Modular Construction: Big Risks, Bigger Reward

News
Sylvia Witzke

When you think of traditional modular construction, most people imagine cheap, single- or two-story buildings, or a cookie-cutter house on a rolling truck being delivered to its permanent location. But modular construction methodology has come a long way. These days, modular construction involves fabricating a building’s core structural components — referred to as modules — in an off-site factory or facility, then transporting them to the construction site to later stack and assemble on a foundation or podium.

This has really transformed construction possibilities for mid- to high-rise buildings. One of modular construction’s biggest benefits is that it allows for the foundation work and the construction of the modules to occur at the same time. Off-site work includes construction of all or portions of a building and may include some or all finishes and furniture, while on-site work creates the structural foundation, podium and elevator/stairwell core. The modules are then delivered and stacked to create the finished building.

Recent notable examples of modular high-rise construction include the tallest prefab modular high-rise apartment complex on the West Coast, located in Oakland, and the world’s tallest modular high-rise, an apartment building in Brooklyn. For New York City, where high-rise construction and development are ever-ongoing, some have declared a “modular building revolution,” as the City is now actively promoting the use of modular systems.

Why Modular Construction? With increasing property and material costs, ongoing labor shortages in the construction industry, technological advances in mid- and high-rise modular construction are being looked to as the future of the industry. While mid-rise structures are typically wood-framed and up to 5 stories, high-rises are either steel framed or concrete with each of the modular units specifically engineered to carry the load of the units above them.

When planned correctly, the benefits are substantial, starting with time savings between 25%-50% due to the concurrent on-site and off-site construction work. In addition, it could lead to cost savings of up to 25% of a typical construction budget. The modular construction that takes place in off-site factories takes advantage of a controlled environment, where inclement weather is less of a factor, modules can be constructed to exact specifications, there is increased quality of work and less wasted material, and a higher oversight of worker safety. Developers, Architects and Engineers are continually collaborating to turn modular construction into a process that is a model of efficiency and quality.

Modular Construction Challenges With any new technological implementation come logistical hurdles and challenges, and modular construction is no different. Once the developer determines that a modular system will work for the type of project planned, finding the right personnel who specialize in modular construction is most important since they will need to understand the nuances, necessary coordination, and technical specifications for carrying out these projects. A review of the shipping, delivery and staging of modules will influence the design so that delays can be avoided at time of delivery. Module size limits may occur due to either transportation or access constraints, and modules can only be as large as shipping containers when delivered from overseas. The project’s site size and location must allow space for a crane, truck delivery and possibly module storage. The building design and determining the method of delivery and assembly must be coordinated at the earliest stages of project planning.

For high-rise structures and complex mixed-use developments, the level of technical intricacy for execution can be exponential. Small mistakes can lead to big mistakes, being off by even the tiniest fraction on any module component can compound floor by floor and result in serious structural flaws. While more and more construction professionals are working on mid-rise modular projects and projects in concentrated urban areas, there are not very many teams that have experience working on high-rise projects. When hiring contractors, engineers, and vendors, use an established, experienced team with direct portfolio experience related to your type of project. Secondly, because the building core and modules are being constructed at the same time in different locations a very high level of coordination is necessary between the designers and manufacturer; architectural, structural and mechanical plans must be fully coordinated prior to the start of construction (before a loan is closed). Very few items may be detailed or changed during the construction process without disrupting the overall flow of the project.

The facility used to construct modules and building components must also be well-suited for seamless production output. Problems at the modular construction facility can stall the project, while delays on-site may require completed modules to be stored at the facility or elsewhere. There may also be requirements for on-site and facility inspections involving the local building department, or other regulatory and compliance considerations (zoning, accessibility, issuing of permits) that should be planned for during the design phase.

Finally, since modular construction has so many upfront costs, with a majority of budget funding spent before the modules are delivered, the lending institution must be on-board with the budget, and the allocation of funds for the simultaneous construction of the foundation and floor modules.

Construction Risk Management Considerations Ultimately, Modular Construction is a “Big Risk, Big Reward” investment. While there are more contingencies and risk factors to weigh in project planning, the cost savings and convenience can help expand project options for developers and investors. Optimizing a favorable outcome comes down to building an experienced and knowledgeable Construction Risk Management team, who can evaluate all aspects of project budgeting, execution and personnel prior to the loan disbursement and throughout the course of the project.

During the underwriting process and before loan disbursement a Document and Cost Review (DCR) and Contractor Evaluations (CEs) are critical steps to evaluating the viability of the project. A Document and Cost Review is a comprehensive evaluation of all aspects of project planning including (but not limited to) the overall scope of the proposed work, conformance of the scope of work with building permit and zoning approvals, completeness and adequacy of plans, contracts and other construction documents, adequacy of the overall budget, distribution of costs included in the line item construction budget, and the feasibility of the proposed construction schedule. This includes a review of the approval process(es) of local authorities and any outlines of the inspection process.

Contractor Evaluations will aid in verifying the experience, expertise, work load, and prior history not just of the General Contractor and their subcontractors, but also the project architect, designers, engineers, manufacturers, and any other stakeholder involved in any aspect of the project. As discussed above, the unique technical challenges and requirements of a modular high-rise project necessitate a sophisticated team with a solid plan.

After the loan has been issued, as construction of the building foundation and modular units gets underway, maintaining regular budget and progress evaluations keeps projects on track. Construction Progress Monitoring (CPM) includes on-site and off-site facility inspections. This is critical for parts of infrastructure, such as the elevator core, that are built on-site, and ensuring that project specifications match up to modular units and that milestones for project completion are being met. Funds Control and Disbursement (FC/FD) is an essential tool, as up to half of all modular costs are spent up front. Budgeting and monitoring funding draws for the remainder of the construction avoids costly delays and mismanagement of project funds.

Modular construction is an exciting industry evolution that, if planned and executed properly, can increase efficiency, lower cost, and provide quality layout and material options for a variety of building types. For residential and hotel developers, as well as portfolio investors, prefab modular technology provides economies of scale that can revolutionize contemporary housing and commercial building needs.

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