Archives for posts with tag: Construction

USA Today had an article about the world’s largest hotel company, Marriott, using factory produced modular construction to build up to 50  of their hundreds of new hotels this year.  The guest room and/or the bathrooms are produced in a factory on a production line and then transported to the prepared construction site where they are erected by cranes. The plumbing, electrical and finish work then occurs. The theory is that this method of construction can reduce the time it takes to build a new hotel by several months. Thus, the hotel opens sooner and can make a higher return for its owners.

Is this new, you might ask? No, like most things in this world it is not new. In my book, The Business Zoo, I tell a similar story that occurred forty years ago. My old company, Donn, signed a deal to build one of the first modular hotels for the world’s largest hotel company, Holiday Inn. Our U.S. government even got involved to promote low cost housing  through the new department of Housing and Urban Development which was headed by a George Romney, father of, you guessed it, Mitt. The belief was that factory produced,  modular construction would revolutionize and change conventional, on-site construction forever.

What happened to this bold experiment those many years ago? It did not turn out so great. The timetable took just as long as conventional construction. The idea of just hooking these up on the site was a disaster with a lot of additional work required. And my old firm, Donn, lost several million dollars when that was a lot of money in general and specifically for a small, private business. The big company, Holiday Inn, did end up with a nice hotel, but having learned a few lessons, stayed away from modular construction. Modular construction never totally disappeared but it certainly did not replace or change the way hotels or apartments were built.

Will this new attempt be more successful? I am not sure. Construction  is one of our most localized industries. Local zoning and building codes vary by community and can offset some of the anticipated factory produced savings.  Construction is one of those businesses that are still highly unionized which can also impact costs and building codes.

What I do find fascinating is how sometimes business, like other things in life, goes around in a circle. Modular hotel construction in the 1970’s repeats four decades later. Sometimes the patterns and the results are similar and sometimes things change. The space shuttles of the 70’s now are replaced with Elon Musk’s rockets aiming for Mars but we really have not gone very far in space in all that time.

The famous writer George Santayana said, “those who do not learn from history are doomed to repeat it.”  Mark Twain said, “history doesn’t repeat itself but it does rhyme”.

I say,  there are a lot of Circles in both business and life so be careful out there!

The Wall Street Journal recently reported that my city of Chicago has the most tower construction cranes (56) in use anywhere in North America. This was a result of a survey by the Crane Index (Yes, there is such a thing. If there is a Duck Dynasty why not this!). But what is also interesting is that over half of those Chicago construction cranes are building residential apartments and specifically luxury residential apartments.

And just who are these luxury rental units aimed at? Millennials, of course. This trendy group of young adults, aged 18 to 34, have the lowest percentage of home ownership of any generation since these types of records have been kept. Why is that? Experts comment that the reasons include the high cost of homes, tighter credit rules and the fact that many Millennials still live at home. But an overriding reason seems to be that Millennials do not view owning a house as a required or good, social or financial investment. So they rent.

And what kind of luxuries do these luxury rentals offer Millennials? One of the newest places is called Wolf Point and is on the Chicago river. On the 46th top floor, is a sky deck and lounge, an outdoor kitchen, a fire pit, sauna and steam room, outdoor tv and a state of the art fitness center. On the main floor is a large pool, a river front lounge and gallery, golf simulator in the club room, a business center, a dog run and spa, and a bike room with a wash area and a workshop! I know what you are thinking 1. Why is he writing so much about this? (I will get to that) and 2. Where can I sign up!! Well there is a catch or two. Because the building offers you so much wonderful stuff there are trade offs. A one bedroom is 678 sq. ft. with two small closets and very small rooms and goes for $2,555/ month. But you won’t be spending any time in your small apartment, you will be having fun somewhere else in the wonderful building!

One of our friends is involved in the financing of these new high-end apartment buildings. He told me that those in his industry are getting increasingly worried. What if the Millennials decide to get married and have kids and move to the suburbs like earlier generations? Older, downsizing seniors will not find much about these units appealing since their favorite couch and king size bed will probably not fit. The result is a lot of empty luxury apartments!

So why did I write this blog? First, I find Millennials fascinating. There are more of them than my Boomer Generation and they are the future of our country, not us. Second, figuring out long lasting trends in critical areas such as housing is very important to our economy. But is this a true long term trend or just a short term passing fancy? Third, for those who know me and my background in construction, you know what comes next. Every time we have a boom in any type of construction-schools, offices, apartments- it is followed with a long bust. And because construction, building materials and related furnishings are such a large part of our economy it really worries me that Chicago has all those cranes right now because I know the sky will be free of them in a couple years as the construction cycle swings,  the economy slows and the stock market drops.

And lastly, my Boomer group owned homes well before age 30. If the Millennials do not start with a first home soon they will never get to the point in life where they will want a second home. Then what happens to all the weekend second homes in Michigan, Indiana and Wisconsin? And what about all the seasonal, second homes in Florida, Arizona and Vegas? The result is again a lot of empty and unsold second homes. Again bad for the economy.

Note to readers: We just sold our second home in Florida and not to a Millennial!