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Oakland Housing Developers Turn To New Ways Of Building To Reduce Costs

Rising construction costs are pushing Oakland developers to rethink traditional construction methods to make sure much-needed housing continues to get built.

RAD Urban CEO Randy Miller and Junction Properties owner Charles Long

“It is an issue right now that we are all facing increased construction costs,” UrbanCore Development CEO Michael Johnson said during Bisnow’s recent Oakland Construction & Development Update event. “What will happen is some projects will not move forward as a result of that.”

Double-digit increases in the cost of new-construction projects are not driven solely by increases in material costs, but also by higher profit margins and greater labor costs as contractors struggle to find a qualified workforce, he said.

Several developers have turned toward using modular units, designing more efficient floor plans and creating new building technologies.

OWow is developing a type of unit that can adjust the number of bedrooms with a push of a button. Mechanized, acoustically rated walls would raise and lower to create up to four bedrooms, oWow founder Danny Haber said. His company has been building macro-units in Oakland that use efficient design to cut down on construction costs.

Other developers have been pursuing modular construction. UrbanCore Development decided to go modular on its Coliseum Connections project about five years ago, Johnson said. Conventional construction was more expensive, and an analysis estimated about a 10% cost savings on a $40M construction budget, he said.

The modular units are expected to be fully in place by Friday and the 110-unit mixed-income housing project is expected to be completed in January.

St. Regis Properties Director of Development Sam Remcho, Lubin Olson partner Rich Elder and oWow founder Danny Haber

RAD Urban CEO Randy Miller said his company first looked into modular five to six years ago as a solution to rising costs and lower productivity in construction.

The savings add up to 25% to 30% less to deliver a modular project than it would cost to build on-site with conventional methods, he said.

“I believe the potential with modular construction is a 50% reduction of hard costs in the next five years," Miller said. "It’s coming.”

His company has built a handful of modular projects in Oakland and Berkeley, and now has plans to build two 29-story modular steel high-rises with 200 units of housing. Unlike traditional wood-framed modular units that top off at about six to seven floors, steel-framed units allow for taller construction.

But modular doesn’t work for every site and every developer. Junction Properties owner Charles Long said he found factories have been raising prices due to a lack of supply and rising demand.

“The capacity of factories is not sufficient with emerging demand,” he said.

He said having an area to store units and materials adds to costs, and developers have to spend more money sooner in the project.

“After we took a look at it we thought, maybe it’s going to be better later,” he said.

He said developers shouldn’t do modular until they spend the time figuring out how it works.

Bisnow's Oakland Construction and Development Update event held June 2018

One of the ways RAD Urban has reduced costs is to build its own factory and develop its own units.

RAD Urban also uses a just-in-time delivery strategy, producing six to eight units at a time and shipping them to the site. It is not cost-effective to build a bunch of modular units only to have to store 100 modules somewhere, Miller said.

Studio KDA Managing Principal Charles Kahn said while modular is ultimately the wave of the future, it is not available for much of the development community yet. In the meantime, to save on construction costs, developers need to eliminate parking or reduce it dramatically, he said.

Miller said parking is becoming more difficult to rent in some projects. At 4801 Shattuck in Berkeley, which is fully parked at one-to-one, the developer had no trouble leasing up the building, but struggled to rent out the parking spots, he said.

Oakland recently enacted an ordinance that took away parking requirements and Miller said his company is planning to build downtown buildings without parking, which will help deliver at a lower cost and lower rent.

“[No parking] is terrifying to some cities and some people, but the Bay Area is the center of the autonomous vehicle universe and we’ve got good transportation,” Miller said. “I think this is a good move for Oakland and good for the future.”