Building Better Multifamily Housing Through HVAC & Smarter Development-Season 2, Epi. 9

Building Better Multifamily Housing Through HVAC, Building Science & Smarter Development with Jeff Carroll

What if the biggest opportunity in workforce housing wasn't cutting costs…

…but building better-performing buildings?

In this episode of HVAC ADHD™, Jeremy Begley sits down with Jeff Carroll, President of Tartan Residential, to explore how high-performance HVAC design, airtight construction, commissioning, and energy-efficient building practices are reshaping the future of multifamily development.

Jeff shares how his team is challenging the traditional "value engineering" mindset by investing in better building envelopes, properly sized HVAC systems, and performance verification—creating healthier, more comfortable buildings while unlocking additional financing opportunities. Their approach has already led to award-winning workforce housing developments built ahead of schedule, under budget, and designed to perform for decades.

In this episode, we discuss:

• Why affordable housing shouldn't mean lower-quality housing
• How energy efficiency can increase project value and financing options
• The hidden costs of oversized HVAC systems in multifamily buildings
• Structural Insulated Panels (SIPs) and airtight building envelopes
• Why commissioning and third-party verification are critical
• Lessons learned from building Net Zero Ready multifamily communities
• How developers can shift from minimizing first cost to maximizing long-term performance
• The future of workforce housing through building science and high-performance construction

Whether you're an HVAC contractor, building performance professional, engineer, architect, developer, energy consultant, or commissioning provider, this episode is packed with practical insights on designing buildings that perform better for owners and residents alike.

🔗 Connect with Jeff Carroll

Tartan Residential:
https://www.tartanresidential.com/ 

Jeff Carroll Bio:
https://www.tartanresidential.com/jeff-carroll/ 

LinkedIn:
linkedin.com/in/jeff-carroll-418823367 

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Transcript

SPEAKER_00 0:02

I'm your host, Jeremy Dudley. If you've ever spent any time in construction, you've heard the same story over and over again. Value engineering, cut the budget, strip the good stuff out. Maybe someday we'll put it back. Well, today's guest took a look at that entire process and basically said, what if we've been solving the wrong problem? Jeff Carroll is the president of Partner Residential, and he's proven that investing more in energy efficiency can actually bring more financing to a project. Not less. Instead of building the cheapest apartments possible, he is building high-performance workforce housing that's affordable, comfortable, and designed to last. In this conversation, we get an oversized ATAC system, why so many multifamily buildings struggle with humidity and comfort, the role of power commissioning, and how a few smart design decisions can change the economics of a development. We also talk about why Jeff hired our team to verify the verification process and what we've learned together building these projects from the ground up. If you're an HVAC contractor, engineer, developer, builder, or just somebody who believes we can build better without breaking the bank, this episode is going to challenge a lot of assumptions. So without further ado, here's my conversation with Jeff Carroll. Everyone, enjoy. Hey everybody. Welcome to the HVAC ADHD podcast. I'm your host, Jeremy Begley. I've got an awesome episode today. I'm talking with one of my good friends, Jeff Carroll. Jeff has a really great way of looking at financing large multifamily projects. And he's doing the opposite of swimming to the bottom. He's swimming to the top and still paying the same amount of money close to it. So without further ado, Jeff Carroll of Tartan Residential, I'll let you tell your story. Go ahead and introduce yourself. Tell everybody where you came from and what you're doing.

SPEAKER_01 1:55

Great, great. Thanks, Jeremy. It's great to be here. Thanks for inviting me. No problem. I'm Jeff Carroll and president of Tartan Residential. We are a workforce housing development firm. And when I refer to workforce housing, a lot of people have a lot of different things in mind. First of all, all we do is rental housing. It's multifamily. And we view workforce housing as being housing that's affordable, the people that earn between 60% of area median income and 100% of area median income. Median income for the United States for a family of four is about $100,000. So it's people that make between $60,000 and $80,000 a year. They aren't rich, but these are the people that get up and make the world turn every day. And unfortunately, although they represent 30% of the rental marketplace, they typically live in 50-year-old properties that are obsolete. They're not energy efficient. Many times are on the other side of the tracks. They're the ones that get out that make the world turn every day. There's city workers, firefighters, police officers, nurses, construction workers, all of them. They're all hardworking. And our firm has figured out how to build into that space a product that's affordable to them that competes price-wise with the 50-year-old product that they're in that's brand new, has all the amenities, and is energy efficient. And we've used energy efficiency, we've leveraged it to make that happen.

SPEAKER_00 3:33

So one of the really cool parts about what you're doing here is you I've been involved in a lot of multifamily housing projects up front from cradle to grave, from the beginning of the design process all the way till they got sold. And the one thing that I know about these projects is you can come in with the greatest ideas ever, but everything is budget driven. So most of the stuff that makes sense gets feed out in the very beginning of the project because guys want to be able to meet this imaginary budget that they're never going to meet anyway. Like I've never seen one of them meet it in the history of the entire every project that I've done. None of them have ever stayed on budget, yet they still go to V and all kinds of stuff that really makes it a better place to live. And in today's climate zone, it's 100% necessary. And when I met you, you said, no, we're not going to do any of that. In fact, that's why I want you to be here. I want you to tell us the best way to do all this stuff. And I'm still going to be able to finance the project the same way that, or not the same way, but I'm still going to be able to get enough financing to build the building that I want to build without feeling paying from it. So you want to describe that process, like you know, where how you got to that place and everything like that?

SPEAKER_01 4:45

Sure. So let's start with market rate multifamily, brand new market rate multifamily. The cost to build is here, the value is here, and that value is supported by a specific rent level. Okay. As soon as you want to build something affordable, the cost doesn't change, but the value goes down because you have to hold your rents down. So now you got to fill a gap. And what most people do, and when I say people, I mean general contractors, subcontractors, engineers, architects, they look at putting in cheaper windows, cheaper doors, cheaper walls, cheaper HVAC systems to try to get these this gap to close. I looked at it and said, nah, we aren't going to do that. I'm going to look at the energy efficiency of each and every component that goes into a building. And I'll spend a little bit more if there's a payback. And what we found was by spending about $6,500 a unit more than traditional stick-built housing, we end up bringing about $50,000 worth of capital to the table to close and overfill that gap that otherwise would not have been available. And it's counterintuitive, but it's exactly right. So if you think about it, a tenant's luckily cost, housing cost, is not just rent. It's Red Plus utilities. And in these affordable housing programs, I'll put D restrictions in the properties, is we won't charge any more than X. It's a number that's published by the IRS that allows us to categorize this properties being a workforce housing affordable project. In the IRS, at PUD will say Red Plus utilities can't exceed, let's say, $2,000. So let's say your utilities cost you $150, you can charge $1,850 on your rent. But if you can cut the utilities from $150 down to $50, you can charge now $1,950 on your rent, and you're still the tenants not paying any more than they were before. $19.50 on the rent helps close that gap. So what we found is now every dollar you save on utilities, the dollar more you can charge on rent. Every dollar more you charge on rent, you can put anywhere from $10 to $20 worth of debt on the property, publicly available, private financing. You don't have to ask permission from the government. It's just supported by the project. We looked at this and we figured out how to build into this market by spending a modest amount of additional funds on very specific components that gave us net payback. And we were able to attract debt capital and other forms of capital to the project that otherwise wouldn't have been available. And that's how we closed the gap. And that's how we're building in this into this market now.

SPEAKER_00 7:41

So this is not imaginary. You've done two projects now, right? Like you've done Davidson Landing fully up, operational. We're going to talk about some of the challenges of that. And then you have another one, Johnston Farms, that's in development. Well, you already are in the midst of building those as well. And then there's a third one you've already purchased property for. So I just want people to know before projects. Okay, four. I didn't know.

SPEAKER_01 8:04

I started this initiative. I actually I started working. I got out of graduate school in 1988, got my MBA, and I started thinking about where I wanted to be. And I wanted to be in the affordable housing space. It's a noble place to be. And if you can make a good living doing the right thing, helping people, that's awesome. That's right in my daily way. So I only looked at that in I hate having to use government funds. Because every time you do, there are a hundred regulations that go with it. It's just incredibly difficult and cumbersome. Plus, doggone it, you know, if we made TV sets 10 years ago for $2,000 for a big screen TV and you can buy them for $200 now, why can't you do that with housing? Well, it's because you got all these regulations, everyone's got their thumb on the scale. So it occurred to me if I were able to figure out how to minimize the amount of government oversight by using private funds, I should be able to get there. And that's been my entire program, my entire career, how to build affordable housing, particularly into this workforce market, the holy grail of multifamily housing, without having to use any scarce government funds. And we figured it out. But it took about 30 years. And it began with a small duplex project in Kansas City called Buchanan's Crossing. Originally, we were going to build 24 units there, 12 buildings. And the city came along, and we had our financing and everything put together. Our plans were already approved. And the city came along and said, Yeah, you know, that manhole you're gonna hit with their sewer. We want you to hit another one. It's 550 feet east of your site. You've got to acquire an easement through some private property. Oh, and you got to cross a 144-foot ravine that's 40 feet deep. And then you can hit the manhole over there. Yeah. Whatever it costs, you're gonna have to figure it out because we aren't gonna we aren't gonna help you with it. I said, so you expect me it was gonna be a veterans housing project, you know? And it's like you expect veterans to pay for this? And they said, Oh yeah, we forgot to tell you. We want you to size it for 400 rooftops, but we aren't gonna help. They said, man, okay. This happens on this happens all the time. Yeah, okay. You get shook down at the last minute when you're when you're just trying to close a deal or you just closed it, and you can't fight the city because then you end up, you know, they're gonna inspect your construction. You just gotta gotta go with the punches. So what I did was I stepped back and broke the project into two phases. Uh a, you know, these an eight-building phase and a four-building phase. And uh when I got the additional five hundred thousand dollars worth of financing to pay for this bridge and this off-site work that we had to do. And what in the process of doing that, it occurred to me, I said, this is a perfect opportunity to answer a question that I've had my entire career. The first half of my career, I worked in the manufactured and modular housing industry, building manufactured home communities, operating manufactured home communities, and building modular subdivisions. Everything I did was with factory build housing. Everything was privately chenced. It was from like 1988 until like about 1997 or so. It was about 10 years. Then after that, I stepped into 2000. Is really when I stopped doing that. I stepped into the tax credit financed development of apartment industry working as a consultant. And we were in the middle of a recession in 2000, and acting as a consultant was the way to go. I learned a lot, but every deal I saw was stick bill. So why is it that in this publicly financed world, everyone's building stick built, and in this privately financed world, everyone's using factory built? Why didn't these two worlds not merge at all? So I said this is a perfect opportunity. I knew phase one stick bill, I can do phase two factory build. So I started looking at it, and I at first I was gonna do modular. And you know, modular for a 1200 square foot apartment unit, you gotta break your units into three pieces. Each piece has to be shipped separately in a flatbed truck, might cost you two, three bucks a mile to get it to sites. If it's five hundred miles, it's fifteen hundred bucks potentially per piece. Three pieces is forty five hundred dollars just in shipping costs, which goes a long way towards eroding the amount of labor savings you had for building it in factory. So I said, you know, my two are gonna work. I need something else. And I started looking at structural insulated panels. It's been used in these exterior wall panels or R28 or R26 or R18 or R16, or is it a number of different types? These exterior wall panels you can put 10 units on a flatbed truck, assemble them on site. The the unit doesn't show up with wheels on it. It's less obnoxious to your neighbors, plus it's energy efficient. The modular units are still an R13 bad insulation wall. These we in this we were looking at R28 panels. So we went ahead and did it. We paid more for the panels, and then we just said, let's see what we can work. And side by side, today you would never even know which one is which unless you're paying the utility bill. But it was an absolute success. We did it, we ordered that with half the crew earning half as much per hour. We could put up twice as much exterior wall in a day as a traditional framing crew. In fact, you could have two laborers and a guy that knows how to use it, caught gun the level, and you can boom, boom, boom, boom, boom, and your walls are up and you're ready to put your roof on and your roof truss is shut down. I mean, you can be dried in a couple days. So we looked at this and said, Yeah, there's something here. That project opened the door for us to put together a design charrette where we had a guy from Ashray, one of the Ashray fellows, a guy named Chris Mathis, Mathis Consulting. He stepped in. He actually was writing the 2021 building or energy code at the time. Literally, he was a guy writing it. He was on our design team. We had our architects, our subs, our general contractors. We brought in some mechanical engineers who kept wanting to minimize first cost, and I kept having to kind of smack them a little bit to get them to say, stop. We aren't looking at minimizing first costs. That's how those projects go. I told him, I said, I want you to sit down with a piece of paper in a pencil and do the manual J calculations. He goes, I'm not going to do that. I said, All right, they'll find another mechanical engineer. I need you to stop doing this where you're running it through your model that's set up for the last time you designed something. Yep. You know, because I keep getting the old wheel with thumb. Oh, you need a two and a half ton system. You know, he said, No, I don't. I cut my sensible heat in half. Yeah, I cut my infiltration by a factor of four, because I've got these opaque panels going in place now instead of having a wall that breathes. I need you to go ahead and just run the numbers in. He finally did, and he said, Yeah, you only need about three-quarters of a ton. So great, put a ton in, you know, because three-quarters of a ton's hard to where you're gonna get that at, right? Yeah, yeah. So we went through this process. We have Virginia Tech was part of it, and we brought you in on it too. So went through this process, we tweaked it, came up with this design for a three-story building. Now there are structural challenges that were in there too. These panels have a different loading capacity than a stick-built wall. I didn't want to have a rim band around every floor. And I sent everyone back to the drawing board and said, I want you to hang the floor trusses for the inside of the panels. I do not want them running through the wall, leaving a rim band. So, well, why? I said, Well, number one, I eliminate traits from having to work on it. Number two, but you're only putting uh R6 insulation in there or whatever the heck it is. And number three, there's infiltration through it. I want the second and third floor, the first and second floors button up against one another with the only thing protruding through is just a little bit of the truss where it's got to hang on top of the wall. I want to close that off and cap it off. And we did. But it took some structural engineering to make that work. So we ended up coming up with this three-story product, and our next project that we built was Davidson's land right across the street from the Canon's Crossing in Kansas City. And we built that during COVID. We built it when all the supply chain was all messed up and prices were skyrocketing, and we brought it in and had a schedule under budget, and before we had our units completed, we had 500 people on a waiting list for these 115 units. So it was a total home run at a crazy time in the marketplace. So once that was done, we said, okay, let's now let's replicate this on a site out just south of Charlotte in Rock Hill, South Carolina. It's Johnson Farms and Johnson Farms under construction now. And now we are in the position, since we've done this and we replicated it twice, we've got another Rock Hill site that we hope to begin construction at next year. And I'm now putting together a program to take this thing regionally in the Southeast and the Midwest to try to get three of these deals going out a year and build maybe 30 deals over the next 10 years, and then work with a national multifamily market rate developer that's looking to give into the middle income market, and they've never been able to do it, sell the portfolio to them and work with them to make that happen and take this thing national. So that's my plan. Where we were, how we got here.

SPEAKER_00 18:08

So I love it. Yeah, yeah. No, it's great to see it working and to be a part of it. It's been really refreshing to not be throttled by somebody that's only cares about budget and be able to actually dive into some of this stuff and be like, how can we make this really great but yet as cost-effective as possible in every single possible way? So doing that, we follow some of the early challenges that you had early on. Do you want to talk a little bit about like from Buchanan to Davison Landing now to Johnston Forms, maybe lessons learned about the process, how you're refining that, and things like that?

SPEAKER_01 18:43

Yeah, yeah, great question. There are two components that are mission critical to us. One's the exterior wall. And the second one is the HVAC system. You know, we'll start with the exterior wall. So during COVID, we had an administration change. And in 2021, January of 2021, when when the Biden administration took over, the new EPA cheap banned the use of the blowing agent that was used to make polyurethane foam. Now, if you remember back during COVID how hard it was to buy furniture. And it's because furniture has foam inserts. Those foam inserts are it had a blowing agent in it. And they were banned. And there were ten manufacturing facilities, if I recall correctly, in the United States and immediately ceased operation because they were producing this blowing agent for this bow. And they're shut down. Out of business. There is one pre-approved facility in, I think it was Houston or Louisiana, that was approved for a revised type of foam that apparently that evidently had a lower carbon footprint or a lower impact on the environment. And all worldwide demand. Not only for exterior wall panels, not only for furniture, but for the spongy material in your dashboard on your car, for Yeti coolers, for refrigerators, reps went immediately to that plant. And they were unable to keep up with worldwide demand. So, man, we aren't gonna be able to use polyurethane foam. And we just close them this project. What do we do? So why don't we instead of using an R26 or R28 polyurethane foam, why don't we do 18 graphite-infused polystyrene? So we went out and checked in that 10 producers of it in the world are all in the EU, and EU said nada. I think that's no in some language over there. Yep, sure, nada to Americans purchasing their phone. So it's like, okay, what do we do? R18's out. What's this gonna do to us? So we ended up with an R16 panel that was just traditional polystyrene. We said, this is what we're gonna have to use. So in the effort of trying to save the environment, they just kind of ruined the environment a little bit. Yeah. Actually, interesting thing. We modeled the R16 wall panels, and there's only about a 10% energy loss, which is nearly as much as we thought. I would have thought at the time that it was a linear thing between the R value and the energy savings, but it wasn't definitely a point of diminishing return because usually zero to R nineteen.

SPEAKER_00 21:45

After that, you gotta go all the way up to fifty to get the same exact bang for the buck that you got from zero to R nineteen.

SPEAKER_01 21:50

So then you've got incremental cost associated with that and doesn't pay to do it. In fact, what we've found is you've got other forms of energy. Inefficiencies or energy. You've got sunlight making it in through your windows. That's going to heat or whatever your units in the summertime that you're going to have to cool for that. And your wall panel, it doesn't matter what wall panel you got, that radiant energy, you still got to deal with it. Got the same thing. You've got the same amount of latent heat coming from your washing machine and your dishwasher, all that stuff. Big problem and plants. I guess plants give off latent heat too. And people are. So all that none of that changes. Okay. So you still have that happening. So really you're it might be linear on your sensible heat, but it's untouched on the other stuff. But the other big thing was infiltration. So we built with the R16 panels, and we got to the end of our construction, and then we did our final testing with our energy rater. And sure enough, our our ACH 50 was, I guess for traditional construction, it's like five, six, seven.

SPEAKER_00 22:59

It depends. Yeah, it depends on what they're doing. If they're using exterior insulation, we see it get down there around the twos, but just regular stick built with no exterior five or something like that. Four or five's about where they live. Yeah, six and one and a half.

SPEAKER_01 23:13

We were at one and a half.

SPEAKER_00 23:14

Yeah, I know. You got yeah, exactly. When you get into sips, man, there's just so much you can do. It changes the game. Yeah. Everything. There's no air moving around. So you put the registers in a lot of different places you normally wouldn't put them. But it changes a lot of what you can do on the inside when you go to the for sure.

SPEAKER_01 23:29

Eliminating that rim band helped us. And if it occurred to us and said, why get four by eight sip panels? Why don't we just do a sip panel for a whole wall? The manufacturer can do a 20-foot wide zip panel, strip the whole wall and just drop it in place with a lull or something like that. And now you don't have any any partitions between the panels. It's just an opaque wall. So as you install your windows right and your doors right, you're going to be even lower. Plus, the panels are cost less. Because they don't have to be cut. You know, so all this stuff came to us, and it's like, yeah, there's other things we can learn. There's other things we can do. So we learned a lot about the panels. Now, in that same project, we also learned a lot about the HVAC. We had to deal with the mechanical engineer, he was uncooperative, we finally got him on board, but he ended up messing up. The HVAC contractor had some air handlers that cost about a hundred bucks less. And he contacted the engineer and said, Hey, can I make this swap? And this RFI he put it in, it never went to the contractor team or the energy efficiency team. The engineer approved it. He put in these saving a hundred bucks, these air handlers that were mismatched with the outside unit. So we had a 21 SEER unit or outside unit, and they were putting air handlers in there that were like 15 sear or something like that, or 12.

SPEAKER_00 25:06

The other things, there's a little bit of a technical audience listening. I think we'll talk in Davison's landing right here. And so those were the carrier crossover outdoor units, inverter units, you use those right when they came out. Is that correct? That's what you originally had in there. That's what's in there right now. I think so, yes. Yeah, so the point I'm making is this like there's a very specific air handler that has to go with that thing anyway to maintain the efficiency of it. And so the minute the guy stepped outside that, he made a clear indication that hey, the contractor didn't really understand the relationship of that matchup and the equipment that you guys are putting in. And also, to the engineer, which is very typical, they don't even care. They usually put on there four comparable. And now there, this is a thing that we're into, even with these engineers right now, is where because of the specificity of the inverter and the matchup that needs to go with it, you can't say we're comparable because the next piece of equipment might operate totally different, have a different permissioning protocol, have a different type of efficiency rating and everything. So engineers really, in my mind, this is just one of my soapboxes. Like in my mind, engineers really have a lot of stepping up to do and changing the way that they do their specifications, and it needs to be true. Specifications means that you are specifying something that works in that job. It can't be a thing that came from the last job and a job before that, like you said, using these boilerflated templates where they're just like, okay, that's your specification. Okay, that's your specification. Boom, there's my stamp. You know, that's what's happening. That's why these problems exist that you're talking about right now. And for you, that calls the big attack. It kept you from getting funding, right? Or financing or something like that. Or trying to do anyway.

SPEAKER_01 26:44

We were looking for a net zero ready project. Oh, yeah, that's yep, yeah. And we were we hit it with the wrong ear handler by a fraction of a point. Okay. We ended up still being like uh mid 40s hers, you know. Right. Yep. But we were designed to be uh high 30s PERS, okay? Yeah but apparently we ended up being a borderline on getting our net zero ready. The net zero ready had some funding associated with it. Uh what happens is if you have a net zero ready project, you can get better transaction uh terms. Yeah, that's all stuff that I was leveraging for this project. And I had no idea that this was going on until we were doing our final testing at the very end of this project, and the equipment was already in. So I was pretty angry. We lost about $10 per unit per month on energy efficiency, which meant that our rents had to come down ten bucks to make up for it. And ten dollars per month is $120 per unit per year. You take that for 115 units, it all goes to the bottom line. We lost about a half million dollars when we crap from that one mistake. Wow. That one mistake cost us at least a half million dollars in value. So we said, all right, so what do we do? In the future, the mechanical engineer doesn't work for the architect anymore. It works for me. Yep. In the future, mechanical engineers they're ever presented with an RFI, the entire energy team has to sign off on it. In the future, I buy the equipment and my subcontractor installs it for me. There's no swapping it out. I buy the equipment direct. And you know, we specify that we're buying it. And by doing so, we actually are able to eliminate some of the markup on the equipment. I know that that probably makes some of the subs uncomfortable and maybe some subs will say, Well, we won't install your equipment for you then. But I will have zero room for error and this ever happening to me again. But in the future we, my entity that buys the equipment will provide a warranty for labor and materials and will look for the exact same warranty from our subs and from the manufacturer. We want to make sure that if there is a mistake, a problem, or some problem with equipment from manufacturer, that the entire time that we're holding that project, at least for you know, three, four, five years, we got warranties in place. And if we have to send aside funds to warranty that our cells will do that. We decided also that we would insert ourselves into the project and maintenance group, making sure that the outside units are cleaned. Regularly, free ions checked, right? That the inside unit, the filters are changed. We change the filters every month, whether they need to be changed or not, because I want one of my people in each every unit to see the unit. You can learn a whole lot about your tenants by being in there every month and see what's going on. And there have been tenants that change locks, tenants that unplug the dehumidifier, tenants that do all these different things. We want to know about it. We want to know about it in advance before there's a pro. And what I'm hoping is the next step will be I'm hoping that in the next project or two, I'll be able to find either a retiring contractor that's looking to make a little money in their retirement, or a brand new one that just got their license that's looking to start a business. And we're gonna we're gonna take much of the HVAC work at house. We have to have control over that. It is mission critical.

SPEAKER_00 30:25

One thing I want to highlight too is that you also hired us. So basically, this is a really unique relationship for us because you already had a verification team that was doing the Energy Star verification and all the things the green consulting team would do, but you also reached out and hired us as a third-party consultant to make sure that everything's getting built the way that you want it, and the way that you specified it, and the way that us, our design team, specified it. And instead of just relying on the green team to say, hey, here's some things you may or may not fix, and you know, yeah, sure, you meant your certification, but that's about as far as that type of advice usually goes. Right. And you had a lot of problems with the verification on the Davison landing that you hope to avoid by hiring a team that makes sure everything P's and Q's are crossed, T's are crossed, and I's are dotted. That's right. And your vision is already there, and all the green team, the verification team, has to come in and do what they're good at, which is check the boxes and say, yeah, it meets this program requirement, but the onus is not on them to make sure that your great, efficient design is getting implemented. You just you hired our team to make sure that was happening. I thought that's a super unique outlook at the way to do business on these type of projects here.

SPEAKER_01 31:42

Yeah, well, I appreciate that, and we're happy to have you helping us. Just like the mechanical engineer who traditionally works for the architect, the energy raider is traditionally working for the lender or the equity investors or some group other than the sponsor team. Sponsor team pays them, but they're a third-party independent. I wanted somebody in-house looking after my interests, not looking after the lender's interests or anything like that. Not that I'm not concerned about the lender's interests, of course I am. But I needed somebody to watch out for my interests as well. That's why we brought you guys on board. And check the checker for us, which is what we wanted.

SPEAKER_00 32:27

Check, I love it. Check verification. You know, we're on a big verification kick. We have a whole program built called verified that had to do with exactly what we're talking about, but basically making sure your design meets the criteria, making sure that it is going to perform all the testing we're doing for you guys at the end of the project, and then what we did in the middle and the beginning and all that stuff. Like we've actually taken that and turned it into a structured product that we now sell. And a lot of that came from talking to you and having conversations with you about the things that you guys went through and stuff like that. So I think that the way that your entire way of looking at this is the opposite of the way of everybody in the industry looks at it, and it's really benefited being able to build a better building and provide a service to people that may not get this level of service and building from anybody else. I think that's a piece that really can't be overstated. Is I've seen people build lead houses, lead green platinum houses in an environment where there's a tax abatement that gives them a half million dollars to build a whole nother half a house and they get to do everything they want. But the people at the income levels that you're talking about, it's usually you got to take what you got is out there. And so you're taking an extra step to make sure that they get the same product that somebody with a much better income and much more resources would be able to access. And I think that the way that you're doing it is so inventive because it doesn't really keep you from making a profit. You're still a capitalist and you still plan on making a profit off of this, but at the same time, you're able to really help that demographic. And I think that's recorded. The league speaks a lot.

SPEAKER_01 33:59

Well, one of the management issues, in fact, the innovations we've come up with are technical. Right. I mean, there's nothing new about the HVAC equipment we're so I can. It's been out there used for others. The panels have been used in student housing and assisted living and in a variety of different single family homes. It's been used in a variety of different settings, but they haven't made their way into the multifamily world because many of the developers, the designers, the architects, the engineers, they're copy, past, and repeating. They know exactly what it costs to build the last project, and they're afraid to do it. I did on the kids crossing one and two, split the.

SPEAKER_00 34:42

But let me let me paint a picture for you guys because I can do this very easily. So I I personally, anecdotally, but also I've been the verifier. So I verify affordable housing, market or market rate, what they call market rate affordable housing that's inside the Litech that's built with Litech dollars. Anybody that's listening that knows that wall knows exactly what I'm talking about. And in those buildings, here's what you get: you get oversized HVAC because the the builder or the call hires an architect uh an engineer or hires an architect or an engineer team or the MEP team, they do not do a real load calculation. They hire a verification team because all these projects have to get Energy Star verified, every single one of them. The verification team is scared to death of the engineers. They don't want to say anything about what the engineers are doing, they don't want to poke that bear. I've had every single reason why these guys don't accurately review the load calculations that are coming from the engineer and hold their feet to the fire and be like, no, this is way too big for this. You guys need to show me where you're coming up with this. And I have set people that do want to know, I've set up full review programs where I give them the empowerment to be able to say, here's the documents you need to request, here's what you need to look at, and here's what needs to match up. And every time these engineers are way off base, they don't have a leg to stand on when it comes to what they're sizing this stuff off of. And they put these days in, here's how they do it: one bedroom, one ton, two bedrooms, two tons, two, three bedrooms, three tons. That's the way the shit's sized. So, like when I go into the units and I do the verification, if I'm a third party and I'm not in control of the project from the green side and I'm just hired to come in there to do the testing, I have no control over this stuff, but I do see it. And so what I see is when I'm inside these units in the middle of the summertime, they're cranking the thermostats down to 70 degrees to try to get them comfortable. And the humidity in there is like 85%. I'm not even joking, I've measured it 85, 65, 75. They're just way oversized. The ventilation is just a brome fan that brings in outside air at random times. They don't even ever set it upright or anything like that, hooked right into the system. Okay. It's literally the worst situation. You're just creating a big wet box, and later on they have to come in, put in-wall dehumidification, or if sometimes they don't, and they end up having to move people out, fix mold issues. Like literally, I have a project that's not one year old. I got called back to the entire bottom floor soaking wet because the other they're underground and the air conditioning is three tons on three bedroom units and it's running on, off, on, off, and they're just sopping wet building. So that is the affordable housing that's getting built over and over again. I've made a good living off going across the country and telling people the same fucking thing over and over and over again. Okay, we got paid to just repeat ourselves for a whole fucking summer. I swear to God. Sure. So now then I meet you, you're building the same exact type of building, not the same exact type of building, but in the same exact finance bracket, I should say, trying to serve the same market, maybe an adjacent and a little bit like affordable housing, sometimes down through LITEC goes to people that are under the income requirements that you're talking about. But it also rents, it's income adjusted, so they do rent all the way up to the you know income level that you're also speaking of. So then what your income level is a little more workforce development and affordable housing, but at the end of the day, it's the same financing mechanisms and it's the same programs that both of these types of buildings go through. So you get that building versus the building, the unit you're building that's the same size, where it's the properly sized HVAC, they have an a dehumidifier in them because we know even if we size it right, there's gonna be days when the thing's not running at all. People want to crank the thermostats down, a bunch of weird stuff. So you provide the in-house dehumidification and the properly designed ventilation. So it's actually a very well-designed operating building that works like you would expect it to build that people really have feel good about living in and want to live in. These two buildings are built saying side by side. The only difference is this team is worried about getting the budget as small as possible and then where every dime and every dollar is going to come from. And you've created a financing mechanism where it is actually dependent on making the building better. It's like two opposite worlds. It's insane. So you can sit here and watch and be a part of.

SPEAKER_01 39:02

Yeah, and so when you oversize a unit, I mean, you know better than me. When you oversize a unit, it cycles on and off. It costs more just to buy it because it's oversized, cycles on and off, which means it's wears out, has to be repaired or replaced faster. So it's and it introduces humidity into your unit because it well, it condensate. Every time it fires on, you end up with warm air cooling so quickly, you end up with condensate on your walls.

SPEAKER_00 39:30

At the new point, happening over and over again, and in multiple different places in the house, any condensing surface turns into a condensing surface. I've been in some of them so bad with the building later. One time the guy goes, We were in one of the units, and the tenant was in the other room. He goes, I think this lady spilled pop all over the floor. It's a nonstick floor. I'm like, Yeah, that's water. It's not pop. That's water because there that's how much water is in this apartment building. Every surface that can condense right now is condensing. You put your hand on the counter, it's wet too. It's just moist in the whole entire place.

SPEAKER_01 40:00

So that's kind of the thinking behind it. We all want to live in a world that's we're breathing good air and drinking good water and all that. And we're trying to do the right thing by putting our recycle stuff in a recycle bin and not throwing stuff out the window while we're driving on the freeway and all that. I get it. I'm not my trying to save the world. I was just trying to save a penny. And what ended up happening is we ended up with a net zero ready product that is one awards. And all I was trying to do is save money by investing carefully into the appropriate components that allowed me to get there that had the biggest payback. It was the HVAC and the exterior walls. So we ended up doing our part to save the planet and saving a penny, making investors happy and making tenants happy and all of that. So it's great. And we're delighted with what we've got. And now we're trying to figure out how to take what we've learned and to do the the next thing. And it's probably gonna be, I mentioned it, there are a number of innovations that aren't huge, but the combination of which has never really could have been tried. Using exterior wall kills, changing the way the design process works, or it's maximizing value instead of minimizing cost, bringing the engineers in so they're working directly for me. Bringing in checker, checking the checker who works directly for me, buying the equipment directly ourselves, making sure it's warrantying it ourselves if necessary, doing the preventative maintenance, doing the maintenance, and then closing the loop so that when we design the next project, we said, we're making the mistake we've made on that project again, we're gonna do this instead. So we can learn it, we can close the loop, and you don't do that by sticking your head in the sand. That's all owners have done in the past. They end up saving a nickel on their HVAC equipment, and you end up losing a dollar, a hundred dollars, like operating it.

SPEAKER_00 42:03

Yeah, and callbacks and maintenance and everything else. That's when you guys are doing, we don't have time to get into it on this, but I know you're dealing with on Davison's landing right now a bunch of bad compressors and bad boards, stuff like that, which is a piece that's gonna get solved in the next project because we're gonna be completely commissioning every single unit individually. Everyone, we're not sampling, we're not doing anything, we're commissioning every single unit precisely the making sure that it performs right and benchmarking it and everything that needs to be done. So that's right. That's another lesson that got learned right now, just because of COVID and a bunch of other things. People didn't even understand these inverters when they were getting installed, and you guys are kind of paying the price of that right now and having to go back and fix it. So that's another thing that we are going to be able to straighten out in this next generation of things that's gonna work a lot better than it did before.

SPEAKER_01 42:51

Yeah, I'm glad you brought that up, Jeremy. That was something that was startling to me. These projects during COVID, when the world was shut down, I was thinking, how do I make my residence recession proof? And how do I make them AI proof? How do I make them AI proof and recession proof? And I said, I know. Why don't we do scholarships? So that they go back to tech school. So I talked to some tech schools and they said, nah, you don't need scholarships. Half the people that pretty much everyone's got a scholarship when they come here, half of the people that have a scholarship never finish school. What you need to do is give them an incentive to finish school. So we designed a line of entry-level single-family homes where we did the same thing. We leverage the energy efficiency now instead of keeping the payment lower. The idea is to offset the down payment on the hole. Right. What we're doing is we're finding local builders we can work with, and we've got the design, it's done. Find a lot with with a realtor or broker to find a finished lot to put a hole on. What we can do is. Living on our property that finishes their tech school in in an area that actually makes some AI and we're session proof. We probably aren't going to do it for a Greek poetry graduate. Not that I have anything against Greek poetry. I love it. But uh that's not gonna that's not gonna pay you bills. Okay. So you know get your HVAC contractor's license, or you get your child development license or your nursing certification or something.

SPEAKER_00 44:25

Well, I mean with all the money that's going into the promotion of trades right now, there's something to that too, man. That program you are working on there, there is a big tie-in with the way the trades is getting promoted right now and the amount of money.

SPEAKER_01 44:40

Yep. Yep. So what did I do during COVID when the world was shut down and I had nothing to do? Said, you know something? I'm gonna go back to trade school. So here I am, I got an engineering degree from Clemson, and I got an MBA from Harvard Business School. And I said, What the heck? I'm gonna get my HVAC service technician certification through ACCA. I took the manual J courses and the manual ass or whatever it is. You know, look, I I'm not gonna go out. I wanted to be able to sit down and size these things and understand how it worked myself because the thing that we were, the other innovation we were this uh mission critical stuff, your HVAC, your exterior walls, you gotta roll up your sleeves and you gotta manage it very carefully.

SPEAKER_00 45:31

Heck yeah, man. That's such an important lesson. They cannot be hand-offed at all. I get hands-offed.

SPEAKER_01 45:37

Now I I can speak, kind of speak the language. I'm no expert, but I I do better than this.

SPEAKER_00 45:42

I interact with you quite a bit on all that stuff, and you keep up, man. I'll tell you what. I appreciate that about you.

SPEAKER_01 45:47

Yeah, for sure. One last thing we're doing, and we'll do that hopefully on Johnson Farms, maybe on a future project. I need to make my thermostats idiot proof. Don't ever you know, I cannot tell you how many times we end up having to respond to a call in the wintertime. You know, my heat bill's $700, and I don't know why. And you got an emergency heat, you know.

SPEAKER_00 46:13

So I do have something we can set up. I have a little alert system thing we can work in. I'll put it, I'll make a note, put it in design. Like, I have a whole entire one of my buddies is way down the road for automation and alerts and stuff like that. So like I have something that we can work into this that will actually help you with that quite a bit.

SPEAKER_01 46:29

Yeah, I actually found some thermostats. It may work, but you can preset the range of the thermostat. It won't get any colder than you know 68 degrees. Yeah, you can do it. It'll get hotter than 78. And they can set it anywhere they want, but that's where it's gonna be. So it's kind of like the uh idiot proof in a commercial building where everyone feels better when they're able to play at the thermostat. It doesn't do anything, it's just yeah. So that's coming up with the right program, and there's probably training for the residents. Here's your video on how to operate your thermostat. Sign here once you've seen the video, so we know you've seen it, and it's all part of the move-in process. It's probably something too, but I'm trying to minimize the the possibilities for people to mess things up, just hey, if you can take the human factor out of it, you change a lot of stuff.

SPEAKER_00 47:22

I mean, that's just life in general, you know what I mean? Like the more that I don't want to get into some philosophical hole about AI because there's a lot of that out there, like, oh, the robots are coming. But I do want to say that there are things that are better controlled by automation than humans that can make the situation a lot more palatable for all involved, for sure.

SPEAKER_01 47:43

Yeah, yeah. I'm sure at some point in time, I remember when I was in undergrad taking my engineering course in the late 70s or in early 80s. Initially, they gave us a slide rule years. HP calculators, engineering calculators came out. And at the time where people said, Man, all those people that run slide rules all day long, they're gonna lose their jobs. Well, guess what? They found something else to do.

SPEAKER_00 48:08

They started using calculators.

SPEAKER_01 48:10

Yeah, yeah, now they're working with calculators. AI isn't something that's coming, it's here. Yeah, and the unemployment rate is still low. Yep. Some industries have been hit pretty hard by it, but other areas people found how to use it as a tool to help them be more productive in the jobs that they currently have. So I think what we're seeing is the cool of doom from AI is less than what people were saying.

SPEAKER_00 48:35

It's kind of like Y2K all over again. Well, hype sells the cakes. I mean, what can you do? You know, like that's just the way it always goes. We're running up on our hour here, so I'm gonna go ahead and bring it to an end. But before we end it, two things. One, is there anything that you want to put out there to the audience that you'd like them to know or talk about or anything like that for your own business?

SPEAKER_01 48:54

Sure, sure. A couple things. I have made presentations at several seminars and conferences dealing with off-site construction, with construction of multifamily, where I actually walk through the numbers on how much we spent, how much we saved, how we made all of these. And I I took it right from my projects. So the Canon's Crossing one and two, and Davidson's going, I got all the numbers. I up I uploaded that to you, Jeremy. So you can make that available to people. I'm not sure you're parking any of this stuff. 30% of the world is begging for what I'm building. And I encourage other developers to step into that space. And if you show up competing with me, I'm gonna have to figure out how to do a better job. Competition makes the world a better place. I'm cool with that. So that's out there. Secondly, if you're looking at retiring or would like to keep your license active and make maybe a pretty nice little retirement income by working with me as I build my portfolio. We're building two and three bedroom apartment units in pretty much the same climate zones with the same buildings, so it's the same units. Over and over and over again, call me 704-905-2276. That's my business number. Or you can look me up online at tartanresidential.com, and I'd be more than happy to talk with you about potentially plugging you in to help us to bring some of this stuff inside in-house so we have more control over it. If you're a new licensee and you're looking at potentially wanting to build your own business, give me a horror. Maybe you could work with this as well.

SPEAKER_00 50:33

And if you're a new licensee, you have me as a trainer that will be there training you as well, one of the best trainers in the country. And that is a value add for anybody that's new that may want to take Jeff up on his offer. I just want to throw that out there. You have access to us as well through this program. That's it.

SPEAKER_01 50:50

That's it. So I love that. I appreciate you giving me the opportunity to speak here, Jeremy.

SPEAKER_00 50:56

I appreciate you coming on and bringing me into your program, man. I've been it's been really, really cool. Like, really cool.

SPEAKER_01 51:02

We're I'm having a blast, having a time in my life, and I'm looking forward to growing this with you.

SPEAKER_00 51:08

Absolutely. I appreciate it. One last thing we ask all our guests before we get off. The world ended tomorrow, and you were the last person on earth left before the world actually ended. And they're like, hey, before the world ends, paint some advice on the wall for the society that comes next. What's that advice look like from you?

SPEAKER_01 51:24

Yeah, others are more important than you. I love it, man. Others are more important than you.

SPEAKER_00 51:29

We'll end with that. Jeff, thank you very much for coming on, and it's been a great episode, and I can't wait to see what comes next for what you're building here, man. Appreciate it. Thanks. Thank you.

SPEAKER_01 51:38

Bye bye.