What’s the deal with modular construction?

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AC Hotel Chapel Hill Downtown

In May of this year, Marriott International announced that it would ramp up the use of modular construction in its hotels. Marriott said they anticipated signing on at least 50 hotels in 2017 alone that would be primarily modular, citing that this type of construction would enable them to generate returns for their partners faster, decrease waste, and employ a steady and reliable skilled labor force. In fact, one of these 50 properties is in Chapel Hill; the new AC Hotel Chapel Hill Downtown. The four-story above-ground structure (with two levels of parking beneath) will boast 123 guest rooms, all built using modular construction.

If you’re not already familiar, modular construction is simply a means of building pieces (…modules) off-site in a climate-controlled environment, and then transporting those modules to their final destination and piecing them together like legos. In some cases, particularly for hospitality products, the modules are not only built with walls, windows and flooring, but with beds, toilets, and dresses built right in. For the AC Hotel in Chapel Hill, this means that all 123 guest rooms were built in a warehouse in Pennsylvania with most of the furniture already installed. Once in Chapel Hill, a crane simply picked up the modules one-by-one and placed them in their designated location. An on-site crew simply needed to hook up all of the utilities, finalize the plumbing, and complete any last-minute touch ups.

On top of speedier returns and a more consistent work force, there are a number of other tangible benefits to opting for modular as opposed to site-built construction. At the top of that list is a shortened timeframe.

Time is money

Perhaps the biggest advantage of using modular construction over on-site construction is that the time to completion of a project can be much, much shorter. A hotel that might typically take several months to build can have its structure up and modules installed in a matter of several weeks. The primary driver behind this shortened timeframe is the indoor production of the modules. Without the risky weather variable, timetables are adhered to, and, as an added bonus, overhead is reduced greatly. Another benefit of the shortened timeframe is that the cost of financing a project is reduced because there are fewer months eligible for accruing interest.

Consistency is key

In addition to a condensed timeline, modular construction has the potential to result in stronger, more resilient end products. Oftentimes, the pieces for modular construction can be created in an assembly-line-like atmosphere, so there is a lower likelihood of mistakes. This repeatable process calls for identical materials, so development benefits from the cost reduction of bulk ordering. It is also possible, due to the replicable nature of construction, to order the exact size of materials one might need. For instance, instead of buying 10-foot long planks and cutting them down to 8 feet long, essentially wasting 2 feet of wood, the construction groups who build modular homes, hotels, and other real estate products will likely have the exact supplies needed to build most products, on-hand, because of their ability to order in bulk.

Bigger isn’t necessarily better

In a typical on-site construction project, the developer has to consider the size of the lot heavily before building a project to ensure there is enough space for the crew to complete the job. With modular, however, the size of the lot is not as restrictive, given the construction is done off-site. So, modular affords developers the ability to build on lots that otherwise would have been too small (and inherently too costly) to build on otherwise.

Less obvious benefits

In addition to the above, modular construction also comes with some less overt advantages:

  • Construction noise is relocated to an off-site facility, reducing the potential for community pushback;
  • Raw materials are stored indoors, leading to reduced waste from a project; and
  • Labor costs are reduced, given the total number of hours required to complete the project are fewer

But if modular is as great as it sounds, why hasn’t it been employed as a method of construction in the US (note that modular construction has been popular in Europe for a while) before now? For the most part, modular does live up to the hype, but it’s clearly not a perfect solution. For one, a negative public perception of manufactured housing, regardless of validity, translates to hesitancy when it comes to modular. Though the two production methods and quality standards are extraordinarily different, the idea is very similar (products built off-site in pieces and delivered on wheels). And secondly, as beneficial as the condensed timeline may be, it does impose some restriction on the ability to be spontaneously creative throughout the production process. Innovative architecture can certainly be incorporated at the beginning of the process, but once the plans are finalized, it can be very difficult to modify them.

While it is not the optimal process, nor an ideal one for every project, modular construction does seem to be a fairly attractive alternative to site-built properties. Over the course of the next year, it will be interesting to see how modular continues to be adopted by developers (like is has been in Silicon Valley, for example), but for now, those in Chapel Hill will get to see modular in action on the corner of West Rosemary and Church Street.

Kelly Lynch is a MBA candidate at Kenan-Flagler at UNC-Chapel Hill. She is also a Community Revitalization Fellow with the Development Finance Initiative.

2 Responses to “What’s the deal with modular construction?”

  1. Four years ago, I began a process to build a prefabricated modern home in Carrboro, NC. All seemed to be going well, but our lender categorized the home as modular, in the same realm as mobile homes, and we weren’t able to get the loan we needed. Back to the drawing board – we redesigned the house to be built using standard construction techniques. We still ended up getting the house we wanted (and maybe more) but it was quite a learning experience.

    • Andy,

      I’m so glad you were able to design and build the house you dreamed of (plus some), despite some unexpected hiccups in the lending process. With the changing tide distinguishing modular from manufactured now and into the future, I hope that others will not run into the same issue. Thank you for sharing your experience, as I am sure it was frustrating at times.


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