One morning last month, a crane swung massive boxes into a clear blue sky and gently inserted them among apartments under construction at 23rd and Race Streets. Inside the boxes were toilets in the bathrooms, closets in the bedrooms, counters in the kitchens – all the ingredients of a home.
The 160-unit Edgewater II is one of Alterra Property Group’s latest projects that uses modular construction – in which homes are built in pieces offsite and assembled like LEGOs. LVL North at Broad and Spring Garden Streets is the Philadelphia developer’s largest modular property with 410 apartments. He started renting this spring.
It was also when the company launched another modular mixed-use project with 275 apartments at 43rd and Chestnut streets. The company plans to continue building this way as much as possible. Given the pace and scale of the projects, Leo Addimando, co-founder and managing partner, said he’s received calls from fellow developers looking for advice.
As construction costs have risen, developers “are more willing to try new things,” he said. “And for them it’s new, even if it’s not new.”
Philadelphia developers have tried the construction method on and off for decades with varying success. This is still only a fraction of the entire construction industry — between 5% and 10%. But in recent years, modular construction has become more popular in the city, and industry watchers say its appeal will only grow, as builders scramble to cut rising costs, attract more workers and meet tenant demand.
The method will not replace the way builders build, said Laura Dwyer, chair of the National Association of Home Builders’ Building Systems Council board of directors. But more and more association members are building parts of their projects off-site.
Projects in Philadelphia also gained momentum. Off-site building primarily reserved for single-family homes. Now more and more multi-family developers are going modular and building more units.
Philadelphia-based Mosaic Development Partners has used modular construction for more than a decade and sees it as a way to reduce rents.
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“It’s something we believe in and it makes a lot of sense from a design and affordability standpoint,” said Greg Reaves, co-founder and CEO. “We strongly believe this 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 has nearly completed construction of a 98-unit mixed-income apartment complex in the Sharswood neighborhood of North Philadelphia. He plans to use modular construction in his development at the Navy Yard.
Demand for apartments in the Philadelphia area exceeds supply, and “modular construction is definitely going to help the industry meet that demand,” said Carol Christner, executive director of the Pennsylvania Apartment Association.
“It’s a really exciting opportunity for a lot of our PAA members to be able to expand their portfolio” and “provide housing at different price points,” she said.
The growing interest in modular “is driven by all the cost pressures every developer is currently under,” Addimando said. This spring, building material costs are up 19% from a year earlier, according to the National Association of Home Builders.
“We had to find a way to make the construction work equation,” he said.
» READ MORE: Go modular to reduce city construction costs
Modular construction can save 20% on total construction costs, he said. Projects can be built in half the time and rental income arrives sooner. Workers build apartments in pieces in a factory while others lay the foundations. Factory work does not have to stop in the event of bad weather.
Alterra Property Group has found that modular construction is cost effective and fast when building between 100 and 500 units and between four and six stories. By virtue of this, on-site construction is more efficient, Addimando said. Beyond that, builders may run into building code restrictions.
Philadelphia-based Volumetric Building Cos., which works with Addimando, started as a construction company in 2009 but has grown into a major player in modular fabrication for multifamily buildings in Philadelphia and beyond. This spring, it purchased a 356,000 square foot manufacturing facility in Berwick, Pennsylvania to serve major cities in the Northeast.
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Vaughan Buckley, founder and CEO, said he plans to grow from five factories worldwide to 12 over the next five years, while maintaining his headquarters in Philadelphia and expanding his business here.
After builders and consumers see modular differently than they did years ago. Union builders warmed to the approach. The method is more accepted in high-end home construction. Modular designs and systems have improved and more and more architects, engineers and contractors have become comfortable and proficient with the construction method.
“I don’t think our buildings look like modular buildings,” said Sara-Ann Logan, vice president of design at Volumetric, “but I don’t think they will look like modular buildings at all in the future, because we just play more.”
Modular construction “for many years had a negative stigma,” particularly because it was of poor quality, Addimando said. But parts are stored and assembled in humidity-controlled factories, and perceptions are changing.
“It becomes a very effective, very high-quality product once you get the hang of it,” said Gary Jonas, president of the Building Industry Association of Philadelphia and managing member of Conshohocken-based real estate firm HOW Group, which worked on a few modular projects.
“In the past, you only heard horror stories about it,” he said. “And now you see success stories of people doing it right.”
The industry also sees modularity as a way to solve a long-standing problem that will only get worse: the shortage of workers. Older workers are retiring and younger workers are not choosing trades.
The construction industry is expected to attract nearly 650,000 additional workers in 2022 to meet labor demand, according to Associated Builders and Contractors, a national trade association for the construction industry. A 2017 publication from the National Center for Construction Education & Research indicates that approximately 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 physically can’t work or don’t want to work in traditional construction environments. This can diversify the pool of workers, including bringing in more women and people of color.
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With a more diverse workforce and a tech-heavy factory environment, offsite construction “can help spur innovation,” said Dwyer of the National Association of Home Builders.
Reaves of Mosaic Development Partners said the industry has essentially been building houses the same way for a century.
“The question we should ask ourselves,” he said, “is ‘why? “”
When modules leave a factory, they are as complete as possible, complete with finishes, fixtures, wiring and plumbing. When the parts arrive at a site, the project “basically comes together like a huge set of fitters,” said James Hocker, regional director for the Eastern Atlantic States Regional Carpenters Council.
Modular construction depends on precision. Measurements cannot be even slightly off.
General contractors complete work on site that cannot be done in a factory, such as connecting wiring and plumbing between units.
Unions were more skeptical of modular construction, but, Hocker said, “you have to follow the trends and how things evolve as an industry. Or you’re gonna be outside looking inside.
Rates for entry-level positions at Volumetric Building Cos.’ the Berwick factory starts at $18-$25 per hour.
Unlike traditional construction, all planning for modular projects must be done upfront. Builders don’t have the ability to change their minds during production or make adjustments on the job site.
Jonas of the Building Industry Association said he knew people who hadn’t planned enough, “and it went horribly.” Developers thought they could save time and money, he said, but found they lacked the technical expertise.
“I think people are still a little scared of it,” Jonas said. “Because the skills to do it right are so narrow.”
The speed of modular construction may also work against developers as supply chain delays continue. Efficiency decreases if workers have to return to modules to add missing parts.
In Philadelphia especially, transporting modules through narrow streets and around tight corners is a challenge. Space for large developments is hard to come by. Building regulations in city council districts vary widely.
From a tax, regulatory, and affordability standpoint, Philly is the toughest city in which Volumetric Building Cos. operates, Buckley said.
“If we can do it here,” he said, “we can do it anywhere.”