Sunday, March 1, 2020

The Real Lesson to Learn From CrossMod

A “heads up” for the modular housing industry

By Shawn Corkrean, Griffith Homebuilders
The modular world is rightfully upset about manufactured housing’s new product and marketing effort using the term CrossMod. It is a blatant attempt by HUD manufacturers to blur the line between two very distinctly different levels of construction specifications. They seem to be trying to lay claim to higher spec quality of modular by adding a few features and grabbing the name. I support the modular industries effort to fight this. But, I think there is something much more powerful going on that isn’t being talked about.

CrossMod is really about the total vertical integration of the manufactured housing industry. It is also about an effort to move factory built housing into the mainstream via affordable spec homes built in new single family developments. Clayton seems to be the primary driver of this. (I have no inside knowledge, just reading on the internet) They have the capital backing of Berkshire Hathaway. Clayton has been buying local stick builders across the country. Berkshire Hathaway now has under its umbrella the country’s dominant HUD manufacturer, developable land with local contractor networks, and everything from real estate agents to consumer real estate financing to home insurance companies.

It looks to me like they are setting the stage to control the entire process from buying a 100 acre parcel of undeveloped land to selling you the insurance on your new home. My guess is they can probably sell you a 1,500 square foot CrossMod on a 65’ wide lot for under $190K in many parts of the country. You can also now get traditional 30 year financing with a 3% down payment via the MH Advantage loan product. The only thing in their way currently is local zoning. If they can figure out how to get CrossMod into R-1 Zoning, they will dominate new home construction in the US. Clayton appears to have acknowledged that the independent, lot retailer that has been the core of their scattered site sales strategy for decades is not the path of the future. They are innovating by developing a new sales channel and business model.
Related Article:Join Modcoach for a Discussion of the New HUD Regulations
I would state that the single family modular industry is facing all the same challenges as Clayton, yet it seems very limited innovation is occurring. The single family modular industry has a drastically lower builder count from ten years ago. Of the builders that remain, it seems few have viable succession plans. The supply of 30, 40 and 50 somethings in the business is very low. Manufacturers seem content with current sales levels and have limited interest in exploring innovation in any areas. There is a wise old saying about things deteriorating: “How do you go broke? Two ways: Gradually and then suddenly”. From my days developing land in 2003-2010, I can attest to the dead-on accuracy of this statement. I don’t pretend to know the answer. I also know that if I had the level of capital that Berkshire Hathaway brings, it would probably be a lot easier to try a few things. Whatever the answer is, I feel like it will involve some level of manufacturer-builder partnerships where the builder will operate multiple locations. My business partner and I are in the early stage of this right now and there are several other similar early stage efforts. We will see if they work. If you are working to scale and expand your SF modular business, I would encourage you to contact me. We might be able to share some ideas.
I would encourage everyone in the industry to take a look at some new thinking. This is about survival as much as it is about innovation.


Jenny said...

It would be great to meet you at Gary's meeting.

Anonymous said...

Shawn, this is a problem many modular factories and builders are not paying any attention to. Gary was right when he says there has been apathy by them toward anything new but the CrossMod is different.

Just like the CoronaVirus it will slowly begin spreading across the country infecting new home buyers with a false impression they are getting a real home when in fact they will be getting a HUD home.

As it creeps into home building it will begin killing off small modular and site builders one by one when they find they can’t compete. Then it will move to small and regional developers where HUD companies will begin building multistory housing projects without those state or local regulations.

This is a game changer and if we don’t learn about it now, we’ll only realize its full impact as we close the doors on our construction offices for the last time.