Thursday, November 28, 2019

Are You Rushing Too Quickly into Modular?

Just 10 years ago you would have had very few places to go to hear people talking about modular housing. There were only a handful of conferences that featured modular. Neither the BSC nor the MHBA were doing much of anything when it came to modular construction.

Here we are in 2019 and how things have changed. Every single week there seems to be a conference somewhere featuring the benefits of modular and prefab.

What changed? Quite a bit actually. Trump was elected and all of a sudden we have a robust economy and something we haven’t seen in decades...a labor shortage. That was followed by a housing shortage caused by businesses expanding and a growing population. More Hotels and affordable houses were needed.

Then the media heard about something called modular and prefab construction and they started writing articles, producing podcasts and videos as well as doing entire segments on TV and YouTube about this ‘new’ way to build homes and just about everything else.

The next logical thing that happened was every association and organization, both new and established and and a whole bunch P T Barnums started to hold conferences, seminars, webinars and events spreading the gospel of modular and prefab construction.

Speakers were found with little or no knowledge of how modular and prefab started or how they actually work to talk to investors and newbies wanting to get in on the latest ‘best thing in housing’.

Don't fall into this trap! The speakers often only want to push investors into either investing in a new factory or actually starting a new factory to undertake building multiple, large, complex projects before the investor has actually built or bought a modular or prefab factory. Without the necessary capacity to execute all those orders for affordable housing, hotels, tract builders and non-profits looking to build homeless shelters, the investor will soon find themselves going broke.

It’s great to be ambitious. It’s not so great when these speakers try to get you to invest in something that isn’t new. Modular housing has been around since the Civil War when modular cabins were barged to the Midwest from factories in the East.

Even though modular housing is a proven commodity across the US, these new investors are drinking the conference speaker’s Kool-Aid. They are told they should begin thinking about what they can automate, re-engineer as well as using AI, BIM and all the other things these speakers tell them are essential.

I recently attended a conference where one of the speakers was telling everyone that automation was available to build modular homes, hotels and apartments. He went on to say that he was available to help as a consultant.

At the break, I introduced myself as the Modcoach and asked which modular factory he has helped start? His answer was none! Then I asked how many modular factories he has visited...just Katerra he answered!

Katerra IS NOT a modular factory.

And finally I asked if he has gotten much consultant work to help design and build out a new modular factory. He said he has on contract with a new Colorado investment group and is about to sign another contract with a California investment group, both wanting his help in getting a modular factory started.

A word to the wise. If you really want to get into building modular single family homes or commercial work, simply wait 2-3 years and pick up a factory for pennies on the dollar that was designed and started by those new investors who attended a couple of modular industry conferences and thought they were given the magic blueprint to succeed by people that have no real expertise in modular.


duckelberryfin said...

Coach, I'm a newbie and I'm curious what you (and others) think are the top 10 best examples of big money coming in to take on the housing industry?

Over the last few months several comments have been made advising caution to the new money coming into the industry and I'm scratching my head... why are all these dead bodies laying along the road to the land of "Modular Millions"? Every industry has businesses that fail and are these failures just part of any industry?

For example, does anyone really know what happened with Blu?

Are most of these failed factories failing because they make basic business mistakes (poor accounting, hiring the wrong people, no sales plan, etc)? Or because of capacity reshuffling during a market downturn?

Surely success in modular isn't rocketsurgery?!

Thanks for all the great information. Very curious what you and all the grizzled industry veterans think.

David Chandler said...

A voice of reason - too many on the fad train before the fundamentals are in place. Many will crash. And for those passing through, the industry's customers become their guinea pigs - simply unacceptable.