Wellness Business
How to create an $800 million business on a healthy lifestyle
Samantha Scharf, Forbes, 04/16/2019
Translated by Natalia Balabantseva
The company of the former partner of Goldman Sachs issues certificates of compliance to the premises of wellness – a popular concept of a healthy lifestyle. The business is already valued at $800 million.
Wellness (from the English wellness – "well–being") is one of those words that mean everything and mean nothing. For its adherents, it means more than just "health", which implies only the absence of disease. Wellness has become a giant industry, or at least a very flexible marketing term. According to one estimate, which is extremely inflated, wellness is a global market of $4 trillion. Subscriptions to sports clubs and organic products can be considered part of the trend. But it can include incense, DNA tests, and sleeping pills. So why don't "well" buildings appear?
"If you believe in wellness, why not extend this trend to the largest existing asset class? Paul Scialla, a 45–year-old former Goldman Sachs partner and founder of Delos, a startup headquartered in New York, asks. "It seems like a way to extract maximum value from it."
Scialla sells Well-certificates for buildings. Developers, employers and managers of hotels and resorts can hang such certificates in the lobby and use them in marketing materials. Designed in the likeness of the well–known LEED environmental construction standard, which is monitored by a non-profit organization, the Scialla project is distinguished by one key aspect: Delos is a very commercial organization. Over the past five years, Delos has raised $237 million, the last estimate of the company was $800 million.
Investors include Bill Gates' personal investment fund and Jeff Vinick, a former Fidelity Magellan fund manager. The board of directors of Delos includes the famous new age guru Deepak Chopra and actor Leonardo DiCaprio. Scialla even persuaded Rick Fedrizzi, the creator of LEED, to postpone retirement and take over the leadership of the International Well Building Institute, a division of Delos that evaluates buildings.
Scialla hopes that his clients will pay for Well as willingly as property owners have accepted LEED, which has certified 76,800 projects since 2000. LEED charges $13,000 for the valuation of a new 100,000 sq ft property. According to a recent study, a third of building owners said that compliance with environmental standards increased the value of their real estate by more than 10%.
It's too early to say whether Well certification will have the same effect. But developers are desperately looking for something that will help them raise the price of similar condominiums, offices and standard hotel rooms. In a city filled with monotonous housing, the MGM Grand in Las Vegas earns 20% more on 500 rooms furnished with Stay Well products approved by Delos.
The 100,000 sq ft property valuation conducted by Delos costs about $20,000. When Manhattan construction firm Structure Tone moved from the leafy Greenwich Village to the overpopulated 34th Street, Robert Leon, who is responsible for the company's compliance with environmental standards, decided that disgruntled employees would appreciate the certification Well conducted in relation to the new office. Customers also like the fact that the company remains one step ahead of the wellness trend. "We want to have the right to say that we did it first," he says. In 2017, Structure Tone spent $90,000 on Well certification and implements Delos recommended improvements in offices.
Scialla, raised in a family of immigrants from Italy and Holland in Plainfield, New Jersey, formulated the Delos concept in 2009 when he became a partner at Goldman Sachs. A casual interest in ecology made him wonder why there is so much talk about the impact of buildings on the planet and so little about their impact on people. You don't need to be a Bachelor of Finance from New York University to see the potential of the wellness trend.
The idea seemed so obvious that he spent several years checking in the evenings and on weekends to see if someone had overtaken him. Scialla found that research on the health effects of buildings had been conducted for decades, but no one had tried to build a brand on it. "I didn't understand what the catch was," he says. Scialla named the newborn project after the Greek island of Delos, where, according to legend, the god Apollo was born and whose inhabitants lived forever. By 2013, Paul Scialla and his twin brother Peter, also a partner at Goldman, left the bank to devote all their time to Delos (Peter is the chairman of the board and the company's chief operating officer). Both brothers invested in the company (they do not say exactly how much). In December of that year, Delos attracted the first $24 million in external financing.
The Delos certification business grew slowly, but 2018 turned out to be a landmark year. The company has now completed 1,555 projects for 314 million square feet of real estate in 48 countries. According to Forbes estimates, last year its revenue was $20 million. The company employs 170 employees.
At the beginning of the evaluation process, Delos appoints a concierge who tells the client about more than 200 criteria by which Delos evaluates the room, including the proximity of workplaces to windows, ease of access to drinking water and the size of plates in the cafeteria (diameter less than 10 inches prevents overeating). Then comes an independent evaluator with a suitcase full of sensors measuring the quality of air, water and sound.
Scialla says wellness is a "giant" market, and he's not afraid of competition from Fitwel, a building wellness certification service created in 2017 by the U.S. Centers for Disease Control and Prevention and the General Services Administration. The service is managed by the non-profit organization Center for Active Design. Fitwel takes into account fewer aspects, but it is also much cheaper. His clients pay $8,000 to estimate a space of up to 1 million square feet. By the end of this year, Fitwel will evaluate the portfolio of Tishman Speyer, which owns, among other things, the Rockefeller Center in New York.
As for future plans, Scialla is eyeing other sources of revenue, including smart homes. For a price starting from $3,500, homeowners can purchase an app from Delos, Darwin, which provides them with wellness data, including information about air and water quality. Australian developer Simonds is implementing this system in 1,000 new homes this year, and KB Home is testing it in California. Insurance companies could use Delos data on the state of the environment to make decisions about health insurance and reduce the cost of insurance for clients living in wellness homes, Scialla argues. He admits that this is still only a concept. "I would like people to look back twenty years later and think, 'Do you remember how we didn't pay attention to people's health when we designed and built the premises in which we spend 90% of our lives?'" he says. - "How did we miss it?".
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