Commercial Investment Real Estate March/April 2019 | Page 40

Modular units can be constructed indoors, limiting weather-related delays and improving quality control.
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March | April 2019
Integrating Services
While modular can shorten time on a building site, Young
cautions that “there’s a significant amount of proper,
prior planning.” Much of this planning demands a more
integrated way of working with architects, engineers and
contractors — something that manufacturers are address-
ing by offering completely integrated services themselves.
Mark Skender, CEO of general contractor Skender in
Chicago, says his company started researching modular
units about five years ago, when it was an established tradi-
tional construction company with a focus on multifamily.
“Our interest in modular stemmed from that — we saw
lots of similarities from project to project, and thought,
‘Why can’t we build these units in a factory?’ ” Skender
says. “Modular was just a way to step up the game in a
more transformative way.”
However, the company proceeded with caution. “There
weren’t a lot of great success stories,” Skender says. Devel-
opers were approaching the process in a traditional way, he
realized. They’d find a manufacturer; bring in an architect,
an engineer, and a general contractor; and it wasn’t efficient.
“The fundamental problem,” Skender says, “is you’re still
dealing with a fragmented industry. You’re introducing a
modular manufacturing component, but still applying it to a
fragmented operating system and expecting a huge benefit.
We brought on the design, engineering, manufacturing,
and construction so we could take it under one entity. We
could streamline the process and get better and better at it,
just like a product manufacturer would.”
Skender is scheduled to begin production in April on
its facility on Chicago’s South Side, where it will design,
engineer, and build each project. It is working with the city
to include permitting as the units are manufactured. The
company has several projects in planning, including a six-
story, 110-unit apartment building and a row of three-flats
designed for city infill lots. Because they’ll be pre-permitted,
Skender says, the company hopes to deliver the keys in two
to three months.
Creating Affordable Housing
Modular construction also can be a solution for areas
where affordable housing is in high demand. SG Rocks
COMMERCIAL INVESTMENT REAL ESTATE
development, and land use policy at the National Multifamily
Housing Council in Washington, D.C. “They need to get
housing done quickly with any sort of cost efficiency, and one
of the biggest challenges is labor.”
“The main driver for me is the labor market,” Young
says. “We have significant gaps in skilled trades — master
plumbers and electricians are already in short supply, and
many are retiring.” In addition, he says, “Being able to build
a mixed-use project near downtown and deliver it in a rea-
sonable amount of time meant that we didn’t have to plan
for as much of a carry cost.
“A lot of expenses are back-end loaded; you pay significant
amounts to design and engineer everything upfront, but a
lot of that gets spread on to the job site, and you can still
carry that property at a low basis until you’re finally doing
site work and dropping in modules.”
Indoor construction of modular units means that weather
isn’t an issue, so the building schedule is more predictable
and quality control is easier to maintain. Another benefit,
Young adds: “When you buy in bulk on a planned schedule,
you can negotiate a contract for materials and skip some of
the traditional distribution processes.”
Young is building with Z Modular, a Chicago-based firm
that produces steel modular units. He chose steel because it
can be built to tolerances more precise than wood. After the
Cheatham Street building is complete, he hopes to produce
more modular units, and steel will allow him to build higher
than 60 feet.
The goal is to deliver the units as close to move-in ready
as possible. “The sheetrock is in; it’s painted; the ceiling fan,
light kits, cabinets, and countertops have been installed.”
Transportation from the manufacturing site is another
consideration. “We’ve found that there is a break-even point
for the cost efficiency of that factory-built modular compo-
nent,” Cino says. “If you’re too far away from the site, those
savings are going toward your transportation.”
Despite its promise, modular still accounts for a small per-
centage of new multifamily construction — currently about 4
percent of new construction starts, according to the Modular
Building Institute. But with a combination of market forces
and advancing technology, proponents see an increased will-
ingness to consider modular for multifamily use.