Archives for posts with tag: Modular

The Wall Street Journal wrote that the giant Japanese tech firm, SoftBank and some others, are investing  a billion dollars in a three year old Silicon Valley firm. That part does not sound unusual. What is unusual is that the firm receiving the funds is Katerra who is in the factory produced construction business. Katerra describes themselves as a “technology company” who believes they can revolutionize housing and commercial buildings by using an assembly line to design and control everything. They have stated that by the end of 2018, they can build a house in 30 days versus a year conventionally.  Wow!

And Tesla, some year, will be selling tens of thousands of their cars once they learn how to make them! Sorry, that’s another ongoing blog.

So far, Katerra does not report actual financial results but it claims over a billion dollars in “bookings” (not sales) to date but much of that has been with an affiliated developer. Hmm.

As readers may recall, we have seen and written about this circus before. My old company Donn lost a lot of money on this approach decades ago. I also wrote last year how Marriott Corporation is focusing on this as a way to lower construction costs and speed up the timetable to open new properties.

The article does point out some of the issues to making factory produced construction a reality. The construction industry is still very, very local in nature. Construction building codes vary, state by state, county by county and even city by city. Unions are a very complex factor as they are potentially losing work for their people. And although there are more national builders today, there are still a lot of small, local builders.  And that doesn’t cover the cyclical nature or interest rate sensitivity of construction, etc.

Having been in the building materials/construction industry most of my career, I would remind SoftBank that this is a very tough business that doesn’t change much or very quickly. But, then again, so was the taxi cab business. I am just not sure that “technology” is going to change construction in the same way or in the near term future.

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!