Wednesday, October 16th, 2019 October16th2019

Sell for More News: Apartment modular construction has momentum

Published on October 16th, 2019

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.

 

More and more developers are creating apartment buildings using modular construction.

Modular construction refers to construction in which large pieces of a building are created at a factory and are transported to the development site on the back of a truck where the pieces, or modules, are lifted into place, usually with a crane.

Over the past year, modular production in the multifamily sector has doubled, according to the Modular Building Institute (MBI).  And it’s been reported that the interest level for modular construction among developers, contractors and architects has skyrocketed.

Modular construction experts say the technique can dramatically shorten the time it takes to complete a building which saves on financing costs and allows the developer to collect rent sooner.

Though only a fraction of new apartment projects involve modular construction, the number of buildings created each year from modules continues to grow, as does the number of developers interested in the process.

More developers are also becoming familiar with the advance planning necessary to make modular construction work.

I think it’s inevitable that modular construction will continue to grow.  How much it grows depends on several factors including an understanding of the process by code officials, policy makers, and the traditional architecture, engineering, construction and operation community.

After years of interest, apartments created with factory-built modules still represented less than 1% of all of the new multifamily communities that opened in 2018, according to MBI.

Factories turned out 2,314 modular units for apartment projects in 2018. That’s more than twice the 1,136 multifamily modules that factories produced in 2017.

The state with the most multifamily units was California followed by Massachusetts, Florida, New York, Washington, New Jersey and Colorado. These seven states represented 87% of the modules manufactured for apartment projects in 2018.

Another limiting factor today is simply the number of factories in this industry. There are about 250 modular manufacturers in North America, building everything from single-family homes to multi-story hotels.  In the last year, we have seen a half dozen new modular factories open specifically to address housing and hospitality.

So far, modular construction has not been proven to cut the hard cost of construction.  Instead, modular developers are often able to finish their projects faster.  An average apartment project built with modules was completed in just 8 months…from approval to occupancy.  That’s a significant time saving compared to traditional apartment developments, which might take 14 months from approval to occupancy.  This cash flow difference is enough to encourage developers to consider modular.

For developers who are relatively new to modular construction the design process can take more time, but the design phase will shorten as the process is repeated, according to McKinsey & Co.

Many people feel like modular construction has reached its turning point.  And multifamily and hospitality are among the fastest growing sectors in the industry.

 


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About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com