Colorado-Real-Estate-Journal_398115

Page 26 — Multifamily Properties Quarterly — May 2024 www.crej.com AFFORDABLE HOUSING TICKETS AVAILABLE NOW AT COLORADOSYMPHONY.ORG . . proudlysupportedby W hile taking stock of the modular projects on which I have worked that didn’t get off the ground, I recalled the movie classic “The Sandlot,” in which a group of kids hit a ball autographed by Babe Ruth over a neighbor’s fence where a terrifyingly huge dog protects the yard. The hilarity ensues from the ways the kids devise to retrieve the ball – all epic failures. After one such failure, one of the young future leaders says something like, “We have been going about this all wrong, I blame myself.” Looking back at my epic failures, here are few areas where I think teams may have gone wrong in the hope that the ball doesn’t go over the fence in the first place. n “Start with why,” Simon Sinek. Should we even ask, or is budget the only parameter? Ask yourself the following questions when going down the modular highway: Would a 50% reduction in on-site time be helpful? • Do you live in an environment where the construction window is limited by weather? • Will qualified on-site labor be limited, or need to be brought in at a per-diem rate? • Is the project in a remote loca- tion where contractors will come at a premium cost? Does the project financing allow for 80%-90% of the material and labor budget to be spent before any- thing is built on-site? • Does the budget contemplate the interest carry for the upfront costs? • Will the financier(s) allow the project be started six months to a year after clos- ing? Where, how big, and when is the site able to be accessed? • Where are the modular boxes going to be stored – is there a place on-site or at the factory? • Will the financier(s) allow the site to sit vacant, or as storage for the completed modules? • Is there adequate access, for example, a highway and roadway, that will allow the modules to trav- el, along with a crane of adequate size? n Think Lego. Yeah, those little plastic blocks that you have shout- ed profanities at while stepping on them in the dark of night. If those 2-by-4-inch blocks are a model for our building modules, then 2-by- 4 blocks is what we design to. I’m sure Lego could make 2 ½-by-4 ¼-inch blocks, but that would cost a lot more, and it would be custom- izing them just for you. The modu- lar factory marketing department means well in taking an order like that, because we don’t realize that we are asking for the 2 ½-by-4 ¼ , expecting to pay the 2-by-4 price. Find out how to keep your project from “reinventing the wheel” and design within the 2-by-4 block. Rec- ognizing that all factories are not the same and have defining charac- teristics and capacities, in the end they all travel the same roads and meet your building requirements. If the project parameters require the 2 ½-by-4 ¼ block, it’s time to rethink modular as an approach. In the near term, the fallacy is that con- struction can be “one size fits all.” n Don’t ask what modular can do for you, but ask what you can do for modular. I often hear that the bud- get doesn’t work, so, “Let’s try that modular stuff.” If the project doesn’t start as modular, then it won’t work as modular. There is a fatal flaw in believing that modular will be the “saving” factor for a project that doesn’t know it’s dead, especially in terms of budget. Generally, one of the highest budget benefits is made in a massive savings in contractor costs represented by general conditions. In locations where general contrac- tors, subcontractors and labor are limited, the ability to fabricate off- site could be another. Modular units are typically ordered months, if not a year(s), in advance and have factory-spe- cific fabrication/lead/delivery time frames. In the end, the delivery date of the project could be the same, or even later than site built. Budgets can be negatively impact- ed by higher upfront costs that result from the need for creative financing structures – greater inter- est carry for factory dictated pay- ment for the prefabrication and material costs, down payments to lock in the fabrication schedule, and progress payments on the fab- rication. Typically, 100% payment is required before the modules will ship. n Modular factories are people too, and they really want this to work. Unlike other industries, the world of modular has not (yet) become automated factories run by robots. Modular factories are subject to the same stressors and economic chal- lenges that affect ground-up con- struction and manufacturing. n Hire competitively and recog- nize the risk. In the end, use all the parameters of your project to reach out to multiple factories. If your Lego blocks can be built in multiple factories, your project can get the best manufacturer fit for your proj- ect. This is a bit controversial, and I expect all factories to disagree with this approach. Your project may require some customization. Once you have the best fit, who holds the contract? And if the project requires special accommodations, the cost likely just escalated. To ask your general contractor to carry the modular contract may not be the best for your project. As the owner, passing the risk of the mod- ular construction to the appropriate parties is part of the game; however, this comes with additional man- agement, risk, and cost for the GC. Should the lenders and investors allow it, the process will best be managed by a consultant (or your- self, if you have the capacity). This will save GC cost, but also means you can get this process completed far in advance of when a GC might be onboard. s brandon@bgcc-llc.com Rethinking affordability: What can be changed? Brandon Gentrup Principal, BGCC LLC