout - eight modules Source: © Summary Architects
Figure 11.4 Four-bedroom layout - ten modules Source: © Summary Architects
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Figure 11.5 Various Additional Configurations Source: © Summary Architects
The following exhibits show sections and a floorplan of a typical 80 m2 starter house made from five modules.
Figure 11.6 Sections A and B Source: ©Summary Architects
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Figure 11.7 Floorplan Source: © Summary Architects
The house has a living room with an open kitchen, bathroom and shower, two bedrooms, and a small terrace.
We can see a possible design of the interior in the following images.
Figure 11.8 Interior View 1 Figure 11.9 Interior View 2 Source: © Summary Architects Source: © Summary Architects
The following images show two designs of the Gomos system61. The first covers the modules with shingles and adds a wooden decoration/shades on the front ends; the second design is more minimalist and exposes raw concrete's beauty.
61 https://summary.pt/works/gomos-house-with-gomos-system/
66
Figure 11.10 Front view Figure 11.11 Back View Source: © Summary Architecture Source: © Summary Architecture
Figure 11.12 Simpler version of the Gomos houses Source: © Summary Architecture
We can see the transportation and assembly of the first Gomos base house on a site.
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Figure 11.13 Transportation and assembly of the modules Source: © Summary Architecture
Based on my conversations with Samuel, the construction (or rather a production and assembly of the modules) is significantly faster than a traditional construction method. For instance, Vale de Cambra62, a 940 m2 project built with Gomos modules, was completed in about five months, which is approximately four times faster than the national average in Portugal for a project of this size. Samuel did not experience any significant savings in material costs in terms of costs, but given the shorter construction time, savings had been realized in overhead costs and construction financing; the project also started generating revenue sooner.
It’s now clear that the success of the project lies in the acceptance of the design language by our target customer. While the author of this thesis believes that the design language of the Gomos system is both aesthetically and functionally superior to virtually anything that has been delivered in Cuiaba, it's only an extensive primary market research and, in the end, actual sales, that will prove the design's acceptance in Cuiaba.
Thankfully, there are ways to mitigate this risk. Before our commitment to the Gomos system (and any investments into the plant), we would first build two or three prototype houses (in different configurations) with a cast in situ concrete. These houses would essentially be our minimum viable product and would allow us to gauge the product's attractiveness. Should the design prove unattractive in the end, we could always rent these three houses for short/long term stays on Airbnb or other platforms and recoup part of the initial investment. If the taste of our customers' changes during the project's duration and
62 https://summary.pt/works/valedecambra/
68 after the plant's procurement, we will be easily able to change the forms in the factory thanks to the flexible shuttering system.
While we might not end up using the Gomos system (or a similar design language) in our project, it indeed represents an intriguing proxy on which we can base our further financial analysis.
12. AREAS A & B
Our envisaged factory can produce five modules per shift (i.e., a structure for one base house). Under the assumption of two shifts per day, we would construct two modular homes (without fit-outs) per day. If necessary, the factory can be upgraded at an additional cost to allow us to manufacture homes more quickly. An advantage of this factory design is that after the completion of all the homes scheduled for the Cuiaba site, the factory can be broken down and transported to another location in Brazil.
If this project proves the concept of modular homes, we hope to pursue similar large-scale affordable housing projects throughout Brazil in the future. This allows us to capitalize on the savings achieved through the shared designs and engineering and operational efficiencies. Our factory's flexibility offers us a critical advantage over other South American companies pursuing the same strategy. Emboloco63, in Brazil, and Baumax64, in neighboring Chile, both also construct modular homes. While they have found success, their range is geographically limited because they cannot relocate their factories. This limits their market potential. With our factory, we will not face this same issue.
The second phase of the project involves using the factory to build the actual modular homes on the development site in areas A and B. We are currently planning to manufacture and sell all 528 homes within three years. Each house will be ~80 m2 and will sit on a 130 m2 plot of land. A close-up view of area A and B follows.
63 https://www.embloco.com.br 64 http://baumax.cl
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Figure 12.1 Area A -289 lots Source: © Rother Arquitetura; modified by author
Figure 12.2 Area B - 239 lots Source: © Rother Arquitetura; modified by author
To aid us in the sales effort, we plan to build and staff a sales office and three model homes that prospective buyers can tour to understand what the modular home looks like on the inside. As discussed before, these three houses will serve as our ‘minimum viable product’,
70 and will help us better gauge the interest and obtain feedback for any potential modifications and adjustments.
We also plan to partner with local brokers to help us sell the homes. As this is a relatively new product in Brazil, these sales and marketing efforts will be vital in helping buyers with their journey to purchasing a home from us. We have, therefore, allocated a generous US$ 1 million marketing budget in our financial pro-forma.
We are also planning on running an aggressive presale campaign to help mitigate risk related to servicing our debt. In our models, we have conservatively assumed that we will be able to pre-sell 100 homes in the first year while building the factory and building up our stock of completed homes. In the Brazilian market, it is not uncommon for homebuilders to pre-sell 30%-40% of their homes in a community. However, we have assumed that since we are entering the market with a new product, there may be some initial skepticism. We are relying on our attractive (and aggressive) pricing, which is approximately 20% lower than similar properties in worse locations. The assumption is that the price attractiveness, superior quality and location will incentivize buyers enough to overcome any potential skepticism connected with a new product. We would like to avoid discounts from our base price of US$ 44 000 (at least at the beginning) to avoid any deterioration in the perceived product’s ‘value’.
After our presale phase, we are assuming an absorption of 15 homes per month and hope to have sold the entire stock of 528 homes within forty months (three years and four months).
The maximum output of the proposed carousel system is 250 m2 of concrete per day per shift. Our module is L 5.9 x W 2.35 x H 4.7 meters (see the following exhibit), or ±50 m2 (47.8 m2) of concrete (assumes the version with glass front walls). Therefore, in theory, an entire 5-module house could be produced in a day with one shift of 14 workers. The 250 m2 output assumes an established and trained team; it’s reasonable to assume that we will not be as effective (in terms of workflow and increased waste), especially at the beginning. Therefore, we are assuming a 75% efficiency of the plant (or 187.5 m2 per day), or in other words, approximately 15 base houses (5-modules) a month, which is in line with our projected sales.
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Figure 12.3 Base module (L: 5.9 x W: 2.35 x H: 4.7 m) Source: © Summary Architecture
To hit this mark, the design of our homes must be attractive to offer our customers something they value beyond the higher quality of construction and the lower price that they will pay.
In the future, we can look to further monetize this project through the installation of solar panels and the production of solar power and by upselling current homeowners with additional modules. We can also utilize the capacity of the plant by producing modules and other precast elements for other developers or other uses (such as infrastructure).
13. FINANCIAL ANALYSIS
Given both the planned scale of this development and the elevated risk inherent in investing in developing nations, we target a high return for both our GP and LP investors. We were targeting an unlevered IRR of 47% and a levered IRR of 56.5% based on our current assumptions. We believe that these outsized returns are an acceptable tradeoff for the faith investors would show us in an ambitious project like ours and are in line with the returns achieved in the market65. In total, we project a cost of ±$14.8 million and a sales revenue of ±$24.3 million after factoring in sales expenses.
65 NERI
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Figure 13.1 Project Returns
The primary driver of the IRR is the sheer scale of the project. We hope to manufacture 528 homes in order to leverage economies of scale with our factory and defray the fixed costs involved with the factory purchase (estimated at US$ 1.5 million). There is an enormous benefit to manufacturing additional homes; under current projections, with each home manufactured, we are hoping to make $18 000 in profit per unit.
Figure 13.2 Sources and Uses of Funds
This number assumes a sales price of US$ 52 000/unit (which is approximately 10% cheaper than a similar product in the area), hard costs of US$ 16,000/unit (which includes the infrastructure costs), soft costs of US$ 800/unit, and the allocated costs of the factory purchase, purchase of the land from my partner for US$ 1 million, and project overhead.
We have vetted the hard cost assumptions with developers of affordable housing in Brazil and with Construction sector cost indicator (Custos Unitários Básicos de Construção)66
66 http://www.cub.org.br/cub-m2-estadual/MT/
73 provided by SindusCon Mato Grosso. The costs in Mato Grosso in January 2020 were approximately 1000 – 1200 R$ (US$ 200 – 230) per m2 for a standard affordable MCMV project. In this calculation, we did not assume any cost savings achieved through prefabrication and standardization. In fact, since we are spreading the cost of the plant, our per-unit construction costs are approximately 18% higher.
We have also vetted our construction costs with local developers that specialize in affordable housing development and with local representatives of Vollert and Progress Group. According to the suppliers’ representatives, the cost to manufacture 1 m2 of solid wall panel with a reinforcing steel mesh is between R$ 80 – 120. Therefore, the cost to manufacture the 5-module base house structure (without any conduits, fit-outs, etc.) would be ±R$ 25 000, or ± US$ 4700, or a third of the projected hard costs per unit. We are assuming that approximately another third of the total (US$ 16 000) will go to all the other hard-costs tied to the building and the last third will be spent proportionally on the infrastructure improvements of areas A and B.
We assumed that soft costs would come to 5% of hard costs; this is relatively low in percentage terms but is generous in absolute terms since the initial standardized design is repeated over and over again in the project. Furthermore, the costs for architectural services are relatively low in Brazil.
The site is already owned by my development partner who purchased it approximately ten years ago, but since we will be raising funds (and forming a new joint venture), we are assuming a buy-out of the respective parcels (Area A and Area B) for US$ 1 million. We are assuming a 5% transfer tax, and 2% for other expenses (legal, due diligence).
To build in leeway with these assumptions, we have also allocated $422,500 to a contingency cost line item. This equates to 5% of hard costs. We expect that this buffer will be sufficient to cover unexpected cost overruns, which should be relatively limited, given the pre-planning and standardization level in the project.
As discussed, since we will be entering a new market, we have allocated $1 million for marketing expenses (including the sales center build-out) and a general marketing campaign.
In terms of G&A, we have allocated $700,000 for construction management and site office, and 10% of hard costs as the developer's fee.
We tested the sensitivity of our projected IRR to both the units' sales price and the hard costs of the units. The sensitivities of both the levered and unlevered IRRs can be seen in the following exhibit.
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Figure 13.3 Sensitivity Analysis
This analysis shows that our project remains viable with a decrease in the sales price of 20% and/or an increase in our hard costs of 12.5%. It also shows that we are far more sensitive to decreases in sales price than to increases in development cost. This reinforces the importance to us that we create a desirable product. However, it is also somewhat reassuring because we have already priced our homes at the lower end of the range of similar affordable, single-family homes in Brazil. Our initial selling price of US$ 52 000 (R$ 275 000) is significantly below the average price of R$ 417,000 in the East part of Cuiaba and approximately 10% cheaper than the R$ 300 000 price of similar types of properties. Our proposed price is below the current price ceiling of R$ 300 000 for Faixa 2 and Faixa 3 of the Minha Casa, Minha Vida subsidy program.
Perhaps the most significant risk to the investment returns that we are projecting is the absorption rate of our homes. The high IRR we are expecting is partially driven by the quick time frame (±40 months) that we are planning to be able to sell the units
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Figure 13.4 Annual Cash flows
However, we recognize that this is an untested product type in Brazil, and we are projecting to sell a conservative 15 units per month once we are at full production. This risk will be partially mitigated by our aggressive efforts to presale homes in the first year and a healthy marketing budget of $1 million. On the other hand, we recognize that the presale phase becomes immensely important. We have been conservative in modeling our presale ability given similar projects in developing South American countries. We have assumed that we will be able to pre-sell 100 homes, but there is potential to sell more, which will make our monthly absorption rate less critical.
Beyond that, I am assured by the strong fundamentals of the market for the existing single- family stock in Cuiaba (see market analysis). Finally, I hope to mitigate this risk by putting a premium on the design of our homes. If we can overcome initial skepticism in this new product by providing a quality, affordable home, we are confident that we can hit our sales targets.
This is, however, a big IF. It’s therefore critical that prior to any investment into the plant, and commitment to a specific design, we test the market by building a sample house (our minimum viable product). If the reaction is positive – great; otherwise, we will need to go back to the drawing board.
Before approaching any investors, we will have a thorough PMR (primary market research) conducted on the attractivity of several designs. In the worst-case scenario, we can always opt for a ‘standard’ MCMV design, just be able to build it faster.
13.1. IMPACT ANALYSIS Beyond the potential of outsized financial returns, we are pursuing this project to responsibly alleviate a crippling need for housing in Brazil. If this project proves the viability of modular housing in Brazil, it opens the door for us to take this to other Brazil areas that
76 are facing housing shortages. Beyond just our firm, this project's success could encourage other modular homebuilders to enter the country and further ameliorate this problem. The impact of this project could be immense for some of the millions of Brazilians unable to find a suitable, affordable home. Our houses are priced so their price doesn’t exceed the price ceiling of Faixa 2 and Faixa 3 brackets in the MCMV program (R$ 300 000), we believe that we would be successful in other parts of Brazil too. For instance, In Cuiaba, out of the 300 000 households67, approximately 55% of the households had incomes high enough to be considered in these two brackets (i.e. between 3 and 10 minimum wages).
The modular homes are also a more responsible, sustainable way to build. Each module's design and construction allow us to take advantage of standardization and move down the learning curve to limit the waste of raw materials. By building the structure in a controlled factory environment, we hope to increase the quality and limit the need for rework in the future. The modern construction and insulation of the homes result in a far more energy- efficient building than the traditional stick-built single-family units in Brazil. The design of these homes also gives homeowners the option of installing solar panels to cover the electricity used by the home and potentially generate excess electricity. In a relatively sunny location like Cuiaba, the potential for solar energy can be impactful. Finally, and perhaps most importantly, these homes are relatively compact and leave a much smaller footprint than a larger structure would.
13.2. CAPITAL STRUCTURE To complete this project, we target a capital structure of 60% debt and 40% equity. Given the relative riskiness of the project, our group plans to provide 30% of the equity necessary to have substantial skin in the game on top of the land (which we currently value at US$ 1 million) already committed for the project, and we are looking to raise the other 70% from a group of investors. The ideal investors would be opportunistically driven, would have experience investing in foreign markets and be more willing to accept the risk and uncertainty inherent in investing in a developing nation. If the project is successful, investors' willingness to tolerate the risk of operating in Brazil should result in large returns.
Under the current capital structure, we are setting up a preferred return for the GP if the project hits a target IRR. Up until a 15% IRR, the returns will be distributed pari passu. At the 15% IRR hurdle, the GP would receive 20% of the cash flows, and the LP investors would receive 80%. At the 30% IRR hurdle, the GP and LP investors would each receive 50% of the cash flows. The resulting IRRs and Equity Multiples are in the following exhibit. In this scenario, we are projecting a ±41% IRR return, or 2x multiple to our limited partner. We are
67 Mato Grosso had 914 500 households in 2010; a third of the state’s population lived in Cuiaba-Varzea Grande metro area
77 confident that these numbers will be attractive enough for a broad range of investors seeking for outsized returns in the current low-yield world.
Figure 13.5 Equity Waterfall
While there was room to increase the leverage in this project, we felt that because we are bringing a new product type to Cuiaba, a more conservative capital structure better suited this project. Perhaps in the future, if we can prove the concept in Cuiaba, we will target more aggressive leverage. We are expecting our loan to come with an interest rate of LIBOR+250 bps. This loan will have an interest floor of 5% and ceiling of 7%. I am assuming that the loan will be at the 5% annual interest rate floor for the project's duration, amounting to an interest expense of $116 800 in Year 1, $94 600 in Year 2. Because I expect to earn over $18 000 in profit for each home sold, we only need to sell roughly seven homes in the first year to service the debt with cash flows from the project.
78 14. CONCLUDING THOUGHTS
We have seen that prefabrication and offsite construction are nothing novel. However, in the last couple of years, the industry has been going through a renaissance. The widespread use of digital design and planning methods– such as the Drawing Interchange Format (DXF) or Building Information Modeling (BIM) – has created conditions under which all the groups and disciplines involved in a construction project can collaborate on developing elaborate designs without any breakdown of communication.
This renaissance has also been fueled by advances in production efficiencies – from implementation of simple production lines found in the automotive industry to the use of 3D printers and (almost) fully automated robotic systems.
While humans will be always involved in the buildings construction (at least for the foreseeable future, and as buildings and what we expect from them get more complex), the implementation of modern methods of construction can provide significant benefits in shorter construction times, higher quality, and with sufficient scale – lower costs.
It’s paradoxical that these advances are not being utilized in countries that need them most. The focus of this thesis was Brazil, a huge country with an enormous future potential – but Brazil’s urbanization rate and population growth have stabilized. There is a whole continent across the Atlantic (Africa), whose population is growing and urbanizing rapidly and that will need millions of suitable, affordable, ecological, and sanitary housing units rather quickly.
Let’s use the automotive analogy once more; it took complete outsiders (Tesla and Uber) and a lot of effort and capital to tilt the whole industry in hopefully the right direction. The author of this thesis believes that the construction industry is in a similar situation. A true change in how things are conducted will most likely not come from within – it will take an outsider that will tilt the industry to innovate more in order to be able to deliver faster, better, and more sustainably to the planet’s growing and urbanizing population. The world needs it.
The author of this thesis certainly doesn’t claim nor thinks to be that outsider (outsider he is, nonetheless). The purpose of this thesis was to examine and prove that innovation is possible and financially viable even in developing markets and with technology from the developed markets. It’s up to the reader to evaluate, how successful the author was.
79 15. BIBLIOGRAPHY
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80 ▪ Perfil Mato Grosso—Mercado & Negócios 2019. (2019). https://www.sebrae.com.br/sites/PortalSebrae/ufs/mt/artigos/perfil-mato-grosso- 2019,ff297d22e3dab610VgnVCM1000004c00210aRCRD
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▪ Tiwari, P., Rao, J., & Day, J. (2016). Development Paradigms for Urban Housing in BRICS Countries. Palgrave Macmillan UK. https://doi.org/10.1057/978-1-137-44610-7
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