Modular Development: The Pros and Cons

[Caleb Johnson]

Did you know that you can build an apartment complex in a warehouse? That’s right, there is a strategy out there where you can have someone build your apartment building in a warehouse that will save you on time and money. This is called Modular Development and we will take a look at some of the pros and cons to this development strategy.

Pros

Modular Construction offers better quality structures

When modular first came out in the early 2000’s, it was not streamlined as it is now. An argument that was made is that it couldn't compare to the quality of on-site projects. Now that modularity has become more streamlined, manufacturers are able to enforce stricter quality on the assembly lines. On-site properties can’t control natural elements and wood can be damaged compared to a climate controlled warehouse.

Modular Construction is cheaper and more efficient

Manufacturers have an unfair advantage when it comes to the cost because an on-site facility requires various things that add to the total cost. While modular construction only needs to produce the same parts, making it more scalable. Since builders don’t need these modules for an on-going construction, they can order materials in bulk. This further reduces the cost and allows the developers to store the material in the climate controlled warehouse, out of the natural elements.

Modular is simpler and faster

In traditional construction, the builder will source the materials from different suppliers to get the best rate. This is good to save on cost but since there are more moving parts, there is a higher possibility for something to go wrong. Modular doesn’t need to worry about this because all materials come from one supplier.

Cons

Modules need transportation

The modules need to be transferred to the job site from the warehouse. Depending on where the warehouse is located compared to the job site, this could cause problems if there is significant distance between the two. There are limitations to the size of what can be transported. The maximum size of modules will only be 16ft wide x 75 ft long because that is the size that trucks can carry. This could mean that more trucks need to be sent out.

Site constraints and the municipalities building code

Modular development is streamlined to be rectangular so that developers can cut down on cost. This could affect your possibilities to use modular construction if your job site is irregularly shaped. Unlike on-site construction that starts from the development stage, modular construction won’t adjust to the shape of the land. Some municipalities still see the old and inferior design/processes of modular development and compare it to today’s buildings. Because of this, a handful of municipalities have not adopted modular construction in their building code. This is something that you need to be on the lookout for when considering modular development in your market.

Lack of customization/Financing

Once the product leaves the warehouse, it is very difficult to make changes to the building’s design. Even changing where a window is could jeopardize the structure’s integrity. The assembly line won’t adjust to what a particular client needs because it can significantly impact each module’s production and cost. On the financing side, some banks won’t give loans for modular construction. With normal construction, the builder can be flexible with getting paid. Modular developers need to get paid before 1 module leaves the warehouse. Since these are all pre-built, there’s no option for the builder to be flexible. This is something to keep in mind when considering modular development. One last thing to keep in mind is that some buyers won’t want to pay as much for a modular build compared to classic construction.

In conclusion, modular can be a great strategy in your development plans. You should check that your markets support modular development and be sure you underwrite conservatively. Modular development has given investors a way to save costs and produce better quality buildings compared to previous modular builds as well as on-site construction.