Tuesday, August 27, 2019

Anticipating Modular Construction’s Future

Everyone has sat in a brand new car on the dealer’s lot and experienced that ‘new car smell’. There’s nothing quite like it. It’s much like the excitement you get when you decide to build a new modular construction factory. The design, planning and watching the first earth being moved is like no other in our industry.

Watching your new factory being built is intoxicating with all its sights and smells. Yes, smells. There is just something about the smell of a new building coming to life that many of us enjoy.

But before you decided to build you probably first had to decide, you should consider a few factors.

Why are you getting into the modular construction business? You may be a builder that believes you can produce houses and projects better than your present supplier. Perhaps you already own one or more modular manufacturing plants and are looking for a new location. Or maybe you are a developer or an investor that wants to get into modular housing because it has begun to show real promise.

Once the ‘why do I want to do this’ has been answered, where do you want to build your factory moves to the forefront. Maybe you’ve identified a niche market in Chicago for affordable housing in certain neighborhoods. It might be modular homeless housing in San Francisco or single family housing on the East Coast. Wherever it is you’re planning to build your factory, you’re about to enter the “Decision Zone”.

The “Decision Zone” is like quicksand. Many modular entrepreneurs have been lost in the Zone and some are still missing. Maybe we should call it the “Indecision Zones” as the sand in it is composed of every piece of advice you receive from your spouse to your father-in-law to your accountant all the way to the myriad of consultants you hire.

I owned a Corvette in my younger days and I remember stopping for gas and having guys driving old junker mustangs and Toyotas come over to give me advice on how to make my ‘vette run better. They were called consultants.

The Decision Zone is where you have to take a look around for competitors and see if the anticipated size of the market could handle another one. If you live in Denver, you may not want to move to another area of the country which means you probably already know your market but if you live on the West Coast and are looking at New England to build your business you better stay in the Decision Zone a little longer.

And like my ‘vette consultants, modular housing consultants truly want to help you but in fact they probably already have an agenda they’ve been using for years and years and your desire for advice about your new ‘vette is just what they have been waiting for.

Now you have to ask who will be the last person to turn out the lights and lock the front door if it doesn’t work. The answer is you! After the 2008 housing recession more than 60 modular factories closed their doors forever.

Related Article: Fallen Modular Flags

Not wanting to be the Debbie Downer of the modular industry, I totally understand why you would want to get into this exciting part of the construction industry. The future for modular has arrived and many believe if they don’t finally make the move into producing modules for everything from affordable housing to hotels and dormitories, they will miss the boat.

A few years back I estimated the cost of entering the modular housing business as a factory owner building everything from scratch was $5-8 million. Today it is more in the neighborhood of $12-20 million depending on how much automation you want to add to the manufacturing process, the initial staff of engineering people needed to run BIM and CAD designers.

There are new modular factories popping up across the United States providing commercial modules for large housing projects, hotels and even hospitals. How many will be in business in 5 years? I really hope all of them will be but if the past is any indication of their chance for success, it will probably be more like half. Most of the factories that close during their first 5 years will probably be sold to other investors, developers, builders and factories looking for expansion so maybe that’s not such a bad thing. Survival of the fittest.

Because the modular construction industry has been relatively stagnant for the past 3 decades, the experienced management that used to run it has declined simply because they have retired, died or moved onto other industries.

What's truly exciting and maybe a little troubling at the same time is the sheer number of young and highly capitalized entrepreneurs looking to get into our industry. New blood is needed to keep us growing and the ideas and processes they want to use will not be so much innovative as they will be disruptive.

Maybe it’s time for a little disruption in the modular industry. I for one can’t wait to see what this need breed of modular factory owners will bring to our industry.

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