Amazon’s Plant Prefab Investment a Boon for Modular Industry

Strong growth in home automation and internet connectivity will benefit those real estate owners and operators who are proactive in their approach

The recent entry of tech heavyweights into the modular industry foreshadows significant advancements that have the potential to catapult modular into the mainstream. Although the single-family home modular industry has seen activity for years now — evidenced by the many startups in this space, among other activity (Japan is the current leader in this space, in 2016 15%+ of all new homes and apartments built were prefab, versus 2% of all new single family homes in the US) — the movement was all a bit too early. We believe future growth will come largely because of advancements in not only the appearance of these homes and the ability to hit a sweet spot in an existing upper middle-class housing market, but also by augmenting today’s constrained labor force with scalable growth through automation and robots. Amazon’s recent investment in Plant Prefab plants a metaphorical flag in modular as a significant element of the company’s overall distribution strategy, which will build out comprehensive ecosystems for smart homes and digital automation. By integrating smart home devices and technology into the foundational level of residential homes, the Amazon and Plant Prefab pairing signals a unique opportunity for Fifth Wall LPs to innovate alongside technology companies, rather than operate in competitive opposition to the coming changes.

Amazon’s investment in Plant Prefab comes from the $100M Alexa Fund, and we see this as one of many bets Amazon will make in the space to build a grand ecosystem of connectivity within existing and emerging systems. Though we’re still early days — or, Bezos’ famous Day 1 philosophy — we believe Alexa in the home is just one part of a broader strategy to integrate Amazon into people’s homes and lives.

To corner its lead in smart home connected devices, Amazon has also made other key strategic moves. The company partnered with major real estate owners and operators (like AvalonBay) to take control of package rooms through Amazon Hub, a move that will improve residents’ experience receiving their many deliveries. By securing its billion plus dollar acquisition of Ring, which makes smart home technologies like video cameras and doorbells, it now has the technology for seamless deliveries inside the home.

Further, Amazon’s existing strategic partnership with Lennar (a Fifth Wall LP) acts as a critical point of distribution for the company, allowing it to equip new homes with built-in Wi-Fi, smart locks, doorbells, thermostats, and lights — all controlled by Alexa. The fact that Amazon’s voice-activated digital assistant is built into new Lennar homes gives both companies a competitive moat in the smart home race. Collectively, these moves showcase what Amazon can provide — particularly Alexa and voice service developments — in apartments and single family homes.

Why Plant Prefab?

Plant Prefab manufactures higher-end custom homes that appeal to Amazon’s target demographic. Those cookie-cutter modular homes of decades past, don’t even begin to encapsulate the potential. High-end, customizable designs not only look great, but the integrated smart technology offers a forward-facing appeal aimed squarely at those in the upper-middle income bracket, those willing to pay for unprecedented control, flexibility, and convenience in their homes.

We see Plant Prefab’s strong focus on automation and connectivity as also strategically aligned with Amazon’s goals and the inevitability of a built-world future. Key Amazon products — namely Echo, Dot, and Show — will be integrated directly off the conveyor belt into Plant Prefab’s modular homes, giving these smart devices a needed infrastructure of power and integration that ensure easy and seamless use in the everyday lives of Amazon customers.

Further, Plant Prefab is known as a green builder due to its reliance on sustainable products — the company sources building materials responsibly, with an emphasis on upcycled content, and recycles its own waste. This surely played a role in Amazon’s investment decision since modern consumers increasingly value sustainable architecture, design, and material.

An Opportunity for Real Estate Owners and Operators

Large technology companies — the brands homeowners already know and trust like Amazon, Google, Apple, and Samsung — are concentrating tech innovation on the way people live in their homes, on augmenting the residential sector, whether single- or multifamily (and soon how we work with proposed future office integrations). The fact that these companies are working within existing business models is a welcome relief. So far, the wave of built-world residential changes are not disruptive to landlords and builders — nothing in this new trajectory takes away customers, tenant relationships, business, or margins (at least for now, though that may change in the future).

While some home builders view Amazon as a competitor, Fifth Wall believes Amazon’s strong entry into the sector will be just one of many bets it will make in order to speed modular adoption. We view Amazon’s investment in Plant Prefab as an amazing opportunity for a number of Fifth Wall LPs — home builders and multi-families alike — to work with Amazon in a strategic capacity that accelerates the implementation of smart devices.

It is our belief that real estate owners and operators should prepare for two major changes. First, home automation is coming in a massive way. Customer expectations about their home environment have rapidly changed in recent years. To remain competitive, owners and operators must be ready. Multinational companies with substantial balance sheets are already entering the space, all integrating smart home devices into the home and shifting customers’ expectations in the process.

Second, we posit internet connectivity will become critically important as Internet of Things devices increasingly infiltrate every aspect of the home. Smart devices will operate most effectively in homes and buildings where a purpose-built infrastructure effectively facilitates the connectivity of existing systems — it is crucial to think through the role of low frequency networks in the home, how to power them, and the supportive infrastructure these networks will need. Batteries still power many smart devices, and it’s not practical to expect a built-world future will hinge on the annual replacement of batteries — what would that even look like in the many 600+ unit buildings that currently house citizens living in cities all over the world? An ecosystem is developing that will solve these problems, and partnering with leading technology players to find the solutions is certainly the most cost effective and strategically sound play for real estate owners and operators.

Bringing Modular to the Limelight

We see Amazon’s investment as a strong signal that single-family modular has emerged as a significant opportunity. With automation and robots supplementing constrained labor forces, lower costs will only continue to fuel growth. Amazon’s move in this sector presents huge opportunities for real estate owners and operators to tap into the coming wave of home automation. Fueled by the biggest heavyweights in tech, what real estate customers expect, require, and desire in a residence has moved steadily toward smart home connectivity and interoperability.

Fifth Wall believes Amazon’s investments in Plant Prefab and emerging home automation technologies signal a boon, not a threat, to real estate owners and operators (at least currently). Rather than follow the perceived role many tech companies take on industry disruption — to play rough and take over the industry’s trajectory (in this case, build modular directly) — Amazon brings the benefits of a big technology company to bear on the residential real estate market in a way that maintains existing real estate owner operator business models. The backing of a trillion dollar tech titan may be just the kick the modular industry has needed to be thrust into the mainstream as a proven and desirable construction method.