KP Unpacked

KP Reddy Unpacked: Bridging the Innovation Gap

• KP Reddy

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In this episode, KP delves into the significant engagement gap between AEC and Real Estate communities when it comes to innovation. KP emphasizes the need to bridge this gap, suggesting that AI could serve as a catalyst. He highlights how focusing solely on known competition might blindside us to unexpected challenges from adjacent markets.

Want more discussions like this? You can connect with KP Reddy at https://kpreddy.co/ and follow him on LinkedIn https://www.linkedin.com/in/kpreddy/!

Speaker 1:

You are listening to the Shadow Network with KP Ready, your gateway to innovation and architecture, engineering, construction and real estate, with a sprinkle of startups that are making a difference. In between, check us out on YouTube at Shadow Partners. Never miss a live stream fireside chat or talk that we got going on with the industry's most interesting innovators and leaders. Every single week. You can connect with KP Ready and other innovators in the AEC and CRE industry in the Shadow Partners community. Go to bitly slash Shadow Partners community to learn more. Today. All it takes is a few clicks for you to make a difference. Welcome to the future and welcome to the Shadow Network with KP Ready.

Speaker 2:

Every week, KP Ready and I get together and talk about his LinkedIn posts. If you're not following KP Ready, he shows up on LinkedIn as K period, P period ready, R-E-D-D-Y. If you're not following him on LinkedIn, you should be. If you're listening to this and you're not following him on LinkedIn, I'm surprised at this point. But but anyway, go, go, follow him. We get together every week to unpack some of these posts. So I like to say you know what was KP thinking when he wrote this, but really, what was, what was the inspiration behind some of these really insightful and sometimes provocative posts? So I'm joined as usual by KP Ready. Good morning, KP. Hey.

Speaker 1:

AJ.

Speaker 2:

I want to know, I want to know what you were thinking when you wrote this on your LinkedIn post. The engagement gap between the AEC communities and real estate communities on innovation is wide. We need to work on this. Ai may be a forcing function, but why? If you think AI may create competitiveness within your own market, you are focused on the competition that you know, the competition you won't see coming, maybe coming from adjacent markets, and you go on from there. But let's use that as a starting point, a place to start unpacking what inspired you to write this post.

Speaker 3:

Yeah, we've been doing a lot of work with kind of thought leaders on the real estate side and it was pretty apparent, like even the vocabulary of how real estate people talk about things and architect calls it a building, a real estate person calls it an asset it's the same thing. And so I think the real estate people, their point of view on innovation, their innovation, the way they look at innovation, is how do I lease this thing? I would say it's much more on the sales side and on the finance side. They believe, whether it's design or construction, that's not their problem, it's none of their business, it's up to their architects, engineers and contractors. So they don't care, which, as you can imagine, is pretty problematic to not care about the process in which your $200 million asset is being developed.

Speaker 3:

The AEC market believes that these developers and asset owners, they don't know anything. They don't know anything. Why would I talk to them about innovation when they don't even know what they're doing? And so it's a pretty interesting dynamic One. Everything starts with shared vocabulary, and when you look at any two groups of people, shared vocabulary is what matters. There appears to be no shared vocabulary and there appears to be a little bit of almost disdain between the groups when it comes to innovation. It is definitely not. Hey, let's all get in the boat and row together and go figure this out Now. Are there exceptions? Absolutely, but generally, you know, I live in the world of generalities and so, in the world and the reason I bring it up in the world of AI, if you're on the AEC side and you're like, wow, these real estate developers should make a lot of money, they drive a better car than I do and they fly private jets like they're doing pretty good, what is it that they're doing that you're going to start to see AI systems to you know, tomorrow, jeff can be a real estate developer, right, no knowledge needed. No knowledge required follow the use of this system, and that system might even be tied to capital sources.

Speaker 3:

So, next thing, you know, as an architect, you might say, hey, you know why am I sitting here working on door and window details and flying commercial? I should be doing what a developer does. I can do that. In turn, a developer might say, man, I paid these architects a ton of money for what? What do they do? I can hire one architect, I can run AI, and now I have the equivalent of a 50 person architecture firm without the cost of a 50 person architecture firm and I can kind of control the process, be more proprietary and own the process.

Speaker 3:

So all of a sudden real estate developers want to get into the architecture business. So you know, we're now moving into adjacent silos, we're not sticking in our silos. Right, engineering firms say you know, we always thought about getting into architecture because we have such great client relationships. We just never wanted to compete with our architect clients to send us a lot of work. Oh, and you know, to ramp up a 50 person architecture firm, that's really expensive. Well, ai, I hire one architect and I run AI and now I have a 50 person architecture firm.

Speaker 3:

So if you start looking at these dynamics and architects might say, hey, we want to get into structural engineering. So I don't think everybody's worried about if you're an engineering firm. You're worried about the engineering firm next to you that's going to start competing with you using AI. But I think those are all the obvious moves. The unobvious moves will be where does competition come from? And that's not even to count. Like the subcontractors, if you're an MEP sub, why wouldn't you do design, build, hire one engineer. Don't need a higher team of engineers. All I need is one engineer and some great AI tools.

Speaker 2:

So is this a signal that there's going to be a? I don't think this is the right way to say it, but is this a signal that there's going to be a race to the middle in terms of collaboration? Hey, all of a sudden we're actually, because one of the things that we talk about in my pro practice classes is different delivery methods, and this is very traditional stuff. Is it design, build, develop? Is it? How does this project go from idea to substantial completion? What are the different delivery methods? Is this a signal that, in order to really innovate and move forward, that the teams have to? We can't have these three separate teams. We can't have architect, developer, engineer. It has to be an integrated team.

Speaker 3:

I think you bring up a good point, right. Why do we have all these like design build? Why do we have all these systems? We have these systems to create some type of operational efficiency because the technology wasn't there, right? Nobody wanted to redraw. I'm going to draw just enough for schematic, get approvals because it's so expensive to keep drawing.

Speaker 3:

In the future of AI, where a schematic automatically becomes a shop drawing, we may not have those phases. In fact, I think at Summit, tom Skerngelo, at Doran, thomas Setty brought up they're working on a project where they're not even doing construction drawings till the very end. They're like what's the point? Why are we iterating all these 2D plans? Like what's the point of iterating 2D plans? We're all working in 3D. Let's make changes on the fly, when we're ready to print out the CD, so to speak. We'll do that when we're done.

Speaker 3:

Manipulating things In a more simple way for non-industry people could you imagine sketching out a website design on a piece of paper, then handing it to someone to put it into HTML, and then that person hitting print of a screenshot to send it back to you and say does this look? Okay? That's what we're doing. It's a lot like that. It's insane, right? Go tell someone on the street, they'll think you're insane. This is how the largest buildings in the world are designed and built. So I think now I think you have to look at there is room to start breaking away from these known design methodologies and construction methodologies. And, who knows, like maybe why does there have to be definition, right, why does there have to be definition around these methodologies with the advent of technology, I think the other.

Speaker 2:

So if there's an architect listening to this, or any of those that you named right an architect, an engineer, a developer one of the things that's going to be on the tip of their tongue is liability. Right, why wouldn't a developer want to be an architect? They don't want that liability. But when we talk about risk mitigation, you know that's the name of the game in development. So the ability to use these tools and blur these lines. To me, the simple answer is we've got to figure out how to mitigate our risk. It's not, oh, we're not going to do that because of the risk it's. I don't see the risk going away. I don't see the liability going away. You know these, the design, build, develop. You know contractual relationships there, right, designed to assign liability. So I think that's another place that in that realm, we have room for innovation as well.

Speaker 3:

So I think liability is a myth, and here's why, at the end of the day, a firms are buying insurance policies by the way those risk premiums continue to go up.

Speaker 3:

This premiums continue to go up. In fact, they're very concerned about that. Where do those premiums, where do the cost of those premiums go? They go directly to the end customer. They go directly into the asset. They go directly to the developer, the developers paying for that. Nobody's eating these costs. So, one would argue, if I'm a developer, I could ensure my project cover on an umbrella basis, probably pay lower premiums and maybe even self-insure. So if you think about it that way, at the end of the day the developer, the owner, pays for everything. This idea that it's not built into the price. So that's actually an opportunity for margin acquisition from a developer. Right, it's a great opportunity. And oh, by the way, all these stories of like, oh, this architect, like the liability. When is the last time an architect went out of business through a botched project?

Speaker 2:

I don't know the answer to that.

Speaker 3:

I mean, the only reason what happens is you have liability, you know you go to court and all those things, but all of that gets built into the premium, into the next premium. Insurance companies have a way of always making money.

Speaker 2:

Right.

Speaker 3:

They always have a way of making money. So I think, when you look at the entire ecosystem of costs that go into a building, I think the developers actually taking the brunt of it. They're really not reclaiming any of these losses and everything through architects and there's so much limitation of liability. So if I'm a developer and I have the right tools like I'm going to own it I'll take the liability. I'll take the liability myself.

Speaker 2:

Yeah, yeah, I think that's a mindset difference. It's very healthy, Right, we have coming from a long background in the A&E side the AEC but in A&E firms mainly, I think we have an unhealthy limiting belief system or limiting mindset around that liability, and I think we are on this verge with the ability to do things that we've never been able to do using these tools, that we have to change that mindset, as you're pointing out, if we really want to compete and thrive in the future marketplace.

Speaker 3:

Yeah, there's always room for margin recapture, right? So if you take the costs that go into an asset, the other one I get a lot is like well, who's going to stamp the drawings? What about governance? And I'm like, if you're hanging your hat on the defensibility of your business being a stamp in liability, you're already done. It's time to retire. If you're over 60, go ahead and retire now, like lie down your career, and if you're younger than that, maybe find something else. But I think those are all like weird stories that people tell themselves to feel better about the situation and they aren't real. They're 100% not real.

Speaker 2:

That's one of my favorite arguments, because there are huge movements both on the A side and the E side, to protect the term, protect the stamp, whether it's protect the term architect or the idea of qualification based selection. Both of those are a race to the bottom, and this is going to ruffle the feathers of people that are listening to this, but it is a race to the bottom, to your point. If that is the last thing that you have to hang your hat on, it's over.

Speaker 3:

Yeah 100%.

Speaker 2:

It's got to be value creation.

Speaker 3:

Yeah, so I think, but I think this idea like people get so focused on the competition they have in front of their face that they don't see the one. That blindsides them.

Speaker 3:

And I think that's where firms I mean I'm. I'm so fortunate I get to talk to all these CEOs and talk to all these firms. I get so much information and so much inside information. You know, I'm not making this stuff up. I wish I had more imagination to make it up. These are the conversations I'm having with real people doing real things. So not to be a fear monger, it's not a fear monger, I'm just like, I'm just reporting. I'm like a journalist, I'm reporting the facts, y'all.

Speaker 2:

So yeah, this, this, this is really good insight. It's it is good advice. That I know. You know from my background and my connections that there are a lot of people in this world that are afraid of what we're talking about. But, you know, hopefully this is some not fear mongering, but but encouragement to think differently about the way that you're moving forward. So, KP, thanks for unpacking this for us today. Again, if you are looking for this post on LinkedIn, you need to be following KP Ready. So K period, P period ready, R E, D, D Y on LinkedIn. This post starts out. The engagement gap between AEC communities and real estate communities on the innovation side is wide. Thanks for helping me unpack this one today and thanks to everybody that's listening. We'll be back again next week with another unpacking KP.

Speaker 1:

Thank you for tuning in to another episode on the shadow network here with KP Ready as always. Remember you can connect with KP and other innovators in the AEC and CRE industry in the shadow partners community. Go to bitly slash shadow partners community to find out more today. Until next time.