Sunday, March 25, 2012

West Coast May Soon Embrace Modular Commercial Construction

Developers have been talking about doing modular apartment buildings in Seattle for some time now, but recently two said they intend to start building by the end of the year.

R.D. Merrill Co. plans a six-story building with 124 units at 5601 24th Ave. N.W. in Ballard. Triad Capital Partners plans a five-story, 75-unit complex at 4029 Seventh Ave. N.E.

Merrill has said it intends to hire Seattle-based OneBuild to make the modular units. Triad said OneBuild has done pre-construction work, but no construction contract has been signed.


Nicholson Kovalchick Architects is designing Triad's complex and Urbal Architecture is designing Merrill's. DCI Engineers is the structural engineer on both.
Local market observers say these will be the first large-scale modular apartment complexes in Seattle.

Modular units are built in a factory and include electrical, plumbing and lighting systems, and appliances. Units are shipped to the site and stacked like Lego blocks using a crane. Then they are connected together and tied into the utilities.

The Seattle Daily Journal of Commerce talked with Randy Duggan, a senior consultant with Modular Consulting Group of Cashmere.

Duggan said he has been involved in factory building since 1976 and has worked as a developer in the Puget Sound region. He has worked for distributors of modular products and as a sales manager with factories. MCG works for clients to analyze different scenarios.

Q: How does the cost for traditional wood-frame multifamily construction compare to wood-frame multifamily modular?
A: First of all modular construction is the same as wood-frame or “stick” construction. The difference is whether the “sticks” are assembled on-site or off-site. Think of a roof truss. Trusses are almost always built in a factory and then trucked to the site. In the case of modular it is the entire living unit, not just the truss.
Typically speaking if the specifications are the same and the design is factory-friendly and efficient, and the general contractor/site builder is reputable and well qualified, there should be direct hard cost savings in a factory-built structure as compared to a site-built structure.
In addition, the subcontractors used for the on-site portion of the project need to be in tune with what is required of them by the factory. In a prevailing wage situation, the costs could be significantly less as factory building is usually not subject to prevailing wages. It is not easy to put a percentage savings as there are many variables involved.
Some publications and proponents of the modular industry claim a 20 percent savings. This may be true for the overall budget of the project but it is certainly not true for the straight hard costs of building.

Q: Does modular offer other savings or have other costs that traditional wood-frame doesn't, such as shipping?
A: In many cases there can be savings in general conditions, interest savings due to the speed of delivery of the product and there may be some savings in the A and E portion of the budget. Though you can't put a dollar figure on it, less neighborhood disruption is a significant item to be considered in using this technology. Let's not forget that the product is being constructed indoors and not in the rain. The costs of shipping will vary depending on the location of the factory. In the West since there are fewer factories, those costs can vary, however the costs differences, in most cases, will not be the make or break decision as to whether you use modular or not.

Q: What are the issues with financing?
A: The lending industry in the West has typically financed single-family homes. Lenders have not embraced the multifamily product to the same extent, but it is evolving and the comfort level has been increasing. It is typical that a factory requires 50 percent as a down payment prior to building so they can secure materials. They need all materials on hand when they begin the production run as the speed of building is such that they can't stop the production line because materials have not been delivered. This requirement is different than a typical construction draw schedule.
In my experience a staggered form of payment can be achieved with cooperation of all parties. Once a lender understands the hows and whys of the payment schedule then in most cases an accommodation can be made. Bonds, holdbacks, UCC filings, cash in escrow, letters of credit. There are all kinds of methods to insure that all parties are comfortable with the financing schedule.

Q: Does the role of architects and engineers change?
A: You have touched upon a very misunderstood subject in discussing factory building options. Architects are needed and required in the process. It is their design that ultimately gets constructed. An architect can specify rooflines, siding, interior heights, balconies and several other design features. As long as the product can be transported, it can be constructed in the factory. The factory typically does not have an off-the-shelf plan that can fit every property nor do they have architects on staff. Architects will be performing many if not most of the same functions as site building with the exception of construction documents and shop drawings. The factory will secure the engineering stamps and approvals as these are going to be different than a site-constructed product. Architects work hand in hand with the factory draftsman as a team.

Q: Is Seattle ahead of the curve or behind it?
A: The entire Pacific Northwest is behind the rest of the country in its embrace of this alternative form of building. There has been a general overall acceptance of the concept and the many benefits, but there has always been the “I don't want to be the first” attitude. There was a very well done 250-unit, three-story apartment project constructed at Fort Lewis McChord but the attitude was that it was military housing. That project would not look out of place in Redmond, Lynnwood, West Seattle or Renton. The Seattle/Portland area is catching up fast, however, and interest in the product is growing each week.

Journal Staff Reporter

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