Investing in Real Estate: Warren Buffett is Putting His Money on Modular

Real Estate News: Real Estate Investing Podcast

Warren Buffett is launching a new business venture that could shake things up in the building industry. A Berkshire Hathaway-owned construction company has teamed up with a New York City architect on a new way to make modular mainstream. The plan is based on a way to make the modules more transportable and keep local contractors and workers involved.

First reported by the Wall Street Journal, the initiative launched last week between tech-construction company MiTek and Architect Danny Forster. (1) They started working on this initiative about a year ago with backing from Berkshire Hathaway. The investment is reportedly worth millions of dollars.

Modular Units Would be Collapsible

The modular units would be made of steel boxes that can be attached to and stacked onto other units. But unlike the bulky building blocks of other modular construction projects, these will be made to “fold” so they can be transported more easily. As reported by Fast Company: “Instead of large steel boxes that have to be carefully routed under bridges and overpasses on the back of a truck, MiTek’s collapsible modules fold flat, easing transportation to job sites.” (2)

The folded shells will then be shipped to warehouses close to the building sites. The rest of the “pre-assembly” can take place at those locations before they are moved to the jobsite. That one change is significant because it means these collapsible modules can be shipped more economically at a much greater distance from the factory. Transportation costs are something that have apparently held other modular companies from growing.

Pre-Assembly Finished at Local Level

Also, by doing much of the assembly at the local warehouse, with local employees, there’s less chance of a push back from labor unions and local officials who can say yay or nay to a project. Forster told Fast Company he’s run smack into a solid steel wall when it comes to getting approval for a project that sidesteps the labor unions. He says: “The unions have told us very clearly there’s no way in hell you’re shipping in a building from offshore or even from out of state. They’ve said if it’s not 40 miles from the job site and local labor’s not participating, it’s not happening in downtown San Francisco.”

That project is still in the process of getting city approval, but it appears that it may be in line for MiTek’s new collapsible modules. They will be initially built at a 250,000-square foot factory in Lebanon, Pennsylvania, and shipped from there to construction sites. General contractors will be hired to get them fully built at the local level. But the modules will be designed to make it faster and easier to do the finish work from pipes and electrical wiring to windows and doors.

Two Prototypes Already Built

The MiTek team has already built two prototype “rooms” that could be used for a hotel project. MiTek’s Todd Ullom says: “We took the plumbing process from 16 labor hours down to 4 hours and 10 minutes. We’re trying to create the NASCAR pit crew for construction.”

Making the process more efficient is a challenge when it comes to negotiating with a contractor, because it means fewer hours for workers. Ullom feels it will take some time for this process to gain acceptance. He says the company will be spending the rest of the year fine-tuning the process, and hopes to begin module production in 2022.

But it isn’t just the manufacturing process that needs tweaking. There’s a lot of work to be done talking to contractors who need convincing, and local officials who control the permitting and inspecting of projects. MiTek is reportedly in high-level talks with two national builders, but there’s no word on which ones.

A Better, More Efficient Process

The goal is to bring down construction costs and speed up the building process. Forster told Architectural Digest that there needs to be a “better, more efficient process” but so far, modular construction has only realized limited adoption. (3) The challenge is to get a large number of stakeholders on board including insurance companies, designers, developers, investors, lenders, materials testing people and others. He says: “I’ve spent a lot of years on this bumpy ride and right now we’re trying to fix potholes before we start chasing business.

He says MiTek will build modular rooms for hotels and apartment buildings, including senior living and affordable housing. He rejects the idea that their modular concept will lead to cookie-cutter buildings. He says they are creating a “system for architecture” and not an “off-the-shelf box” that will appear all over America.

He says they are working on getting this right, and are not in a rush to get this to market. He says: “This probably comes from Mr. Buffett. Not a lot of companies can say I’m taking a 10-year look at this.”

If you’d like to read more about the MiTek Modular Initiative, you’ll find links in the show notes at NewsForInvestors.com

Click here to join RealWealth. It's free and only takes a minute.

Links:

https://www.wsj.com/articles/warren-buffett-to-offer-a-new-spin-on-modular-construction-11621339201

https://www.fastcompany.com/90637837/how-a-berkshire-hathaway-company-is-quietly-planning-to-disrupt-the-construction-industry

https://www.architecturaldigest.com/story/warren-buffett-offer-fresh-approach-modular-construction