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Modular-home industry could set roots in region
Wednesday, October 18, 2006
By Rebecca Mowbray


The Louisiana Department of Economic Development has a plan for solving the state's housing crisis and creating a new signature industry for Louisiana: Turn the state into a hub for new construction technologies and building methods.

 

Luring construction-related industries and manufacturing has become a major priority for the state. The idea is that by looking to advanced building methods, the state can more quickly rebuild the 200,000 homes that were damaged or destroyed in Hurricanes Katrina and Rita and give Louisiana workers a leg up on developing modern construction skills.

 

"We've been working with housing manufacturers of many types and encouraging them to consider investing in Louisiana," said Don Pierson, assistant secretary of economic development and head of the office of business development. "Our traditional home-building techniques are to order materials and configure them at the site. It is a slow and inefficient process. It's essential that we try to build capacity for this construction effort in Louisiana."

 

One of the most promising techniques is modular home building. Modular homes are just like homes that are built board by board on site; the difference is they're built in a factory and shipped in sections to the lot where they'll be attached to a foundation.

 

Generally, 85 percent to 90 percent of the construction is done when the homes arrive. Not just the framing, walls, windows, floor and roof, but the drywall, carpeting, tile, plumbing, electricity and even kitchen cabinets, countertops and appliances.

 

It takes about a week after an order is received to build the house in the factory, depending on the size of the home, and once it's delivered to the lot, it can be attached to the foundation in less than two days. The final work to blend the seams and carpeting and finish work takes about four to six weeks, according to the Modular Building Systems Association.


"You're dealing with a home that's going to be available in a dramatically reduced time period from a site-built home," said Chad Harvey, deputy director of the Pennsylvania-based association.

 

Modular boom?

 

Modular homes not only can be built more quickly than conventionally built homes, but they're also stronger. Houses are built to the most stringent building code in the region because they could be shipped across multiple state lines, and every step of construction is overseen by third-party engineers.

 

Construction costs less because materials are bought in bulk and are used more efficiently. There's also less waste from damage and vandalism because there's less downtime in waiting for jobs. However, most of the savings from the more-efficient building process are wiped out by transportation costs.

 

Some date the industry back to the Sears Craftsman bungalows from the early 1900s, while others trace it back to manufactured housing created in the 1960s. While most modular manufacturers use set home patterns, they have increasingly let people custom-design their own homes so they can compete with traditional site builders. The industry is now building $2 million to $5 million homes in the Hudson River Valley area in New York.

 

The industry is concentrated in places such as the Midwest and Northeast and mid-Atlantic states, where cold winters make for a short construction season, and it has come on strong in the Carolinas. Modular homes now comprise about 5 percent of the new homes constructed each year, according to the association.

 

But the vast housing needs created by Katrina and Rita could rush this type of construction to the Gulf South. Highlighting the opportunity, the modular industry held its annual convention in Gulfport, Miss., in January.

 

"Mississippi and Louisiana are going to be extremely hot areas for our products. Our industry didn't really have a presence in those two states before last year," Harvey said. "I have gotten calls from a lot of individuals interested in starting factories. You will probably see more modular housing factories locate around those states and in those states."

 

Bringing business here

 

Several local entrepreneurs already have seized upon modular homes as a business opportunity. Hospitality Enterprises Inc.'s Duane Smith and other investors founded New Era Homes, a company that has come up with New Orleans-style plans and erected a raised yellow cottage at 5915 West End Blvd. as a demonstration that was built in Austin, Texas. Troy Von Otnott, founder of NOLA Homebuilder, has partnered with the Georgia company Horton Homes Inc. to create 11 modular designs for traditional New Orleans-style homes.

 

But in these cases, homes are built in other places and shipped to New Orleans. They're not built here.

 

That soon could change. Schaffer Mickal, a commercial real estate agent with Latter & Blum, says he's talking with several groups interested in creating a modular home factory at the site of the former MacFrugal warehouse in eastern New Orleans.

 

"We have several modular home people we're talking to," Mickal said. "They're all exploring."

 

The MacFrugal Bargains-Closeouts warehouse burned down in 1996, leaving a coveted industrial site in the city empty. Crescent Crown Distributing LLC now owns half of the site and uses it for beer distribution; Dupuy Storage and Forwarding Co. owns the other half, which is available for development.

 

The Dupuy half, which Mickal is marketing, is a 500,000-square foot site. It includes 300,000 square feet of dock-high slab left over from when MacFrugal burned down and a 100,000-square-foot slab with a two-story building on it, for an additional 200,000 square feet of space, Mickal said.

 

The site is considered attractive because it has easy access to Interstate 10, the Intracoastal Waterway and railroad lines. "It has all the major points. That's why it was built there," Mickal said.

 

Investing in the area

 

While those negotiations are under way, the Department of Economic Development is casting its net for other construction investments.

 

After a factory building symposium in Baton Rouge in June, an Italian construction company made a $6 million investment in Kenner and opened a construction system factory. M2 Emmedue and its American partner, Advanced Building Systems Inc., are building a 78,000-square foot factory that will employ 100 people.

 

The 84 Lumber Co., which describes itself as the nation's largest privately held supplier of building materials to professional contractors, is locating stores in Lafayette, Hammond, Gonzales and Pearl River and is building a component manufacturing plant in Hammond.

 

Just last week, the economic development department met with a home products company and a Canadian company, American Structure, that produces pre-fabricated wall panels, floor joists and roof trusses and ships them in by rail.

 

The department maintains a database of existing industrial buildings to help companies locate quickly. State incentives and the Gulf Opportunity Zone low-interest financing or accelerated depreciation options are also available.

 

'Huge hill to climb

 

The local chapter of the National Association of Home Builders says these investments, particularly modular housing, are sorely needed to speed the construction of homes. In the home builders' best year, the group built 7,000 homes in the metropolitan area, meaning that it would take decades to rebuild what was destroyed during Katrina.

 

"There's a huge hill to climb to replace the homes," said Randy Noel, Louisiana's representative to the National Association of Home Builders. "It would certainly speed it up. It's a viable alternative that can get the recovery moving at a faster pace."

 

But there are glitches with using modular housing to bring displaced New Orleanians back home. It's not easy to bring in sections of homes and place them on tiny New Orleans lots, especially if there are existing homes and power lines on both sides.

 

In places such as the St. Bernard Parish or the Lower 9th Ward where many homes likely will be bulldozed, or in places such as eastern New Orleans, where the lots are bigger, it won't matter. "In areas with wide streets and bigger lots, it's going to go a lot more rapidly and be a lot less costly," Noel said.

 

But Harvey doesn't see much of a problem with assembling modular homes between existing homes because the industry has lots of experience with urban infill projects. "I know it's been done and it's been done successfully," Harvey said.

 

Harvey is more concerned about the condition of foundations. Many owners of destroyed homes likely will have to get rid of their old foundation and pour a new one to get a modular home because foundations have to be perfectly level. "You're talking about demolition of those foundations," Harvey said.

 

Bumpy roads ahead

 

Jeff Tryka, director of planning and investor relations at Coachmen Industries, the parent company for Elkhart, Ind.-based All American Homes, cites another concern.

 

Even though modular homes can be quickly built, Tryka worries about going into the area because of the lack of cleanup and site-clearing and the poor conditions of the roads and utilities. "One of the challenges that we face down there is the lack of infrastructure cleanup in being able to site our homes," Tryka said. "There's a lot of basic foundation work that needs to be laid before we can go in and rapidly start rebuilding the area."

 

Tryka said Coachmen Industries, which has most of its production facilities in the upper Midwest, has met with federal and regional officials about the rebuilding effort on the Gulf Coast. But whether the company decides to build a plant in the region -- or where it would go -- also depends on the long-term demand for housing in the region.

 

"Over the longer term, we would probably entertain the idea of opening a production facility somewhere in the region that could not only service the medium-term construction in after Hurricane Katrina, but the longer-term needs in the Southeastern market," Tryka said.

 

But, he said, the industry wants to help Louisiana and Mississippi rebuild. "There's a tremendous amount of opportunity to help the Gulf Coast and its reconstruction efforts. The need is great."


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