Modular Homes, the Way of the Future

Several months ago I wrote a post on how the only way for developers to make money anymore was by going Modular. That is, having the homes/multi-family buildings built off site at a factory and then shipped and installed on site. Well, the trend may be catching on. The Martha Condominiums is going up as we speak and in the least expected place...Northwest Washington, DC. Thats right, the address is 5414 1st Pl NW, and there are planned to be 20 luxury condominiums built with a starting price of $325,000 per unit, and at a cost of around $130 per square foot for the finished product, these units should profit the developer a pretty penny.

According to the listing, the units will have:
Hardwood floors
Exceptional kitchen with stylish cabinetry and granite countertops
Energy-efficient stainless steel appliances
Over 4500 sq. ft. of patio and terrace recreational space (with 2 handicap lifts)
Whirlpool tubs (Master bath)
Washer and dryer
Recessed lighting
Ceramic tile (all baths)
Crown moudling
Cable TV and high-speed Internet ready
8-foot ceilings and oversized windows; balconies*
Large walk-in closets; linen closet*
Elegant bathrooms with beautiful countertops.

...so I thought I would take a drive over to The Martha and here is what I saw...

Do buyers out there have a stigma against modular/manufactured housing?

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?