Two Developers Share Their Opinions of Modular

Their experience can help manufacturers understand how to reach developers who aren’t yet sold on the concept.

 

• Some developer reservations are the result of poor branding on the part of the manufacturer. Others are because developers have heard about bad experiences.
• Our interviewees praised modular’s speed, quality and cost reduction. At the same time, they say things like financing and issues with site access can cause developers to take a pass.
• They offer advice to developers on how to choose a manufacturer and how to properly manage that first build.

 

Are you a developer new to modular construction? A modular manufacturer trying to understand some developers’ hesitations about modular?

With that in mind, we interviewed two experienced developers about the more general concerns developers seem to have with modular construction as well as their own perceptions of the benefits and drawbacks. We also asked them what developers venturing into the modular world for the first time need to know.

Our interviewees are Michael E. Johnson and C.J. Myrick.

Johnson is President and CEO of UrbanCore, a development company based in Oakland, California. In the last 15 years, he’s completed 15 projects, two of which were mid-rise multifamily modular projects: Coliseum Connections in Oakland (110 units with a mix of apartments and townhomes, 50% market rate and 50% affordable) and Eviva Midtown in Sacramento (118 market rate one- and two-bedroom apartments). The manufacturer on both projects was Boise, Idaho-based Guerdon.

Myrick is a Senior Construction Manager at the development firm Lone Mountain Land Company, based in Big Sky, Montana. He has worked on various modular projects, including hotels, single-family homes, a cabin resort, workforce apartments, affordable housing and a hotel. He has worked with various manufacturers, too, including Guerdon, Nashua Builders (Boise, Idaho), NRB (Grimsby, Ontario, Canada), KIT Custom Homes (Caldwell, Idaho) and Stratford Building Corporation (Rathdrum, Idaho).

 

Developers’ Concerns

What, according to our two interviewees, causes developers to hesitate when it comes to using modular construction?

One big reason, says Myrick, is that there are still misconceptions about quality, even among construction pros. “Many people still think modular homes are the same as manufactured homes.” Unfortunately, he doesn’t think that manufacturers have done enough effective marketing to counter that perception.

But quality misconceptions aren’t the only roadblock. Johnson knows developers who have had genuine problems with modular. These included sequencing issues, modules that didn’t come together properly and MEP shafts that didn’t line up the way they were supposed to. “Projects with these problems end up costing more than if they had been built conventionally.”

 

Benefits of Modular

Despite the above, Johnson and Myrick both think that modular’s benefits outweigh the concerns. Which benefits, in particular, do they think should be emphasized to encourage developers to engage with modular?

Speed to completion

“Modular can save as much as 20% to 30% on your schedule,” Johnson says. “A 24-month schedule can be cut down to 18 months.”

Myrick gives the example of a Marriott he worked on. “It is a 354-room hotel, and it took 12 months from concrete in the ground to grand opening. That’s unrivaled in the site-built world.”

Speed to completion means less loan interest to pay. It also reduces other costs such as insurance. And the sooner a development is completed, the sooner it can start earning revenue.

In addition, because factory work can start before the foundation is poured, the construction season is effectively lengthened in locations with long winters.

Lower construction and labor costs

Modular can reduce construction costs via repetitive designs and the use of less costly labor. (Factory workers cost less than skilled site workers and subs.) “Combined, these can bring down the cost by 10% to 15%. On a $50 million project, that’s a savings of $5 to $7 million.”

Factory labor is also more predictable. “Being able to entice — and retain — workers because they can work year-round in a climate-controlled facility is important,” Myrick says. “And these factories take workplace culture seriously, building strong teams with things like Food Truck Fridays and Thanksgiving dinners.”

Better quality

There’s no difference in the materials used in modular and conventional construction. “It’s the same framing, drywall and insulation. The electrical, plumbing and mechanical systems are all the same,” Johnson says. You can choose any level of quality when it comes to things like windows, doors and finishes.

Before he first visited a modular factory, Myrick was skeptical, but he was blown away by the quality. For instance, he says that Marriott knows what sound transmission class (STC) ratings they want for floors, ceilings and walls. “The Hawthorne, California modular hotel exceeded Marriott’s sound requirements.”

Less waste

Modular construction is more environmentally friendly than site-built because there’s less waste and fewer debris on the jobsite. That makes the jobsite safer, while also protecting the environment, says Myrick. “Here in Big Sky, winds off the mountains can whip up suddenly. Debris can end up in the river or in the woods.”

 

Drawbacks of Modular

Like each method of construction, modular has its perceived drawbacks. Here are the objections our interviewees mentioned; ones that manufacturers should be prepared to answer.

Financing challenges

This is mostly a problem the first time a developer does a modular project. “It can take lots of salesmanship to convince your lender and equity partner that you can execute that first one,” Johnson says. After a successful project, it gets easier to get financing sources on board.

Another potential issue, says Myrick, is that a modular project is so front loaded. “You need all your funding in place at the beginning. We have a full finance team, but if the developer only has a handful of people, it can be a heavy lift just arranging the funding.”

Module sizes

Modules are big. And some urban sites can simply be too tight for the delivery trucks and cranes needed to put them in place.

The need for staging can also cause problems. “It can be hard to find a big enough piece of land nearby if you’re doing an urban infill project,” Myrick says. “If your staging yard has to be an hour outside the city, that’s going to affect scheduling, set crew costs, crane costs, everything.”

 

When to Use Modular

We also asked our developers how to determine whether or not modular is the best fit for a particular project.

According to Johnson, the biggest factors are the density of the project and the nature of the site. He considers the ideal modular project to be three or four stories with 100 to 150 units on a flat site that’s large enough to accommodate delivery and staging.

Myrick says, “Hotels and workforce housing are a no-brainer for modular because of design repeatability. Duplicating modules makes the process so efficient.”

But he has also used modular for many other types of projects, including “crazy-high market rate” single-family homes in resort areas. “The short build season, high construction costs and consistent quality means modular makes sense” even for these high-end homes. But he admits that what makes sense in a remote mountain location may not apply in an urban location.

Myrick recommends doing a feasibility survey to determine if the project is a good modular candidate. For example, he mentions the free “modular feasibility scorecard” download available from EV Studio, an architecture and engineering company based in Austin, Texas.

 

First Project Advice

We also asked Myrick and Johnson for the advice they’d give developers who are considering their first modular project.

Do some factory research

First, you need to know the factory’s volume requirements. “Some factories won’t touch a project with fewer than 50 or 100 modules,” Myrick says.

The project must be the right fit for the manufacturer in other ways, as well. Is the project a good fit for their capabilities and strengths? Do they have sufficient manufacturing capacity, and can they manage the necessary timeline? Myrick recommends talking with a few different manufacturers. Sometimes, for example, it might work out that you can get three different floorplans by working with three different factories.

Johnson and Myrick both recommend not ruling out a manufacturer based on distance. Of course, “proximity matters because of transportation costs, insurance, etc. But a factory that’s further away might have lower construction costs, which could offset the higher transportations costs,” Myrick says. “And, if a more distant factory has the capacity to manufacture faster, it might even be worth paying a premium because it’s so valuable to get the project finished earlier.”

Johnson chose Guerdon for two modular projects in California, even though they’re located in Idaho. He decided they had the most relevant experience, and that the price was good, even after trucking costs. He adds, “They were also able to bond their subcontract.” (Bonding reduces a developer’s risk because if a manufacturer defaults on the contract, the bonding company covers the cost of their part of the project.)

Visit the factory

Before you choose a manufacturer, it’s important to visit the factory. Check out the workmanship during and after production. “Completed boxes are 100% finished on the inside, so you can see their finished products,” Johnson says. To check how modules go together, Johnson’s team also “inspected stacked prototypes to make sure everything lined up properly.”

Hire for experience

Both Johnson and Myrick also advise having some team members with modular experience. “You don’t want everyone on your team doing modular for the first time,” Johnson says.

On both of Johnson’s modular projects, the architects hadn’t worked with modular before. So, he teamed them up with Prefab Logic in Nampa, Idaho, which created the permit drawings and shop drawings for the factory. This ensured “that all the pieces went together well.”

Myrick recommends getting an experienced modular construction manager (in-house or contracted) or hiring a modular consultant. “You need someone who understands the whole process and can drive it.”

Choosing a general contractor

On the other hand, it’s not a good idea for a developer to work with an entirely new team either. There are benefits to sticking with a general contractor you know, even if they haven’t done modular before. “You know the quality of their work, their commitment to detail, and how well they deliver their services,” Johnson says. You can bring them onto a modular project if they’re willing to learn.

When the developer and contractor are new to modular, they both must put in the effort to learn how it works. “Crawl underneath and on top of the boxes in the factory. Examine wall systems, electrical and plumbing systems,” Myrick says. Spending $10,000 or $20,000 upfront for that education can save millions on the back end.

Inspections during production

Myrick also recommends hiring a third-party inspector who understands modular, and who can be in the factory while your units are being manufactured. This is important even if the factory has a good internal QA/QC system.

“It’s good to have an inspector looking out for the developer’s assets, someone who understands the developer’s, or client’s, expectations.” For example, an inspector might catch something like an outlet box being four inches to the left, compared to the drawings. Your superintendent might catch these things later, but having a set of eyes in the factory checking and catching things early is invaluable.

Clearly define responsibilities
Myrick mentions the need to define who’s responsible for what. In particular, developers and contractors need to be clear on what’s left to do on-site.

“When the modules are stacked, the MEP connections need to be made. Generally, that’s done in the hallways, which are left unfinished. The exterior is also typically unfinished and you’ll need to put on the skin and the roof,” Johnson says. However, he advises not making any assumptions. Ask questions early and avoid problems later.

 

Zena Ryder writes about construction and robotics for businesses, magazines, and websites. Find her at zenafreelancewriter.com.