Time, Cost Savings Increase Modular Construction Interest

Los Angeles Business Journal

January 17, 2022

One of the biggest new construction trends in recent years is the prevalence of modular construction. Unlike traditional construction, modular units are built offsite in factories before being transported and installed on a site that has already completed all its prep work.

This approach saves projects time and money and has led to interest from many developers and architects.
“There is definitely increased awareness and activity in the modular world, a lot of interest from developers,” said Josh Kimmel, vice president at Chicago-based Project Management Advisors Inc., which has an office downtown. “A lot of developers like the idea but because they haven’t done it before, there’s a lot of unknowns and a hesitancy to jumpstart a new project, but as people are getting more comfortable and the industry is maturing, more and more developers are getting comfortable with the idea.”

Keith McCloskey, an associate principal at Irvine-based architecture firm KTGY Group Inc., said modular construction first gained popularity around 2005 before being put on the backburner in 2008. He added that in the last few years, he has seen more developers and architects interested in modular construction again.
“The long economic cycle and the positive trend we’ve been in for nearly a decade has got enough time and runway for people to experiment,” McCloskey said.

He added that more clients can now see the success of previous modular projects, which makes them more likely to do a modular project of their own.
Karl Kreutziger, president of Pasadena-based C.W. Driver Cos., added that “modular has been around for many, many years and in the last five years, has gained traction through the technology that’s out there.”

“We’re really bullish on it,” he said.
The number of modular projects in L.A. has been increasing. In downtown, the Citizen M hotel, which opened last year, was a modular construction project. The property has 315 guest rooms and stands 11 stories tall.

C.W. Driver and KTGY, meanwhile, are working on the five-story Hope on Hyde Park on the Crenshaw Corridor. When completed this summer, it will have 98 units.

Long Beach-based architecture firm Studio One Eleven and West Hollywood-based developer Daylight Community Development are also working on a handful of modular projects: the Vanowen Apartments in North Hollywood, Oatsie’s Place in Van Nuys and McDaniel House in Harvard Heights.
They also worked together on the 25-unit Watts Works project.

Cost and time savings

Experts agree that modular construction has a lot of benefits.
“There’s quite a few benefits. What’s talked about most is the time savings on the schedule,” Project Management Advisors’ Kimmel said. “I’ve experienced about a 20% to 30% increase in speed to market in savings on your schedule. That’s probably the biggest driver as far as the benefit, but there’s also other benefits as well. With modular being built off site in a factory, it’s just better quality control for the product.

You also have predictability. There’s a big labor shortage in L.A. where it’s tough to get people on site. In a factory, you have more predictability with your labor.”
He added that factories also produce less waste than projects built on site, and there are no weather issues to worry about.

Mark Oberholzer, an associate principal at KTGY, agreed that the length of time traditional projects can take from the entitlement stage to building has led to the rise of modular construction.

“It just takes too long and costs too much per unit, and that really has people interested industrywide in innovation, and that’s really led to modular,” he said.
He added that there are now thousands of modular units at various stages in L.A.
Ioanna Magiati, a principal at Orange-based Architects Orange, has been working on modular projects for the past five years, participating in about 50 such projects.

Although she said the company has historically done more modular work in Northern California due to its proximity to more modular manufacturing plants, AO is now working on more L.A. projects as well.
She said, “Not all sites are good candidates for modular construction,” and things like transportation cost, distance to factories, site density and storage all have to be considered. But when modular construction is feasible, she said, it could save the time needed to build a project by up to 50%.

Michael Bohn, Studio One Eleven’s senior principal, estimated that projects took four to five months less to build.
“We get the modular components approved by the state of California, and they are extremely efficient at approving drawings,” Bohn said, adding that they usually take about 10 days compared with four to six weeks for most local municipalities.
Once plans are approved, a contractor does site work while the modular units are simultaneously built.

Modular construction can save builders 10% to 14% on costs, Kreutziger said.
With supply chain shortages, rising construction costs and labor shortages, he said, building units in a factory with controlled prices is very desirable.
Bohn said the shortened schedule also saved developers money because projects come online faster. He estimated a 30% to 35% cost savings for modular projects.
Oberholzer said even if the construction cost the same, a shorter timeline would still result in large cost savings as well.

Affordable housing

A large number of projects using modular construction in L.A. now are affordable housing projects.
Daylight is just one of the companies using this type of construction on affordable housing projects.

Greg Comanor, who co-founded the company in 2018, said modular construction helped with a lot of the issues affordable housing projects typically face.
“Because these are public projects, we have to pay much higher wage rates for our on-site workers … those wage rates are just lower in a factory context,” Comanor said.

The reduction in costs, he said, also reduces the number of funding sources needed for a project, which can often be an issue in affordable housing projects.
“You see (modular construction) more in the affordable housing world because those projects tend to have higher costs driven by the competitive nature of some of the funding and the higher wages that are required for those projects,” Oberholzer said.

Bohn, who has worked on affordable housing projects for the last decade, said the prevailing wages needing to be paid for affordable housing projects made them more expensive to build than luxury housing.

Studio One Eleven has so far only been working with Daylight and contractor Howard CDM, based in Bellflower, in a strategic partnership on modular housing developments. But Bohn said the architecture firm has since been contacted by other developers interested in building modular housing projects.
Magiati said AO is working on market-rate affordable modular construction projects as well as affordable ones.

‘Here to stay’

Looking forward, developers and architects agree that modular construction is here to stay despite its difficulties.
“It is a difficult process for sure,” Comanor said. “In a traditional construction context, your contractor can have questions about how things are going to fit together, how to build something, and you can go out to the field … In modular in order to realize the efficiencies of the factory everything has to be answered up front.”

Daylight has eight projects in the pipeline and is looking to do more.
Project Management Advisors’ Kimmel said that not only do designs need to be done up front, but many factories also require large deposits, which can sometimes be hard for developers not used to having such large upfront payments. Still, he sees demand increasing.

“What I see going forward is I feel that modular is going to gain more and more traction as the industry matures, and we’re going to start seeing more and more modular projects across the board,” he said. “People are looking for more efficient ways to build, and this is definitely one that is going to continue to grow, and people are going to look at off-site construction to be more efficient and speed to market.”
C.W. Driver’s Kreutziger said the company has around 700 units in pre-construction and is working on one project that is as large as 15 stories tall.

“Modular is definitely here to stay,” Magiati said.
“There’s a place for it in our society,” Bohn said. “It’s not the answer for everything but it brings another viable construction technology to the industry that should be carefully studied for each situation.”