Modular Construction: The Next Wave or Next Folly?
Modular Construction: The Next Wave or Next Folly?

Modular Housing in 2013 – “Not Your Uncle’s Trailer Park”

“Oh no, not another conversation about modular construction!” This was the first thing that raced through my head as I sat at the airport awaiting my next flight.  Why? Well it is a bit of a long story, but a story with a conclusion that will affect real estate investors and developers for the next decade or more.

It all started 3.5 years ago when a real estate investor approached me at the Toronto Airport. He said he really needed to talk and asked that we go to a quieter area.  It turned out that he wanted to present me with an ‘exclusive opportunity’ to invest in what he believed was the next best thing since sliced bread.  He launched into great detail on how, in just a few months he could convert any empty field into a community of multi-family, multi-story properties and do it cheaper and faster than it had ever been done before.

I can still hear him say to me “Don, it’s the future and you should get on it now!!”  My guess is that he thought he was in the role of Mr. McGuire from the 1967 movie ”The Graduate” when he put his hand on Dustin Hoffman’s shoulder, took him aside conspiratorially and said:  “I have one word for you son… Plastics…. There’s a great future in plastics.”  Mr. McGuire said it as if he had the answer to the world’s problems, and in my airport meeting, this investor obviously thought he too was in possession of a secret potion. In his world, the magic word was “Modular.”

But back to the story and why it matters to you. 

After listening patiently to the pitch and smiling politely, I followed up with a few key, and I thought obvious, questions.  Sadly they went unanswered. He had piqued my curiosity but had obviously never completed a project, let alone completed much detailed research. And if you know me, the last thing I am going to do is invest in a project without knowing everything about it.  I politely said thank you, agreed to take a copy of his ‘sales package’ and moved on back to my gate.

Despite the obvious holes in his pitch, I just couldn’t stop thinking about it on the long flight home west.  It had speed to market; it had obvious systemization opportunities, and may even have cost savings. On those three thoughts alone, I started to write notes and thoughts as we passed over Thunder Bay, and didn’t stop writing until they announced we were descending into Vancouver.

That’s when I knew exactly what I had to do next.  Start digging deeper, start on my proven journey of diligence, and start looking for solutions to the obvious problems and uncovering hidden opportunities for investors and developers that may be hidden in the industry. The journey had begun.

That was over three years ago…

Bringing it back to August 2013, as I sat at the airport awaiting my next flight, the person sitting next to me said; “Hey, you’re Don Campbell that real estate guy aren’t you?”

Before I could even answer she asked, “What do you think about me investing in a modular development in Saskatchewan? I hear it is all the rage.”

And that is why, after three years of research and literally hundreds of discussions on modular, the first thing that entered my mind was “Oh no, not another conversation about modular construction!” It was now everywhere, the next new hottest thing, and as she said, “All the rage.”

But Is It In Reality – Or Will It Ever Live Up To The Hype?

As with many research projects, as they progress, they produce not only answers to critical questions but at the same time uncover even more questions – questions that demand answers.  With modular construction solutions, it is exactly the same. Right when you think you can design a conclusion, more questions arise.

“Modular” has morphed into a catch-all phrase that people incorrectly use when discussing everything including shipping containers converted to housing units, mobile homes, and flat-pack homes to work-camp construction.  This mis-use of the term has led to many misconceptions, misinterpretations and mistakes.

As we speak about Modular, we are speaking about one specific building strategy: modular buildings and modular homes as sectional, prefabricated buildings, or houses that consist of multiple sections called ‘modules’ that are pre-built in factories and shipped to the building site and placed by crane.

Yes, some are used in work camps and have been for years. However, as the industry continues to evolve and perfect the science, the complexity, quality and visual appeal of modular has progressed substantially to the point that in some cases you would never know that the home is modular unless you knew in advance.

Modular Perception vs 2013 Reality

For example, the photo included with this article is a multi-family building built via modular.  For a great sample of a single family home built using modualr construction check out this video walk-through:  Modular Building video walkthrough

Or how about this, Modular done on a giant scale. As you read the article at this link consider this key sentence: “…. is part of a wave of outsourcing that could do for the construction industry what Indian companies did for back-office services….. where every single bolt and screw is noted in the computer.” Read how modular construction is reducing the speed and cost of building major manufacturing plants and industrial factories: Modular Construction Speeding Progress

Then of course there are the discussions about a GIANT 220 Storey building, proposed to be built in China in a ridiculous time frame of 90 days. Yes, modular is stretching realities/dreams/thought processes. Check out the picture and story Here. Then read on for reality right here in our backyard…..

But does it make sense for residential development? Or is it another fad that will fade away?

Over the coming months we will be discussing this important modular construction industry – the pros and cons of using modular and where it may make sense and where it definitely doesn’t. But suffice it to say the industry is evolving quickly (even during the last 3 ½ years we have been investigating it) and is adapting to the market demands.

Some of the pre-conceptions we will be discussing and investigating will include:

#1 It is not the same quality as stick built. This is true in many cases… the quality isn’t the same, but in a very positive way.

#2 It will never live up to strict building codes. There are some very interesting findings as we dig into the differences between manufacturers, regulatory regions, CSA and local inspectors. On this investigative journey we have visited modular factories (some good and some not so good) and we’ll tell you what to look for.

#3 The long-term durability is terrible and leads to extra high maintenance costs.  As part of this investigation, we have visited both new and older modular residential properties and we’ll discuss the important ‘finishings’ you must look for if you want durability.

#4 Financing is always a problem. Well, like all types of housing development right now, financing is tight and there are extra hoops you must jump through. But if you are prepared for the obstacle in advance you’ll have a unique advantage.

#5 Home-buyers will never want to own a modular (or will want a discount if they do buy). Yes this is true for many types of modular; however, when done correctly in the correct region you can have buyers lining up. The key is YOU must match the package to the market and we’ll tell you how.

#6 You can always tell it is modular based on interior and exterior finish.  Yes, you are correct if you are seeing product that comes out of certain manufacturing plants. However, I can attest that in today’s modular world there are some buildings that fool even the best of us.

These are just a few of the dozen subjects we have been investigating.  You’ll also hear from people in the industry including investors and developers who have used modular. They’ll share their mistakes (so you don’t repeat them) and the strategies they use to create some big wins.

Over the next few months, watch for the results of our investigations.

Modular will play an important part of the upcoming real estate market both in development and resale. The more knowledge you have the more ahead of the curve you will be. Our job is to ensure that you are making decisions based on reality not perception.

YES! Modular can be a great solution. But ONLY in certain situations.

P.S. Update: When I followed up with that very first investor who planted the thought of “modular is the future” I discovered that his project went terribly wrong. He and his investors lost a lot of money… but not because modular was a bad idea (it is actually a great idea if used properly). They went broke because they had no experience in development, no actual ‘buyer profile’ research, PLUS they decided to build it in an area that was rather economically depressed because they could buy the land for cheap.  Speed, efficiency and cost savings could never save them from their project’s fatal flaws.

Modular Construction: The Next Wave or Next Folly? was last modified: September 24th, 2013 by Don R. Campbell
 

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