From Day 1 of his latest multifamily development project, Chris Koeplin was pressed for time.
He had managed to get the land for Canvas, a 126-unit, two-building, mixed-use development in downtown Beverly, Mass., and had his building permit in hand. But under the terms of his land deal, the current tenant on the lot—a car dealership— still had six months left on its lease before he could get on site.
While every developer strives to deliver an apartment project at the height of the summer leasing season as a matter of course, the project’s timeline was suddenly at risk of opening in the dead of a New England winter.
“Timing in the apartment world is everything,” says Koeplin, president of multifamily development group Beverly Crossing, which, with Canvas included, operates approximately 450 units in Beverly, about 40 minutes north of Boston. “The time of year we release a building and when we start putting tenants in it is critical for a project’s success.”
To compress the amount of time he’d be under construction, Koeplin decided to turn to a building method that’s increasingly streamlining the multifamily development process today: modular. By designing the building to be constructed using prefabricated units built in the controlled environment of a factory, he could start his podium and site work, while the boxes were built simultaneously.
“If we had just sat on our hands for those months before the tenant moved out and decided to go with panelization, or any other method, we would have spent three or four months more in the field,” Koeplin says. “We would have delivered in the middle of winter.”
Koeplin and Beverly Crossing aren’t alone. While the Charlottesville, Va.-based Modular Building Institute says just 1% of new apartment projects are using the technique, practitioners in the field say modular is noticeably gaining steam—a fact that’s illustrated by the yearlong lead time modular factories need to deliver boxes. As an ever-tightening labor market makes site-built construction schedules less and less reliable, developers are turning to the process to limit execution risk on their projects, while pinning down costs on a major portion of their pro forma numbers up front.
Keeping costs in check
“Escalation risk in the labor and material markets can be meaningful over the course of a project, as much as 4% to 6% per year,” Koeplin says. “This allowed us to lock in one-third of the construction contract early in the process.”
Curtis Fletcher, president and CEO of Boise, Idaho-based modular consulting firm Prefab Logic, says while choosing the modular path for developers isn’t without its hurdles, it can give them something stick-built projects can’t: a reliable delivery schedule.
“Modular isn’t a magic bullet,” Fletcher says. “But it does offset the scope of work on site, and it’s a lot more dependable. That’s a big deal in today’s economy.”
How much faster? Fletcher says site work time can be compressed as much as 40%. “You can erect these buildings incredibly fast.”
A reliable timeline
At Rialto, Calif.-based modular manufacturer Plant Prefab, CEO Steve Glenn says it’s that visibility into the construction schedule that has pushed modular to a front-of-mind option for developers today. “Developers like reliability, and being able to do things on a schedule and at the budget you give them,” Glenn says. “With site-built construction, it’s just a lot harder to reliably hit all those numbers.”
For instance, in addition to Koeplin’s three to four months’ time savings on site for Canvas, Windover Construction, the firm building the project, reports it compressed three months of site-built construction time into seven days on another modular project.
Start now
But developers shouldn’t look at those on-site time savings and adjust their overall pro formas accordingly. The reason why is because to do modular right, you have to start a lot earlier in the process, while getting all of your ducks lined up to make sure you hit the ground running when it’s finally time to build. That means coordinating much earlier with architects, general contractors, and the modular manufacturer to make sure things come together smoothly. Beverly Crossing signed a deal with Quebec-based modular manufacturer RCM Group a full year before boxes arrived on site.
“Don’t come to me and say you want to develop something with modular to save 20% on your pro forma,” says Lee Dellicker, CEO of Beverly-based Windover. “I can’t build that much cheaper this way. But I am going to eliminate risk. If I'm carrying a 7% to 10% percent contingency on a conventional job, I can carry just 5% by going with modular.”
More money needed sooner
That front-loaded time frame also means you’ll need to fund your project a lot sooner and put a significant amount of capital in earlier—as Koeplin did with a third of his construction budget—an aspect of modular that can give some investors pause.
“There’s still a bit of hesitation from the investor side,” says Matt Chiodini, senior project manager and associate at Denver-based OZ Architecture, which specializes in multifamily modular design, who notes that modular manufacturers usually require a 50% deposit to reserve factory time. “A lot of the large corporation multifamily developers can’t accept some of the early financial requirements that are necessary for modular to be implemented into a design.”
For example, Koeplin faced the possibility of having to infuse up to $2 million into the project himself to get his boxes delivered because his bank wasn’t comfortable fronting the cash for a product that was still essentially sitting in another country. While Koeplin’s equity infusion on the project came through in time to avoid that, it made for a tense couple of weeks at a critical point in the project. “We had carefully orchestrated how every dollar was going to flow,” Koeplin says. “It all worked out in the end, but, if there had been any bigger hiccups in the field, we would have had to take that money out of pocket.”
Designing to a grid
Developers also need to pay more attention to building design in modular. Making sure all aspects of wiring, plumbing, and ductwork line up and come together when the boxes get stacked is crucial. That means keeping designs relatively simple. “The old joke in the industry is that contractors estimate a job based on the number of corners a building has,” Dellicker says. “The fewer, the better.”
Koeplin says at Beverly Crossing, his team now designs projects to a standardized grid at the outset, whether the project is planned to be modular or not. “You can always stick-build a modular design,” Koeplin says. “But it’s not as easy to convert a traditional design to modular.”
In the end, Koeplin says Canvas is slated to open this fall, well before the onset of winter, an aspect that makes all the difference to him. “Choosing modular is a great way to deliver a building,” he says. “We’ll be looking at it for all our projects from now on.”
