Reshaping an Industry: Paul Bandrowski and a “dream team” of local investors are betting big they can reshape home construction

The way most homes are built is archaic: Materials, ordered from hundreds of suppliers, arrive at one place for on-site assembly.

Former tech exec Paul Bandrowski believes it’s a costly, time-consuming, mistake-laden process.

“Why are we doing it this way? The construction industry is ripe for disruption,” said Bandrowski, who is the founder and CEO of Inphastos, a high tech manufacturing company set to build complete components of custom homes – not cookie-cutter “modular” homes – and essentially snap them together on building sites.

“These will be gorgeous homes that just happen to be built in factories,” he said.

Bandrowski, whose prior career was in internet auction and encryption software, said his goal is for the company to operate a series of home-building factories across Michigan and eventually the nation.

“The way houses are built today is the same as the way it was done 200 years ago,” he said. “We aren’t going to build that way. Our homes will be built in a highly automated, systemized, controlled environment.”

Inphastos’ first factory on M-72 in Traverse City is in the test phase of building wall systems. There are plans to build enough walls for three houses a day by March. There are also plans to turn a vacant Kmart store in Acme into a research, development and data center, a site that would eventually become the company’s world headquarters, Bandrowski said.

Beyond building custom homes, Bandrowski also is CEO of North Bay Capital Group, a private equity and venture capital firm. North Bay Capital is focused on investing in local companies in the construction and housing industries and takes partial ownership in its portfolio companies, Bandrowski said.

North Bay Capital Group has ownership interests in The Windward Group, which is building The Village at Mason Creek, a community of 319 rental homes in Blair Township; Southtown Property Management in Kingsley; Northwest Service Solutions, a plumbing services company in Traverse City; and Kingsley Lumber.

“All of our portfolio investment companies are helping to crack the code in building homes better, cheaper and faster,” he said. “Our goal is to grow the economy of northern Michigan and grow the pie for everyone. A rising tide raises all the ships.”

Inphastos, which until recently employed just 10 people, got a huge boost when Texas-based energy and communications company Quanta Services decided to shut down its Microline Technology subsidiary in Traverse City.

Bandrowski said he was able to hire 20 of the company’s software, electrical and other engineers overnight to grow Inphastos, a word he created that denotes innovation and craftsmanship.

“Microline had the most talented engineers in northern Michigan,” he said. “It would have taken me two years to build a team of this caliber.”

Building homes and other structures in factories has a variety of advantages over traditional stick-built construction at building sites, Bandrowski said. More precise cutting and assembly by robots reduces material waste, improves quality and reduces cost. Weather delays and worksite injuries are reduced in the factory environment.

And fewer workers are required in factory-based construction at a time when skilled trades workers are in tight supply. Many in the industry expect the current shortage of workers to continue long into the future, despite the efforts of state government and builders’ groups to attract more workers into the construction trades.

“All of these groups do not see a solution to the labor shortage,” said Beau Vore, owner of Kingsley Lumber.
Construction of single-family homes and apartments is a $640 billion a year industry, according to an Inphastos investors presentation. But Inphastos isn’t the only business working to disrupt that industry.

Several new companies around the country, including California-based startup Katerra, are attracting billions in venture capital for their nascent factory operations.

Katerra, which built its first factory only last year, picked up $865 million in January from a group of investors led by Softbank Vision Fund. In May, Softbank also invested $2.2 billion in General Motors’ autonomous vehicle technology.

While it might seem that factory-based construction could put thousands of traditional home builders out of business, if it takes off, Bandrowski sees things differently. He said builders likely will focus more on the development side of the business rather than the actual construction.

“We believe we are actually working for the builders,” he said.

Terry Beia, an investor in Inphastos, said productivity in the construction industry lags virtually every other industry, making the sector ripe for a major transformation.

“Nothing has really changed in that industry and something must,” said Beia, who invests in the energy and commercial real estate industries. “Wall Street money is flooding this market. The change is coming.”

Beia is among investors in Inphastos and North Bay Capital that Bandrowski calls a “who’s who of northern Michigan.” Among the other major investors Bandrowski disclosed are Casey Cowell, president of the venture capital firm Boomerang Catapult; Tom Dickinson, a former insurance company CEO and president of Pathfinder School; Marty Lagina, a Traverse City winery owner; Ray Dornbusch, former owner of Espresso Bay in Traverse City; and Northern Angels, a group of angel investors.

Inphastos recently raised $3.5 million from a group of investors that included Boomerang Catapult,

Northern Angels and others. It might seek another $4 million in local funding before issuing a broader venture capital offering next year, Bandrowski said.

Bandrowski was an entrepreneur and investor in a variety of technology companies in the Buffalo area, Chicago and California before moving to northern Michigan with his family in 2005.

He’s largely kept a low profile as a philanthropist, volunteer and coach of local youth sports teams. He said he came out of retirement to begin investing in businesses in the construction sector that weren’t right for conventional bank financing.

Vore said he met Bandrowski through a mutual friend after acquiring Kingsley Lumber almost three years ago. The business was growing rapidly but lacked the capital needed to support that growth.

“Paul is motivated. He has a passion for what he’s doing,” Vore said. “It’s contagious. It doesn’t feel like work when you’re creating and growing companies that want to serve clients better.”

Likewise, Beia said Bandrowski “is the right guy to lead this revolutionary charge in northern Michigan” and has assembled a “dream team” of technology experts to execute his strategy.

Meanwhile, the Windward Group, one of North Bay Capital’s portfolio companies, has a number of building projects planned or underway across Michigan.

Among them are Red Oaks, a proposed 100-unit condominium home development in Grawn with 1,500-square foot homes priced at between $180,000 and $200,000. Each home will feature a two-car garage and basement.

Bandrowski said the Windward Group has 12 residential projects, totaling 2,000 housing units, planned throughout the state.

“You’re going to see our developments all over the state of Michigan,” he said. “You’ll see a lot of product on the market by October.”


Tech Headquarters Proposed for Acme Kmart Site

– by Beth Milligan

New life could be coming to the former Kmart store in Acme as a techology firm makes a bid to open its global headquarters on the site.

Founder and CEO Paul Bandrowski of Inphastos has the former Kmart property at 6455 U.S. 31 under contract and is in preliminary talks with Acme Township officials about locating his corporate headquarters at the site. Inphastos uses “advanced systems, robots, and technology” to construct factory-built housing, said Bandrowski, who is also the CEO of Noble Homes, a firm specializing in affordable housing and manufactured home leasing in northern Michigan.

Inphastos – which currently operates in three local buildings totaling 35,000 square feet in the Keane Drive industrial park and on M-72 – aims to take over the 86,000 square-foot Kmart site as its main research and development facility.

“We’ll be testing robots and evaluating various forms, and using these components to help builders reduce the cost of construction and the speed at which they can construct individual as well as multi-residential housing,” Bandrowski said.

The Kmart site would serve as a test facility for the company’s new technology and systems, while factory production would take place at another off-site facility.

“We’re looking for space right now for the main production factory, which would be between 100,000 and 300,000 square feet,” he said. “We’re in the process of evaluating various [local] locations right now for that facility.”

In addition to housing Inphastos’ corporate headquarters and R&D division, the Kmart site would also serve as a large-scale data center for the company. Bandrowski will seek a planned unit development (PUD) – a zoning plan for a specific property site – that will also allow the company to add commercial and residential units to the property. Bandrowski says the project is venture-backed by groups including Casey Cowell’s Boomerang Catapult and investment group Northern Michigan Angels.

Bandrowski said early feedback from Acme Township officials has been “very encouraging” on the project. His team will appear before planning commissioners early this month to present preliminary plans for the proposed development. The company will then go through an estimated two- to three-month process to pursue PUD approval for the site.

“We’re on a pretty tight timetable … we have to start construction inside Kmart by November, because we have to be open with our full engineering and data centers by March 2019,” he said.

Bandrowski estimates Inphastos would initially employ approximately 50 staff members, growing to over 100 jobs in the next 18 to 24 months.

“We employ high-level engineering talent: computer, software, electrical, mechanical engineers,” he said. “We’ve added 30 jobs in the last three months, with an average salary of $70,000 to $100,000.”