Breaking Ground
Caleb Roope, CEO and President of The Pacific Companies
By Pamela Martineau
11 min read
For nearly 20 years, Caleb Roope, CEO and president of The Pacific Companies has used volumetric modular offsite construction for a portion of his company’s development projects. The company’s portfolio includes 160 multifamily and charter school projects in the western states. The ratio of projects built with offsite construction, also known as industrialized construction, has grown steadily over the years. During the early years of offsite construction, Roope knew of only a few developers who were using the technology for affordable multifamily units. Now, amid the nation’s housing crisis, labor shortages and supply chain issues, he encounters many more companies using the technology. Two years ago, Roope co-founded Autovol, a factory that builds volumetric modular offsite construction. He says the business is strong because the desire for offsite construction is growing. Autovol’s website describes volumetric offsite construction thusly: “Modular” units or modules are built in a factory, then shipped to a site. “Volumetric” modules are fully enclosed, six-sided structures with finished interiors. “Automated” processes do back-breaking and repetitive processes with repeatable data-driven precision. It’s a triple-threat attack against the housing crisis.”
Tax Credit Advisor sat down with Roope to discuss volumetric modular offsite construction and how developers can navigate this new, growing world of construction.
Tax Credit Advisor: What is volumetric modular offsite construction (VMOC) and how does it differ from traditional construction?
Caleb Roope: At the fundamental level, the technological difference is on-site versus off-site construction. When you think about construction, historically it’s always been bringing everything to a specific location and building the thing there at that location. With offsite construction, you are building somewhere else and doing the maximum amount of off-site construction you can do before you are compelled to start dealing with your site.
TCA: What are some of the benefits to offsite construction?
CR: There are a lot of benefits. You can save costs and if you are able to find the right location and the right project type and the right size, there can be meaningful cost savings. A basic benchmark is in the San Francisco area, an example of saving is at least $50 per square foot on average, but more like a $100 per square foot for affordable housing. From an affordable housing perspective, you are dealing with a fixed budget and limited subsidies, so any time you can save money on construction costs that is an advantage.
The other thing that is valuable about modular construction is the time savings. It is pretty routine to save about 30 percent on your schedule. In the affordable housing world that is valuable because you have faster delivery of your units. You don’t have to pay timing adjusters if you are late with the building so that additional schedule compression is of value.
On the affordable housing side, you are accomplishing some climate-related benefits too. A great example is a substantial reduction in vehicle miles traveled or VMT. When building on a conventional basis, you have all of these workers coming from all over the region or community, bringing their materials and themselves to work traveling to the job site. It puts a lot of cars on the streets. With VMOC, so much of that is happening at the factory. Now instead of 500 trips to the job you have a substantially lower number of trips to job sites. My estimate is a half reduction in VMT.
The neighborhood impacts are also lessened. Instead of all the construction activity happening at the job site, much of it doesn’t happen there. A building can go up on site in two to three weeks, say 100 units. If you were building that building conventionally, it would take 12 months for that to happen.
Worker safety also is superior. There’s not the same requirement to lift heavy objects, haul sheet goods up and down. Much of what you see in conventional construction goes away. And building in a factory is a controlled environment, so you have better quality. You aren’t delaying due to weather conditions. Everything is built in an air- conditioned space. It is weather-proofed. You still have onsite earth work, concrete work, siding, stucco other work onsite, but when you cut that in half it greatly reduces the labor problem we are all having. Worker safety also is improved. We see a substantial difference in workers compensation claims.
TCA: How does offsite construction change the development process for the developer?
CR: From a developer’s perspective in a high escalating cost market like we are in right now with inflation, modular construction forces you to be more organized and plan ahead, so you are picking out your countertops and finish hardware way ahead. You have to build all of this in a factory in a short time frame. At Autovol, a unit will get built in about five days, from framing to putting the flooring in. In normal construction, you might wait on your flooring, countertops, cabinets, etc. to make these choices. In modular construction you are forced to deal with things at a quicker pace. That locks in your pricing. You can have more solid pricing sooner and have the ability to know what your costs are instead of showing up at a job site and six months, eight months in, here come the change orders because of cost changes.
Local governments are also having a hard time keeping up with inspections and plan checks and things like that. This is a big problem right now for developers. But with modular, the modules are inspected by the state at the factory. It reduces the burden on the local inspectors, the city and the county. Often, developers have to wait for inspectors to get there. We can’t cover up the walls until they have the inspection done. That’s a huge issue. We don’t have that issue with modular construction. They are covered up when they get to the job site. That whole inspection process is basically eliminated at the local level.
TCA: Are there differences in the financing process that developers should know about?
CR: There are differences, and they are all manageable. The first thing is you need to educate your lenders and investors on the timing and the process because it is different. For example, a normal draw on a construction loan will happen gradually as you complete the project. You might draw five percent one month, five percent the next month. With modular, you have a factory that must buy all these materials that go into these modules. The factory will want a deposit about 90 days ahead of construction of the modules. They want to procure these materials. Twenty percent of the cost of the contract is going to be asked for by the factory. When things go online for construction, they will likely ask for another 50 percent. In a number of days, modules will start coming out the other end. The balance might be asked for as the modules come out of the factory and are delivered. It depends on what you can negotiate.
The factory is also like another general contractor on the project that must be underwritten and studied to make sure they have the liquidity, the financial strength and can deliver. It is common to get a bond and ask for a bond from a factory to make sure they can deliver.
It is also common for modules not to be ready for installation exactly when they are built. The factory may build them faster. It is common to put them in a temporary storage yard or ask the factory to hold them a while. So, you need to have your insurance in place for that location and your security. Lenders care about all of these things. You need to be educated about these issues and you need to educate your lenders, so they feel comfortable that their collateral is safe. They need to know the process and feel confident in the factory that it is going to be a successful operation and a successful build.
As for tax credits, there is no difference. The process is pretty much the same whether it is modular or conventional.
TCA: Are there differences in the design process?
CR: Modular does force you to do things earlier in the process. It is important to take on a little risk and get all your design work done. Normally in the affordable housing arena, we like to get our tax credits awarded and then go and spend our money on the working drawings and the other things we need to get ready to close. That process may take up to six months to a year.
In modular you can’t afford to do that because the factory needs time to design these modules, so you have to start earlier with your design work. With modular construction you don’t always have the luxury of waiting for funding awards. If you are confident you are going to get your award, it is good to do as much stuff as you can earlier because it will save you time.
Also, the factory must build buildings and there are certain methodologies in a factory that you need to be aware of from a design perspective. One of the most important things I can say is – spend time on producing modular-friendly designs and unit plans that work from a modular construction factory perspective. That may mean fewer 45-degree angles and similarity in unit types. Instead of 20 different bathrooms or 18-unit types, have three or four different bathroom types and only six different unit types. Try to standardize as much as possible.
It is also important to learn a lot about what sites make sense for modular and what sites are more challenging. You need a site where you can physically get a crane in, bring the module to a place it can be picked up by the crane and set in the right location. The modules are 55,000 pounds on average, and roughly 14 feet wide by 70 feet long. There are a lot of logistics to be considered.
If you plan from the beginning, you can harvest the great benefits it has to offer. Commit to modular for your project because it is the right project, right location and right size. Commit and don’t be toe in the water with it.
TCA: Is modular, offsite construction taking hold in the affordable housing space?
CR: I’ve been doing modular for nearly 20 years. When I started, nobody was doing it. About ten years ago, I started to see a few people doing it. Now, I see a significant uptick in people trying it. I see developers doing modular now because they are worried about the availability of labor and materials. The activity is up. If someone said there is a 20-fold increase in participation that would not surprise me. At our factory we are currently talking to 20 different development companies and three-quarters are affordable developers. I get inquiries all the time. It is an active area of interest for a lot of folks and most everybody is doing it for the first time. It takes a lot of education and time to get to know the space, but when you figure it out, it is very successful.
TCA: How have current supply chain issues and labor shortages impacted off-site construction?
CR: Factories have had similar problems obtaining certain materials, as you would expect, but the factory construction process requires much more organization and an earlier procurement process, so that helps mitigate some of the supply chain risk. Labor shortages are also a problem for the factories, but for your average construction worker, the ability to go to the same jobsite every day, rain or shine, in a controlled and safer environment, makes a big difference.
TCA: As a developer, have you seen public perception of manufactured projects shift in recent years?
CR: With education, we have seen a shift. Most people think of modular construction as trailers, mobile homes or manufactured Department of Housing & Urban Development (HUD) homes. People tend to associate modular with “cheap” or “low cost.” That perception has changed as more and more people have become exposed to the technology and realize that modular construction is simply a different method of building as opposed to a completely different product.
