Pablo’s Story

Castro, at one point the largest real estate developer in Spain, seems to be close to realizing his dream to produce prefabricated sustainable housing in a cost-efficient industrialized process of his firm’s invention. The problem with most prefab housing modulars, he says, is that they are rigidly identical, and the house frames are either made from wood, which immediately wobble and shift out of positions when hoisted by a crane, or they are made of poured cement, which is a wasteful process and not remotely sustainable.

Castro’s Barcelona-based firm, called the Real Estate Group, has instead invented a proprietary system that mass builds house-frame bars that are 90% made with recycled steel, put together like puzzle pieces. The ‘sandwich’ wall panels are, in turn, entirely made from insulation and compressed recycled materials. Meanwhile, his industrialized production takes place in a net-zero factory, and to lower the CO2 emissions that come with transporting a relay of prefab housing components, his logistics operations are executed by electric trucks.

The Spanish real estate magnate has, in other words, tried to make every step of his construction system sustainable

Castro’s firm is just about to hit the big time. After building in his design lab a protype prefab building for a 30,0000 square meter property in Barcelona, Castro realized he needed to bring his manufacturing costs down through economies of scale. “We did a proof of concept,” he says. “The building was tested by the local administration, and our system worked well. The only problem was the price. It was 25% more expensive than doing it with traditional construction methods.”

Castro likens the next step of his company’s growth to that point when, over 100 years ago, Henry Ford brought the cost of his Model T down from $850 in 1909 to $260 in 1924, essentially by inventing mass production. Castro’s opportunity to develop a housing version of the car’s “production line” arose when German Chancellor Olaf Scholz took office in late 2021. The left-of-center politician campaigned on a promise to build 400,000 new apartments every year while in office.

Castro immediately turned to his UBS bankers for help: He needed an introduction so he could explain to the new German government how his sustainable housing model could help them deliver on their election promise. The bank put him in touch with a local landowner with connections.

Castro says his firm and his German partner are now in the last stages of finalizing their contract. In the first phase of his agreement to provide Germany with sustainable and affordable housing, Castro will produce 3,000 apartment units a year in several cities, starting with Berlin.

The developer says that the economies of scale the German contract will deliver allows him to price his apartment units 40% cheaper than traditional construction methods. Building 3,000 apartments typically takes five or six years using the conventional process, not the one year that his system takes, and such time savings also provide him with hidden benefits.

Castro’s opportunity to develop a housing version of the car’s “production line” arose when German Chancellor Olaf Scholz took office in late 2021

“There is a lot of corruption in construction,” he says. “When the construction process is long, you can get blackmailed, and the price becomes ‘negotiable.’” In his system, by contrast, the price-per-apartment is fixed up front; there is no room to ‘renegotiate’ prices when construction site delays suddenly rear their ugly head.

If Castro is successful in his quest to mass produce affordable housing in a sustainable way, it will, in no small part, right some past wrongs, which still prick his conscience today.

The Spaniard started working in his father’s casinos-and-clubs empire when he was just 14 years old and wanted money to buy himself a motorbike; even while earning his real estate law degree at university, he was working nights as a club manager. It was around this time, in the mid 1990s, that Castro also started flipping modest apartments around Barcelona.

“Through an option, you could buy apartments with very little money down. I had time to renovate the property, so before I had to put the rest of the money down, I was already selling the apartment on and getting my money back.”

Unlike many other developers, Castro passed the deeply discounted land cost advantages on to the consumer

It was certainly a good business, he says, but it was not good for his soul. He frequently had to evict tenants when taking possession of distressed properties. “It is really sad work. You have to go in person with the police. It’s horrible. I remember the day, like it was yesterday, when I said, ‘Nada más.’”

On this occasion, Castro had bought a luxury house in a fashionable neighborhood of Barcelona. The lady of the house was waiting for him at the door. “I entered the house – it was completely clean. Better than new. She was crying, of course. She explained a little bit her history. Her husband had bad luck for a few months and the bank did not want to help. She gave me the key. Usually, you arrive and the house is destroyed. But here, even the grass had been cut. I felt so sad that I was throwing this family out.”

That was his turning point. Castro stopped operating in this way, got his father to back him in a family real-estate firm, only to walk away relatively empty handed a decade later when he clashed with his autocratic father over the company’s direction.

Castro had to start again. It was 2007, Lehman Brothers was going down, and the global housing crisis was moving into high gear. Luckily, Castro’s reputation for delivering on his promises carried him through this tumultuous period, and the distressed banks increasingly turned to him, even though he had little capital, to take their real estate write-downs off their hands and to make something of the mess they had helped create.

Unlike many other developers, Castro passed the deeply discounted land cost advantages he got from the banks on to the consumer, retaining for himself and his partner only a modest margin. “An apartment that was selling for Euro 350,000, we could sell at Euro 140,000. That’s how I pre-sold 200 apartments in one month.”

Today, my worry is not just time, it is the cost of housing, the safety of the workers, the sustainability of the process, and the impact of the building.

In this way, between 2009 and 2014, Castro and his partner rose to become the biggest developers in Spain. But when the fallout of the housing crisis was fully worked through, and land costs again began to rocket, the partners reinvented their business, this time using capital provided by real estate funds, rather than their own. But that business they too have sold on. The political turmoil in Catalonia, his principal base of operation, has made local development projects too risky a prospect, he says.

What caught Castro’s eye, this time, was an innovative group of designers who were imagining how to build entirely sustainable housing through prefab production technologies and techniques. When this brilliant group of designers ran into financial trouble in the early days of COVID, Castro swooped in and bailed them out. That firm, called Part by Part, is now working from within his Real Estate Group, and he has modified their system, such as demanding design flexibility, to make it more accommodating to the realities of large developments.

“When I started 20 years ago, my worry was time. I wanted to go fast, to quickly get my money out. Today, my worry is not just time, it is the cost of housing, the safety of the workers, the sustainability of the process, and the impact of the building. I don’t want to have a bad impact. I want to build green buildings – on my terms.”

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