Thursday, August 3, 2017

U.S. Steal? America For Sale.

U.S. Steel is one of the most iconic companies in the history of the United States. They even got mentioned in the Godfather!  U.S. Steel was the company that built Disney’s Contemporary Resort as a modular building in 1971.  U.S. Steel’s South Works facility in Chicago once employed over 20,000 people.  The company was a symbol of this country’s manufacturing prowess.  
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However, beginning in the 1970s, South Works began a long period of downsizing, finally closing for good in 1992.  Twenty-five years later, the lot still sits vacant.  Despite several efforts to develop the property, nothing yet has materialized. Until now.
The Chicago Tribune reported a plan involving two European companies to build as many as 20,000 modular homes on a 440-acre unused tract of land known as South Works. The Tribune quoted Mayor Rahm Emanuel as saying “this agreement is a major milestone towards converting an unused stretch of land that represents Chicago’s industrial past into a vibrant community that will contribute to the Chicago’s economic, cultural and recreational future.”
On one hand, you have to admire the grit and tenacity of Mayor Emanuel to make something happen with this land.  Embracing modular construction is another bold move for Rahm, one that will need to be squared with construction unions. But is selling off part of the Windy City to foreign interests really a good idea?  Even if it is the “baddest part of town”, to quote Jim Croce.  
The two companies cited in the story are Emerald Living, a unit of Dublin-based WElink Group, and Spanish partner Barcelona Housing Systems.  Now, the last time these two names surfaced in the same news story, we learned that a U.K. housing authority had cut a massive US$3.3 billion deal with them.  Under the deal, five factories would be opened in the U.K., employing U.K. residents and building 25,000 prefab homes for the U.K. over five years.  Sweet deal for everyone, right?  Well, not the U.K. modular manufactures who were left out of the deal.
Oh, and one more thing – there was a third partner in the U.K. deal: Chinese mega corporation, China National Building Material Company.  It is actually the Chinese company opening the plants and building the homes in the U.K. “based on designs pioneered by Spanish specialist Barcelona Housing System.”  Why are those words important? Because it’s the same language that appears in the news stories about the Chicago deal - “The site will have a substantial residential component of up to 20,000 housing units built with innovative, environmentally-friendly technology pioneered by Emerald Living’s partner, Barcelona Housing Systems (BHS).”
The Barcelona deal was apparently selected over a “vague” Chicago-based proposal and another proposal from a Chinese company. But who exactly will be building these homes?  
Who cares, you say – no one else was building anything on the southside. Let a Spanish (or even Chinese) company have at it!  It will ultimately be better for the city and better utilize an unused piece of land.  All true.
The sitting mayor of Chicago is going to tell people it’s a good deal to have a Spanish (and perhaps Chinese) manufacturer build 20,000 homes on a piece of land once occupied by the mighty U.S. Steel?  Why?  Because part of the deal included the company opening a factory in Chicago and agreeing that factory would be unionized.  That’s how Rahm squares the deal with labor bosses.
The modular home industry builds between 25,000-35,000 homes nationwide on an annual basis.  A project for 20,000 homes would keep ten modular factories, each employing an average of 125 workers, busy for the next ten years! Oh, and by the way, Elkhart, Indiana is less than two hours from Chicago. That area is also home to nearly a dozen residential and commercial modular manufacturers who would probably like a bit of that action (remember when then-President Obama visited the area multiple times during the recession)?  If you expand that circle to surrounding states like Michigan, Ohio, and include Illinois, you are looking at two dozen modular factories. None of which are likely to build a single home for this project.
So many questions:
-Is it good for overall industry growth that 20,000 new Chicago homes will be modular instead of site--built?  
-Does the development and potential revitalization of the southside of Chicago justify selling off part of the iconic city to foreign interests?
-Do we care if worker paychecks are from Spanish or Chinese companies?
-Is this “modular developer” the new industry model?
Maybe I’m just naïve, or even jealous.  Why aren’t more developers working with U.S. manufacturers on innovative solutions to our urban housing issues?   
This article is not intended as a wake-up call for the modular construction industry.  It’s a far bigger story than that.  This is a wake-up call for the North American construction and manufacturing industries at large. And it’s a wake-up call for our political leaders.
There is way too much information here for me to properly vet and vent in one article.  I plan on writing a series of articles about this issue, what it means for the industry, and most importantly, what we should do about it.

Tom Hardiman is the Executive Director of both the Modular Building Institute (MBI) and the Modular Home Builders Association (MHBA). MBI is the international trade association representing three hundred companies engaged in commercial modular construction.
MHBA is the national trade association serving over one hundred companies in the residential modular industry.  If you would like to share your thoughts on this, Tom can be reached at tom@modular.org

8 comments:

Anonymous said...

This is a very interesting observation. You are upset that foreign factories and investors can build 20,000 new modular homes knowing that the US modular industry both can't and won't. The US modular industry is cutting edge in some ways but is falling further behind every year to European and Asian manufactures in capacity and energy efficiency.
I am a member of the MHBA and don't see much excitement among my fellow members. Builders and factories are reluctant to change and/or improve. It appears that factories just want to build modules for major projects like hotels and big apartment buildings.

Carl Nolan said...

Tom, can you name even one major United States investor or factory that could step up to the plate for this project. Me neither.

Tom Hardiman said...

I hear you both. But here's a big difference. Many of these foreign companies - modular manufacturers and developers are backed by/ or funded with support of their governments - especially in China. Chinese state owned companies that come in with a deal to good for local politicians to refuse - we will buy the land, and develop it for you. You get housing and local jobs.

How in the world is the typical US modular manufacture supposed to compete with that? I'm struggling with this story. On one hand its fantastic that a huge development will be modular. But is this the path forward? Modular company becomes the developer/developer becomes the modular manufacturer?

Like I said in the article, maybe I'm being naïve or maybe just jealous that some of our member companies didn't get in on this.

Anonymous said...

My company built a modular Brownstone in the 7th Ward of Chicago in the late 2000's. It was a very difficult process dealing with the city, their difficult codes and the Unions. We had to have Union representation in each area of the plant to sign off on prior to the unit moving to the next station. Our plant was about 40% Amish at the time and the Union guys complained they worked to fast. We lost 3 days production dealing with the Union and building codes. With my experience, I doubt this will go anywhere unless the City is willing to wave those requirements they made us do.

David Johnson said...

I personally don't have a problem with a foreign owned company locating in the USA to manufacturer products. Check out the car companies - Toyota, Honda, BMW, etc. They have been here for years employing many in the USA and producing quality products that last for years. There are many other examples of foreign owned companies producing other products.
What doesn't make sense to me are the numbers. Either the 20,000 homes should be 2,000 or the 440 acres should be 4,400. You can't build that many "homes" in the traditional sense with the numbers shown and still have streets, sidewalks, yards, common areas, etc. unless my math is really getting bad.

Builder Bob said...

I don't have a problem with foreign modular factories coming in unless they are from China which has government backing allowing them to establish a foothold in the US. If that happens, most current US modular factories will become obsolete because we won't be able to keep up with them in modern production or financing which will also come from China.
There is a lot more to this story than just 20,000 new modular homes being built. It could be the end of custom modular housing.

Tom Hardiman said...

David, I'll have to check the numbers again, but they came from the Chicago Tribune article. Its hard to blame the foreign companies coming in. They are looking for safe investments (or at least safer than other places in the world). And its understandable that city officials would sign off on a deal like this - I think the key was an agreement to open a factory in Chicago and employ union workers.

I guess its just frustration that at the time the modular concept is really taking off, outside interests seem to be the beneficiaries.

Also to David's point - will the modular industry become like the auto industry in that foreign owned plants open here on a larger scale?

Tom Hardiman said...

David, it wasn't clear in that article, but many of the homes are housing units - i.e. multi family developments rather than single family homes.