Trend Tracker January/February 2020

July 21st, 2021 by Nathan Hobbs

The New Mod Squad: Rebranding Modular Construction Spells Opportunity

By Michael Collins

Few segments of the market have worked harder to reframe the public’s perception than the modular building industry. An unfortunate and coincidental similarity between the terms “modular” and “manufactured” have long caused consumers to confuse modular with manufactured, or mobile homes. As the shortage of labor continues, modular builders are trying to rebrand their product as “offsite construction” or the more technical sounding “volumetric housing.” Either are more elegant descriptions of a construction type that could amend your thinking about the opportunities to sell doors and windows into the modular segment.

Based on an analysis of Census Bureau data, roughly 3.3% of all single-family units and 2% of multifamily buildings were constructed using modular techniques in 2017, says the National Association of Home Builders. An August survey by Home Innovation Research Labs found 8% of builders polled said they were using modular units now. Meanwhile, 3% of all builders planned to use modular more often in the coming year, and 7% had the same plans for the coming five years, the survey indicated. Among builders putting up 25 houses per year or more, the momentum was even greater, with 13% planning to turn to modular.

To be clear: We’re not talking about mobile homes here, but rather subsections of a home or building that are constructed offsite and then trucked to a place where they’re stacked and connected to create complete housing units. Though it isn’t single family, Marriott International is one example. The company is working with contractors to build rooms that arrive onsite almost fully kitted, with beds and dressers in the sleeping area and all the plumbing fixtures installed, ready to be connected to mains.

Marriott likes this model in part because it cares about speed to occupancy. Single-family housing generally will be slower to embrace the concept, as time to occupancy isn’t as crucial. The exceptions are likely to be in the Northeast (where most modular factories can be found), and in areas hit by disaster, such as fire-ravaged Northern California or hurricane-damaged stretches of the Gulf Coast. Tract builders might see modular as an option, but they also have alternatives they can employ, such as greater use of components like wall panels and floor trusses.

There are also issues of money. Basically, you have to spend more of it earlier than you would in conventionally built projects. Aside from buying the doors and windows, cladding and interior goods earlier, you also will need to make a down payment to get onto a modular manufacturer’s production schedule. And once the modules are completed, they need to be
staged in an area near the jobsite so they can be put into place quickly.

Of course, building offsite also means that doors and windows are being installed in the factory. Extra care is needed to avoid damaging those factory-installed components when the module is trucked to a site.

All of this might sound like trouble for door and window manufacturers, but the potential for revenue growth through selling into the modular segment is significant. By beginning to have conversations with modular builders now regarding meeting their unique needs, door and window manufacturers can position themselves to win business as the segment expands.

Michael Collins is an investment banker and a partner in Building Industry Advisors. He specializes in mergers and acquisitions in the door and window industry.
mcollins@buildingia.com

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