One morning last month, a crane swung massive boxes across a clear blue sky and gently slotted them among the apartments under construction at 23rd and Race Streets in Philadelphia. Inside the boxes were toilets in bathrooms, closets in bedrooms, countertops in kitchens — all the makings of homes.
The 160-unit Edgewater II is one of the latest projects by Alterra Property Group that uses modular construction — in which homes are built in pieces off-site and fitted together like LEGOs. LVL North at Broad and Spring Garden Streets is the Philadelphia developer’s largest modular property with 410 apartments. It began leasing this spring.
That’s also when the company broke ground on another mixed-use modular project with 275 apartments at 43rd and Chestnut Streets. The firm plans to keep building this way as much as possible. Given the pace and scale of the projects, Leo Addimando, cofounder and managing partner, said he’s gotten calls from fellow developers seeking tips.
As construction costs have risen, developers “are more willing to try new things,” he said. “And for them, it’s a new thing, even though it’s not a new thing.”
Philadelphia developers have tried the building method on and off for decades with various success. It’s still only a sliver of the total construction industry — between 5% and 10%. But in recent years, modular construction has gotten more popular in the city, and industry watchers say its appeal will only grow, as builders strive to cut increasing costs, attract more workers, and meet renter demand.
The method won’t take over how builders build, said Laura Dwyer, chair of the Building Systems Council Board of Trustees at the National Association of Home Builders. But more association members are building portions of their projects off-site.
Projects in Philadelphia also have gotten bigger. Off-site building mostly used to be reserved for single-family homes. Now, more multifamily developers are going modular and building more units.
Philadelphia-based Mosaic Development Partners has been using modular construction for more than a decade and sees it as a way to keep rents down.
“It’s something we believe in that makes a lot of sense from a design and affordability perspective,” said Greg Reaves, cofounder and chief executive officer. “We are firm believers that it is the way to build.”
In recent years, he’s seen bigger players dive into modular.
“That’s what intrigued us to want to think about it on a larger scale,” he said. The company is nearly finished building a 98-unit, mixed-income apartment complex in North Philadelphia’s Sharswood neighborhood. It plans to use modular construction in its development at the Navy Yard.
The demand for apartments in the Philadelphia region is exceeding supply, and “modular construction is definitely going to help the industry meet that demand,” said Carol Christner, chief executive officer of the Pennsylvania Apartment Association.
“It’s a really exciting opportunity for many of our PAA members to be able to expand their portfolio” and “provide housing at various price points,” she said.
Why more developers are going modular
The increasing interest in modular “is being driven by all the cost pressures every developer is under right now,” Addimando said. This spring, costs of building materials were up 19% from the year before, according to the National Association of Home Builders.
“We had to figure out a way to make the equation of construction work,” he said.
Building modularly can save 20% on total construction costs, he said. Projects can be constructed in half the time, and rental revenue comes in sooner. Workers build apartments in pieces in a factory as others lay the foundation. Factory work doesn’t have to pause for inclement weather.
Alterra Property Group has found that modular construction is cost- and time-effective when it builds between 100 and 500 units and between four and six stories. Under that, building on-site is more efficient, Addimando said. Above that, builders can run up against building code restrictions.
Philadelphia-based Volumetric Building Cos., which works with Addimando, started as a construction company in 2009 but has become a major player in modular manufacturing for multifamily buildings in Philadelphia and beyond. This spring, it bought a 356,000-square-foot manufacturing facility in Berwick, Pennsylvania, to serve major cities in the Northeast.
Vaughan Buckley, founder and chief executive officer, said he plans to expand from five factories around the world to 12 over the next five years, while keeping his Philadelphia headquarters and growing his business here.
More builders and consumers are thinking differently about modular than they did years ago. Union builders have warmed up to the approach. The method is more accepted in building high-end homes. Modular designs and systems have improved, and more architects, engineers, and contractors have become comfortable and skilled with the building method.
”I don’t think our buildings look like modular buildings,” said Sara-Ann Logan, vice president of design for Volumetric, “but I think they absolutely will not look like modular buildings in the future because we’re just playing more.”
Modular construction “for many years had a negative stigma,” particularly that it was low quality, Addimando said. But pieces are stored and assembled in moisture-controlled factories, and perceptions are changing.
“It becomes a very efficient, very high-quality product once you figure it out,” said Gary Jonas, president of the Building Industry Association of Philadelphia and managing member of the Conshohocken-based real estate firm HOW Group, which has worked on a few modular projects.
“In the past you only heard horror stories about it,” he said. “And now you’re seeing success stories of people doing it right.”
Expanding and diversifying the industry
The industry also sees modular as a way to address a longstanding problem that is only projected to get worse: a lack of workers. Older workers are retiring and younger ones are not choosing the trades.
The construction industry would need to attract almost 650,000 additional workers in 2022 to meet the demand for labor, according to Associated Builders and Contractors, a national construction industry trade association. A 2017 publication by the National Center for Construction Education & Research said that roughly 41% of the construction workforce will retire by 2031.
Offering construction work in a climate-controlled factory with more automated machinery can help attract more workers who can’t physically work or don’t want to work in traditional construction environments. This can diversify the worker pool, including bringing in more women and people of color.
With a more diverse workforce and a technology-heavy factory environment, off-site construction “can help drive innovation,” said Dwyer at the National Association of Home Builders.
Reaves at Mosaic Development Partners said the industry essentially has been building homes the same way for a century.
“The question we should be asking ourselves,” he said, “is ‘why?’”
How modular construction works
When modules leave a factory, they are as complete as possible, with finishes, appliances, wiring and plumbing. When pieces get to a site, the project “basically gets put together like a huge Erector Set,” said James Hocker, a regional manager with the Eastern Atlantic States Regional Council of Carpenters.
Modular construction depends on precision. Measurements cannot be even slightly off.
General contractors finish work on-site that can’t be done in a factory, such as connecting wiring and plumbing between units.
Trade unions used to be more skeptical about modular construction, but, Hocker said, “you have to stay with the trends and how things are moving forward as an industry. Or you’re gonna be on the outside looking in.”
Rates for entry-level positions at Volumetric Building Cos.’ factory in Berwick start between $18 and $25 an hour.
Challenges and hesitations
Unlike in traditional construction, all the planning for modular projects must happen up front. Builders don’t have room to change their minds mid-production or make adjustments on the jobsite.
Jonas at the Building Industry Association said he knows people who haven’t planned enough, “and it’s gone horrifically.” Developers thought they could save time and money, he said, but they found they didn’t have the technical expertise.
“I think people are still a little afraid of it,” Jonas said. “Because the skillset to do it right is so narrow.”
The speed of modular construction also can work against developers as supply chain delays continue. Efficiencies shrink if workers have to return to modules to add missing parts.
In Philadelphia specifically, transporting modules down narrow streets and around sharp corners is a challenge. Space for large developments is hard to find. Building rules in the city’s Council districts vary widely.
From a tax perspective, a regulatory and affordability perspective, Philly is the toughest of the cities in which Volumetric Building Cos. operates, Buckley said.
“If we can do it here,” he said, “we can do it anywhere.”
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This story was originally published September 22, 2022 2:15 AM.