Monday, December 9, 2019

Factory Closures and Bankruptcies Continue Despite Housing Demand

Here we are just a decade after the housing crunch that forced the closing of both prefab and modular factories across the entire country and it’s deja vu “all over again”.

Katerra, the Silicon Valley startup backed by SoftBank, has closed a large factory in Phoenix, weeks after one of its co-founders left the firm. The Menlo Park, CA–based firm, which is valued at more than $4 billion, says it uses tech to deliver construction projects inexpensively. But it has a history of delaying or abandoning projects and in recent months has laid off hundreds of employees.
The Phoenix, AZ factory, which was the company’s first, had been used to prefabricate building components for Katerra’s construction projects. It’s been announced that the factory will close its doors and lay off 200 employees by the end of the month. They are opening a mass-timber plant in Spokane, WA and planning to replace the original AZ factory in Tracy, CA. One of the biggest investors in Katerra is Softbank which has seen its share of problems when it overvalued another company they invested in, wework, the rental office space company. Time will tell if Katerra will ever be the darling of the media it once was or will it simply just become another one of “those” upstart companies that saw a huge profit in supplying the affordable housing market in the West and fades from the scene.

Meanwhile on the East Coast, one of the biggest modular home factories in the Mid-Atlantic region, Cardinal Homes, filed for Chapter 11 Bankruptcy on December 2nd.

Chapter 11 allows the owner to reorganize to stay in business and we wish them well in their endeavor.

This isn’t the only modular factory that has either closed their doors in 2019 or saw a drop in production. There are rumors of modular plants with assembly lines either shutdown for short periods of time or running a very low capacity in order to keep employees from jumping ship.

What’s causing this to happen when we hear so much about a shortage of affordable housing? As I see it, the three biggest factors were the move by East Coast modular factories to large projects such as hotels, dormitories and commercial which put hundreds of modules on the production line at the same time single family home builders were ordering new homes and the tightening of state and local regulations and code imposed almost exclusively on modular housing.

The third factor is the lack of “new modular homebuilders” coming on to replace the current group of builders that want to retire. Even if hundreds of new builders wanted to build with modular construction today, there is absolutely training or continuing education for them.

These fundamental problems will never be solved unless the modular housing industry decides to do something collectively about it. This is a problem that needs to be discussed openly and honestly before we see more factories close their doors.


Anonymous said...

How many times can Cardinal rise from the ashes ?

Anonymous said...

Coach it's not just the idea of new to modular builders it is also no pipeline or bench to replace or add to the NAHB bench where the majority of builder members are in the 55 years old range for the small operations. The Nationals and Regionals are struggling not only for trades but also for field management operations where there is a need for training as well.

Todd Drummond Consulting LLC said...

I find it amusing that an outsider like Katerra feels they can somehow be more innovative and smarter than the existing players in our industry using the very same equipment and practices that are already being used. I have seen their lean philosophy and approach to what they are trying to do. I for one am not drinking the kool-aid. this industry is not filled with idiots that can be easily pushed aside.

Anonymous said...

In spite of this type of article (which has much validity), the modular industry isn't going away. With the intelligence in the design industry and those who utilize fully integrated modeling (Revit or sim), and with the intelligence in the robotics industry to start constructing buildings in an automated factory line approach, modular and pre-fab will be major players in this huge industry of construction. It is inevitable, just as the automobile went from hand made to factory lines, buildings will be doing the same. There isn't another viable solution in a world where housing needs are set to double every 75 years, availability of people who are willing to do manual labor, and weather conditions getting more extreme, factory built construction is the wave of the future.

Coach said...

The modular housing is NOT going away. It is evolving and morphing into something besides just a housing industry.

Anon said...

Definitely morphing, but in which way? The caterpillar becoming the butterfly or, the reverse? Not that it's a bad thing (or ??). Modular companies are going to go where the demand is but, where does that leave the small, single family home? Will that become a thing of the past? With the exception of a few companies, most of what I see produced are either multifamily or larger homes. Just curious as to your thoughts or those of your readers. Thanks.

Anonymous said...

I implore all to consider the history lessons of the past. Wachsmann and Gropius (General Panel) where far ahead of the curve but failed with a 600,000 SF plant. Then Luston...... There is risk in big automation.

My gut is the answer will be something more authentic. I am not sure what that might be but making houses like they make cars is a failed notion. What is the old saying, they are the harder they fall.

OK ~ Sekisui House might succeed but the corporate culture is likely the driver. This is hard to copy.

Anonymous said...

I worked for the company for over 2 years. I was effected by things ramping down. The goal was pretty aggressive and edgy. Unfortunately the company could not complete what that initial goal was. Back to traditional construction company principals. And cutting jobs.

Anonymous said...

Why aren't the economics of offsite discussed more ? How can you build a business when the model is to add logistics costs to save labor costs when that simple equation isn't explicitly known ? Construction productivity is low in drywall, plumbing and electrical so why the fascination with wood when the biggest problems are in other places ?

David Stevenson said...

Any modular construction Factory that fail results in research in the existing competition.
Can't have two Genral Motors plants doing similar production.
Is there a territorial definition described in the zoning laws per region or can the industry leaders define one.

Please respond?

1. Can there be mechanical factories adjacent to prefabricated facilities.