Investors, Developers - Reduce Construction Costs by 37%

Sound too good to be true?

Think again!

This past Wednesday several clients of mine and I headed to Berwick, PA to the Deluxe Home factory to take a look at what could very well be the future of condo conversion construction. As the real estate market has taken a beating from not only the media but from consumers as well the only logical outcome could be a significant drop in prices and as a result lower margins for developers. Several weeks ago one of my clients Stuart Kushner, developer of Maricor Gardens Condominiums, came to me with an idea. How about modular multi-family housing? At the time I hadnt given it much thought, blowing off modular as housing for the past generations.

After much research we came across a manufacturer who was approved by DC for construction, Deluxe Homes, whom we approached to gain insight into the world of off site construction and I must say I could not have been more wrong in my initial impressions. After a long three hour drive we arrived at a small Detroit-like town where it didnt seem like there was much to do besides hunt or fish (neither of which I do). As we walked into the factory site there were pieces of homes laying everywhere, plastic covered sections lying on what seems to be a 50+ acre site with hundreds of huge boxes. Still skeptical, we followed Bill Nash, a rep for Deluxe inside the factory and he showed us how the units are built, the quality of construction and the ease at which homes, condo buildings and commercial buildings can be constructed in up to 12 by 64 foot sections, trucked to the site and stacked like Legos using a crane. The quality far surpassed my every expectation. Bathrooms looked like they were custom built, walls looked perfect, floors, kitchens and wiring looked as if it had been installed by master craftsmen. But that wasnt the best part...we were shocked when he told us what they cost vs. conventional stick-built construction...nearly 37% off.

In running analysis for developers such as Kushner, the typical magic number for construction seems to be $165 per square foot but these modulars, installed and finished were estimated at an astonishing $105 per square foot, nearly 37% off of the largest cost for any developer. Talk about a savings.

To help understand what a savings that is, lets take a 20,000 square foot building anywhere in DC, zoned R5A.
Assuming the lot is buildable we would be able to build
8,000 sq ft footprint (40% lot occupancy = 20,00 *40% )
18,000 sq ft building (0.9 FAR = 20,000*0.9) + Cellar @ footprint size
=Total Construction of 26,000 square feet

Conventional Construction
26,000 * $165 = $4,290,000

Modular Construction
26,000 * $105 = $2,730,000

Thats a total savings (increase in profit) of over $1.5 million on the exact same building. Now, in a market where prices have come down over 5% and to sell quickly, reductions must be made on the initial listing coming close to nearly 10%, thats could quite possibly be an increase in profitability close to 20% (after all additional cost) over conventional construction and sales.

For one example of a finished building using modular construction, there is a building at 12th & K NE.

What are your thoughts on modular housing in DC?

Barry Shuns Fenty in Rejection for Poplar Point Bid by MacFarlane

In an article released by both the Examiner and WUSA9.com, apparently Ward 8 Council Member (and former Mayor) Marion Barry shunned Fenty for his rebellious actions in submitting an RFEI, request for expressions of interest, globally for developers to submit proposals for the development of Poplar Point. As mentioned in two previous blogs, Poplar Point is a 150-acre site, of which 130 acres are available for the RFEI and 110 acres are able to be developed. For years the site has been set to be turned over to the owner of DC United and nationwide developer based out of California, MacFarlane Partners, until recently. According to both articles, neither Barry nor Ward 8 (where the lot is located) will support anything but the new DC United stadium on the site, which was previously believed to be at a total development cost of nearly $150 Million. Recently, however, Fenty has had a change of heart when he released the RFEI, requesting developers to submit proposals totaling no less than $200 Million, which will include at least 30% affordable housing units and 20 acres of protected park land.

The Poplar Point project is part of a $10 Billion project named the Anacostia Waterfront Initiative.

Poplar Point also happens to be just 2/5ths of a mile from Stuart Kushners proposed project on Pomeroy Rd SE, known for his recent condo conversion at 1817 24th Pl SE. The proposed project will most likely include 12 duplex 2 bedroom condos at 1000 sq ft each with parking. Plans will be upload soon.



For more information about the Poplar Point Project click HERE.

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