Monday, June 3, 2019

Rained Out and Drowning in Debt

One of the most promoted features of modular construction is each module is built inside a factory where it never rains.

However it does rain outside the factory and for the past 2 years the Midwest and Eastern Seaboard of the US has seen more than their fair share of liquid sunshine. Vast areas of the United States are at risk of flooding this spring, even as Nebraska and other Midwestern states are already reeling from record-breaking late-winter floods.

Much of the United States east of the Mississippi River, as well as parts of California and Nevada in areas home to more than 200 million people could see at least some flooding in this year.

New single family home building is being especially hit hard by all the rain as modular home builders and their factories are feeling it more than their site built siblings.

The problems really begin when the modular home builder arrives at the customer’s building lot ready to begin excavating and discovers enough water covering the jobsite to be called wetlands complete with ducks and geese.

Foundations have to wait for the lot to be prepped for footers or gravel in the case of precast concrete walls. The builder using precast walls has paid a deposit to supplier probably out of his own pocket but can’t get it installed, a process that usually only takes one day.

And be assured you are not the only builder having a lake where the foundation is to go. The first day in the forecast for excavating will also see the precast foundation factories having all their customers wanting their foundation on the same day(s).

Every day the foundation is delayed is another day a draw can’t be processed and another day the builder needs to dip into reserve funds to pay their invoices.

Once the foundation is in place three things have to scheduled, the delivery of the modules to the jobsite, the crane and the set crew. Every other modular home builder is also trying to schedule the same things you are. Oh, if only life were fair!

What usually follows rain is mud, the nemesis of tractor trailers loaded with modules. Just because your pickup truck was able to get to the jobsite doesn’t mean a tractor trailer will or even that 120 ton crane.

Being excited about having your foundation in, your 4 sections of house set to arrive, the crane scheduled and the set crew already booked for your job means you will soon get some money rolling in.

Now for the next three days you cross your fingers and toes, you’ve prayed to Saint Jude, the patron saint of desperation, checked the weather forecast every hour all the while seeing your cash reserves dwindling.

Then with the modules on their way, the weatherman says that an unexpected severe thunderstorm is on the way. Quickly you call and cancel your crane and set crew, hopefully being able to reschedule them for two days later.

Unfortunately both your crane and set crew already have those dates reserved for other builders but the crane can be there in 4 days but your set crew is now booked out for a month forcing you to scramble to find anyone that can set a house 4 days from now.

I’ve talked with several builders that have waited almost 2 weeks beyond their original target date to get their house set and one in the Midwest has been waiting almost 6 weeks. Now those reserve funds have run out.

What’s next? Now it’s decision time. Who gets paid and who gets screwed? Employees have to be paid but you don’t. Utilities have to be paid but your truck and equipment loans don’t. Monthly taxes can be postponed for a bit and you should enough coming in to pay the penalty. And let’s not forget the crane was on its way to your jobsite when you cancelled and they want paid for the trip which has to be paid or you won’t see them again.

Not to left out of the picture is the modular factory that has house orders with full deposits ready to go on the production line. Rain and flooding may not be a big problem for them but the lack of homes able to shipped has caused quite the bottleneck. Trailers that were shipped to jobsites where they can’t be unloaded by the nonexistent crane are not coming back to the factory to be reloaded with fresh off the production line modules. The factory yard is filled with houses on carriers and these new modules will have to stored on wooden cribbing in the yard.

Without modules being delivered, factories are now facing a cash flow crunch of their own. Soon some factories will begin cutting back production, cutting worker hours and making the same tough decisions as their builders---who do they pay first and who gets put on the back burner?

Not since the housing crash of 2008 has our industry faced such a dilemma. Sales are great, demand is approaching record numbers but we are facing a major bowel blockage with major complications for many modular home builders and factories.

Look for some of the small modular home builders to close their doors if this rain doesn’t begin going back to normal seasonal levels.

Maybe we should all be talking with Saint Jude.

Gary Fleisher (the Modcoach) is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant.

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