Monday, December 15, 2014

Finding the Sweet Spot for Commercial Modular Construction

Modular has been tantalizing and teasing developers of multifamily projects for years. The next couple of years could be the best commercial modular construction has ever seen. Projects are going up in every part of the country. Big modular projects in major cities, mancamps for the oil industry and motels are the being switched from site built to modular faster than at any time in history.

In conventional wood-frame construction, the whole building is put together on site and each step must be done before the next can start. 

Modular construction, on the other hand, can mix things up. Projects are designed on computers and built in a factory where there's little need to worry about water damage or worker injuries. The potential cost savings that could be taken from more efficient labor and pre-bought materials are sorely needed in a market where it's increasingly expensive to build.

Rapidly rising costs and labor shortages are causing more developers into modular hoping for some relief from both. However there are some big hurdles to overcome on the way to a successful project for the “new to modular” developer.

The challenges include convincing investors to put their money behind an unconventional project and making sure city officials sign off on plans and issue building permits quickly. Finding a factory that has a staff that can help a developer from conception to completion is adamant. A factory that has little experience with commercial modular could end up losing both the developers future business and in the worst case, even the factory may be forced to close.

Once construction gets going, there are new kinds of engineering challenges because there is no margin for error. When everything is done in advance with a factory and it arrives at the site, the whole thing has to come together just right. The details and the design and engineering are more critical than on-site built building. With modular, if you're off by an inch that's a big problem.

Contractors also have to block roads to allow 70-foot-long trucks to haul pre-fabricated units in. And just getting a crane that can take things that are that heavy is much more complicated than you think,

Those kinds of issues have taken heavy tolls on some of the country's most ambitious modular projects. A For example, contractor Skanska and developer Forest City are locked in a legal battle over who's responsible for the heavy cost overruns on their 32-story modular tower in Brooklyn.

And promised cost savings may be a mirage in part because contractors often end up using more materials. Units are built as boxes in a factory, so they stack up wall to wall and floor to ceiling – doubling up what builders usually need on each side.

For modular to be successful, general contractors working on site also have to be in sync with subcontractors working in factories to ensure that there's top-notch quality control.
The promise of lower costs hasn’t come to fruition. At times it's been a higher cost for modular because you have duplicate work with the on-site general contractor and at the factory. There have been concerns about the modular industry's ability to deliver.

They cite the need to get creative about building methods during a time when construction costs have risen up to 5 percent every year in certain parts of the country. Those costs take a particular toll on nonprofit housing developers, which rely on subsidies to get projects built without raising rents to cover extra expenses.

For now, more and more developers are diving into modular construction, warts and all. If your factory has primarily been building residential homes and is looking to expand into more commercial and bigger multifamily housing, you need to hire the expertise before you try tackling the first project. Have them in place will help insure that your factory will have the best chance for success.

That mid-sized project, those between the small multifamily that most modular factories have done for years and the big, almost doomed to fail projects like Atlantic Yards may be the factory's and the developers' sweet spot.

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