National Apartment Developer Eyeing Stake In Modular Housing Firm
One of the nation's largest multifamily owners and managers is considering a move into modular housing in the U.K.
Atlanta-based Cortland Partners — which owns more than 49,000 apartment homes in the U.S. and has offices in Shanghai and the U.K. — is in talks to buy a stake in an undisclosed European modular homebuilder, Cortland CEO Steven DeFrancis told the audience Wednesday during the Bisnow Multifamily Annual Conference Southeast at the W Hotel – Midtown.
“We are looking at modular development,” DeFrancis said. “It is much more accepted in the U.K. than it is in the States, but we do think that's the way the world is going.”
When asked after his speech, DeFrancis said the decision on the investment is imminent.
“It's either going to happen or die in the next 10 days,” he said.
Modular construction in Europe is not a new phenomenon. But unlike in the U.S., where it is relatively uncommon and focused more on stick-framed apartment projects, modular developers in Europe use concrete and metal frame construction. Each unit is assembled in a factory, brought to the development site where a concrete core is erected and the units are stacked around it to create a residential tower, DeFrancis said.
The construction technique is growing in prominence in Europe, with everything from schools to healthcare facilities and sporting facilities being developed off-site, according to AMA Research.
Cortland earlier this year landed a $550M cash infusion from the Canadian Pension Plan Investment Board and Singapore's sovereign wealth fund to buy value-add apartments in the U.S. DeFrancis told Bisnow the REIT will eventually get into domestic modular construction projects, but nothing was imminent.
Modular construction also is being hailed in some quarters as the answer to America's growing housing affordability crisis. That was a big topic among most of the panels during the conference, with experts saying that the costs of construction, land and labor will continue to rise, forcing developers to push up rents to justify new projects.
“Until we can 3D-print buildings in a way that [is] code-compliant and attractive, modular construction is the only solution,” Place Properties CEO Cecil Phillips said. “Traditional construction no longer works for affordable housing because of the labor costs.”
Prestwick Cos. CEO Jody Tucker said developers are having to rely on municipal incentives as well as reducing unit sizes and, at times, parking ratios to counter rising construction and land costs.
“Land costs are super high in Atlanta, especially in the areas of Atlanta where we're working, which is around the BeltLine,” Tucker said.
This is brewing into a perfect storm as demand for more affordable housing mounts in many cities. Arnall Golden Gregory partner Jeffrey Adams said the number of households where at least 30% of income goes toward rent is rising among all generations, not just millennials.
“You're literally talking about tens of millions of people who will be deemed rent-burdened through all age groups. So the need for affordable housing is tremendous,” Adams said.
Place Properties is making its modular debut in Downtown Atlanta at 143 Alabama St. The company is underway with a 112-unit apartment complex that is being assembled piece by piece in a factory off-site, trucked to the lot and stacked like a puzzle into a new building. Phillips previously said the method allows him to offer lower market-rate units as well as reserving some for affordable housing.
The Alabama Street project is among three Place Properties developments in Atlanta in the pipeline, all of which will involve modular construction, including a 304-unit project at the Martin Luther King Jr. MARTA station and a 124-unit project next to the Five Points MARTA station, Phillips told the Bisnow audience. The larger project is expected to break ground by year's end.
“As far as I'm concerned we're betting the company on a new [type of] construction,” he said.