The Maturation of Modular Building: A Developer’s Lessons Learned
The process saved one developer at least 15% of the total cost of development. So, why aren’t more developers taking the plunge?
By Jerry Ascierto
“Village Lofts showcases the kind of development possible within the Village, creating the kind of high-quality, affordable housing that is key to our community,” says Hempstead Mayor Wayne J. Hall, Sr.
“You can’t tell the affordable units from the market-rate,” says Joshua Siegel, property manager at The Village Lofts in Hempstead, N.Y. “And you can’t tell at all that it’s modular.”
The chameleon aspect to the mixed-income Village Lofts—a modular-built multifamily community in Hempstead, N.Y .—is a big part of its appeal. The Lofts was the first modular community constructed in Nassau County, a sprawling area of more than 1.3 million people, abutting Brooklyn and Queens.
The developers, La Cite Development, used Clayton Homes as its modular builder, and were shocked at the rapidity with which the units were made and delivered.
“They built all of our units before our concrete dried in the dirt,” says Dan Bythewood, La Cite’s CEO. “As somebody who’s been involved in the industry a long time, that was incomprehensible. We had to store boxes at the Nassau Coliseum.”
That kind of blinding speed is central to modular building’s appeal, and affordability. The 29-unit community—an 80/20 deal built via bond financing and about 40% of private equity, as well as $800,000 in HOME funds awarded by Nassau County—saved mightily on construction costs, which allowed for, ultimately, a nicer unit.
“We saved 15% than what it would’ve cost for traditional construction methods,” says Bythewood. “And it allowed us to build really spacious units.”
An eyewitness tour of the community confirms the assertion—the ceiling heights of 9 feet and 6 inches are consistent throughout, and the affordable units—renting at 60% of the area median income (AMI)—include all of the amenities of the “workforce” units, renting at 90% of the AMI.
“We’re building higher than everyone locally, because people will chop off 6 feet from the ceiling to get construction costs down,” says Bythewood. “We wanted to out-size the space of other buildings near us.”
The units come out of the factory certified LEED Silver minimum, but La Cite didn’t pursue certification, citing the additional cost of that process. But it did install a foot of insulation between each ceiling and floor, and every appliance is Energy Star.
Lessons Learned
Bythewood certainly did his homework before the deal commenced, but since it was his first modular deal, he decided to dip his toe in the water with a smaller community. But he’s become a believer and plans to build hundreds of units in Maryland in his next endeavor.
Here are a few of his lessons learned:
- “Understand how fast it really happens. All of our superstructure was done in 10 days, period.”
- Every state has its own licensing requirements, so make sure you know the differences between each. “We have a deal in Maryland right now and their process was completely different.”
- Learning curve for banks: Many construction lenders want to lend in a series of small draws, but modular requires a 30% upfront cost.
- Learning curve for general contractors: For some, this may be their first modular project, making estimation an academic exercise.
But the question remains—if modular can slash construction cost in high-cost areas while providing more affordable and workforce housing, then why isn’t it being done more? The Village Lofts opened in 2014, but it’s not as though the cost of land, labor, and materials has been on a downward trend since.
“I think humans are creatures of habit, and the habit has been to build like we’ve been building for a few hundred years, somebody picks up a hammer and puts things together; it’s just ingrained,” says Bythewood. “But as soon as it catches on it will be like wildfire.”
Posted 6/5/2016 on http://www.housingfinance.com/developments/modular-building-maturity-lessons-learned_o