Tuesday, March 12, 2019

‘Tiny’, ‘Affordable’, ‘Homeless’, ‘Hotels’, ‘Custom’ and ‘ADU’ the New Buzzwords of the Modular Industry

Prior to 2008 and the housing downturn nobody in the residential modular housing industry had much time to build outside of the modular factory’s standard floorplan books.

My how things have changed. I’m not sure which came first. Was it the labor shortage or the need for more housing or that cities were tired of the homeless taking over city parks and roadways or was it simply that Silicon Valley investors rich from selling their Tech businesses discovered the modular housing industry.

Whatever it was caught the modular housing industry at the best, or worse, time for modular factory owners. Sales were sluggish after 2008 with many factories shutting their doors. However two major events occurred that brought many modular home back from the brink.

Hurricane Sandy hitting the East Coast and destroying tens of thousands of houses from NJ all the way up to MA and RI. For the next four the East Coast modular factories were running on all cylinders but as that began to slow down Marriott Hotels ‘discovered’ the savings in time and money modular construction brought to their bottom line and began ordering hotels on the East Coast from residential modular home factories followed by other hotel chains that saw the advantages of modular and it was ‘off to the races’ for modular construction.

Next came apartment buildings and other commercial projects bringing anywhere from 30 to 130 modules to the factory’s production lines. Again the timing couldn’t have been better as many modular home builders that weathered the housing crisis were reaching retirement age and some that left the business because of the 2008 downturn never came back to the business.

During the downturn many modular home factories were trying to help their existing builder base by offering to build wild custom homes that would never have been allowed in the factory’s old planbooks. Allowing the tail to wag the dog the factories took on just about option and unique feature the builder’s customer could think of.

All this slowed down housing production to the point that it is not unusual for houses to take 10-20 weeks to build in the factory which now includes excessive code reviews by many state agencies and the factory’s engineering trying to figure out how to produce and build these extreme custom homes.

All the time this is happening in the East there have been no new modular home factories built and only modest upgrading in others.

Meanwhile the young people that reaped millions and even billions when they sold their high-tech companies saw prefab and modular housing as the best place to invest their money and at the same time try to solve all the housing problems they saw affecting the West Coast. That still seems to be the main topic at all those West Coast building conferences and investor seminars.

Millions of dollars were invested in ‘Affordable’ housing factories. ‘Homeless’ housing became the buzzword when these new billionaires were looking for places to put their high-tech gains.

I’m now hearing that these new investors are looking at ‘Tiny’ Houses and ‘Auxiliary Housing Units’ (ADU) as industries to invest their millions.

But what is interesting is that all those Silicon Valley investors can’t see beyond the Rocky Mountains when it comes to investing in new prefab and modular companies. It’s as if it doesn’t benefit the West states it isn’t worth the investment.

The East Coast Prefab and Modular housing industries have to be scratching their collective heads wondering why all those millions are being sunk into any new idea their West Coast siblings present to investors no matter how far fetched it may be.

For every Katerra there are 2 or 3 factories that investors love but have little or no chance of becoming a major success. Blu Home is a prime example of how investors fell all over themselves to throw over a hundred million dollars at them in their pursuit of becoming a national presence only to end up building primarily in Northern California.

There is a long and hard learning curve in modular housing and if investors are looking to make actual profits on their investments they should begin courting the East Coast modular home industry with its wealth of talent and experience.


Anonymous said...

Great article Gary. I never gave too much thought as to how our industry is evolving.

Josh Margulies said...

Early in my time in, i was told modular cannot be expected to be all things to all people.

Backyard Home Pro said...

Good summary, but what you did not mention is that CA has such a housing shortage that the new Governor set a goal for 3.5M new homes by 2025. When that happens all the investors try to grab a piece of the pie. I'm not saying any of these companies will succeed, in fact most of them will fail (if not all) since very few of them are led by industry professionals, just like Blu was a couple years ago!

By the way, Blu is doing well as a smaller Bay Area MOD company that buys it's product from a Mid West factory. To bad they had to spend so much money to become a glorified design/build contractor.