Rabbet’s Ability To Fill Empty Holes In Construction Financing Wooed Goldman Sachs
A rabbet is a notch formed in or near the edge of a board, so another construction piece can fit squarely into the wedge, connecting different pieces of material.
For Austin-based software company Rabbet, the word has taken on a slightly different meaning.
The software developer aims to connect complex aspects of the construction financing process to ensure contractors are getting paid on time and banks have the ability to accurately assess what is happening on the payment side of any given project as they manage capital draws tied to collateral yet to be built.
The firm already made national headlines when it secured $8M from investors, including investment giant Goldman Sachs.
Rabbet’s main customers include financial firms, accounting firms and development associations.
Rabbet CEO Will Mitchell sat down with Bisnow to take us inside the firm’s software and its long-term goal of making it so that no dollar comes too late and no pennies are paid too foolishly during the paperwork frenzy that comes with a long-term construction project.
Bisnow: Describe your solution and what it is geared to do for the construction industry.
Will Mitchell: Rabbet the software company is about strengthening the connections within the real estate space, so we are focused on the connection between real estate lenders and developers in this monthly draw request process. The developer will send over a package of information to the bank in order to get funding from their loan. It’s a lot of pages, a lot of information, a lot of approvals. Our software helps centralize and track all of that documentation, approvals and payments.
The ability Rabbet has [is] to read documentation to [help users] ingest all of this information. We talked a lot about this data, but a lot of these systems require the user to manually put in the data, so Rabbet’s built out with proprietary document reading [tools] that allow for a developer or a bank to ingest all this information.
So this massive 100-, 200-, 1,000-page draw package can be ingested and structured to be able to provide those insights without all of the manual entry. A lot of what we are working on is structuring this data as best as possible to enable us to provide those insights.
Bisnow: There are surprises in these projects as to what the final costs will be, and it sounds like that is an area where Rabbet believes it can offer a software solution in terms of establishing predictability when it comes to construction costs.
Mitchell: Unfortunately, right now there is not a good dataset on the costs of construction, so if you are building a 20-story apartment building in Dallas, you don’t have a lot of contextual data to look at, and so Rabbet is looking to understand the costs of the market, so they can start to say there is an opportunity for this market to be a little bit under-budgeted or that the project could be a little bit behind schedule, so using data to do some predictive analytics around those things can help avoid surprises down the road.
Bisnow: How are companies using Rabbet right now?
Mitchell: Most of the use of Rabbet right now is to track the monthly construction draw process, so we are not doing the analytics aspect. That is more down the road as we kind of build out more and more datasets in the space. The primary use for companies like Goldman Sachs is to track all of this documentation.
Bisnow: What is your growth space? How do you hope to help the market?
Mitchell: One of the most risky things a bank does is pay for collateral that hasn’t been constructed yet, so it’s a huge risk to the bank disbursing these funds, so the developers struggle to get this money from the bank in a quick and efficient manner.
The ability to streamline the process and help contractors get paid faster helps the contractors be more productive, more efficient and invest in more technology that’s the real kind of main issue right now we are focused on.
There is $1.2 trillion in construction spending in the U.S. each year; it takes on average 54 days to get paid. That takes a lot of money, it takes a lot of time, so we have a huge opportunity to improve that for everybody from the financial institutions down to the subcontractors.
Bisnow: How do you track the timelines through Rabbet? How do you evaluate time?
Mitchell: Primarily, we are focused on centralizing the information and allowing the site inspector from the bank to go and check the site to make sure they are OK and all of the work has been completed. The OK to dispense fund is largely based off of this site inspection and saying “yes” [that] everything they asked for has been completed.
The kind of more predictive analytics is not looking at exactly what is going on at the site but potentially the impacts of some of the things that have happened or haven’t happened and whether that kind of signals a potential concern over the project. Whenever we start to see kind of a signal in the data, we try to expose it to our customers and say “hey you should look into this,” but don’t want any false negatives. We will really be focused on what do [we] see consistently and use that information to help our customers.
Bisnow: What is the result of being able to track the paperwork in one location?
Mitchell: I would say it decreases the timeline for payment. Right now, there is a lot of “hey, I put this information here, I have this information in email; this information is in my folders on my desktop.” The more you can connect that information, make it easier to transfer, the better that you can get those jobs processed.