COMMERCIAL MODULAR CONSTRUCTION REPORT

[Pages:32]COMMERCIAL MODULAR CONSTRUCTION REPORT

Combined Brigade/Battalion Headquarters building for the Combat Aviation Brigade at Fort Bliss, El Paso, Texas. Currently under construction and scheduled for completion in fall 2009.

The Modular Building Institute (MBI) is the only international, non-profit trade association representing the commercial modular construction industry and was founded in 1983. MBI serves the non-residential modular construction industry in its mission to grow industry capabilities by encouraging innovation, quality, and professionalism. Our regular membership includes wholesale manufacturers, direct manufacturers, and dealers of commercial modular buildings, while our associate members are companies supplying building components, services, and financing to the industry. MBI also provides the only industry and annual trade-show along with the only financial industry report that surveys the commercial modular construction industry. It is relied upon by both banking and financial sectors for projects and forecasting on commercial modular construction in all its respective markets.

Regional Reports



cCOoNnTEtNeTSn t s

Executive Summary....................................................................................... 1 Introduction................................................................................................... 1 Sustainable Modular Construction............................................................3 Permanent Modular Applications............................................................... 5 Temporary Modular Applications............................................................... 7 Regional Reports.........................................................................................11

Alberta, Canada........................................................................................11 Central/Midwest United States.............................................................11 Mid-Atlantic United States.....................................................................12 Northeast United States........................................................................12 Northwest United States.......................................................................12 Southeast United States.........................................................................13 Southwest United States........................................................................13 West United States..................................................................................14 Robert W. Baird Financial Survey ............................................................15 Data Collection...........................................................................................15 Review of Descriptive Statistics...............................................................15 Dealers: Industry Data...............................................................................16 Dealers: Supplemental Data......................................................................18 Manufacturers: Industry Data....................................................................20 Manufacturers: Supplemental Data...........................................................22 Market Indicators .......................................................................................22 Summary.......................................................................................................23

COMMERCIAL MODULAR CONSTRUCTION REPORT | 2009

B OA R D O F D I R ECTO R S

President Marty Mullaney President/CEO Satellite Shelters, Inc.

Vice President Joseph Lopardo Vice President, Modular Buildings Williams Scotsman

2nd Vice President-Elect Mike Ridley Executive Vice President Britco Structures

Past President Mike Mount President Sunbelt Modular, Inc

Secretary Brent Morgan Vice President & General Manager ATCO Structures Inc.

Treasurer Gary Bockrath CFO Acton Mobile Industries

Executive Director Tom Hardiman Executive Director Modular Building Institute

Board Members Michael Bollero President/CEO Southern Modular Industries, LP

Kendra Cox Assistant Production Manager Blazer Industries, Inc.

Walter Griffin Modular Program Manager Mule-Hide Products Co., Inc

Gary Humphrey VP of Operations Pac-Van, Inc.

John Kennedy Manager M Space Holdings LLC

Harry Klukas Senior VP Black Diamond Group

John Lieffrig Regional Vice President ModSpace

John Michael COO Atex Distributing, Inc.

M B I STA F F

Executive Director Tom Hardiman x 158, tom@

Director of Operations Steven Williams x 153, steven@

Director of Member Services Aileen Holland x 156, aileen@

Communications Manager Audra Book x 152, audra@

Western Regional Manager Bob Andosca bob@ 209-786-5116

Office Manager Annie Diggs x 157, ann@

HEADQUARTERS 944 Glenwood Station Lane Ste. 204 Charlottesville,VA 22901 Toll Free: 888-811-3288 Fax: 434-296-3361

MBI WESTERN OFFICE PO Box 1057 Valley Springs, CA 95252 Phone: 209-786-5116 Fax: 209-786-5114

Strada at Mercato, Naples, FL



E x e c u t i v e S u mm a r y

Although 2008 was a down year for construction in general, those familiar with modular construction have many reasons to be optimistic about the future growth of the industry.

In October of 2008, Building Design+Construction conducted a survey of a subsection of its subscriber base, asking readers about modular construction. These respondents were made up of architects, engineers, developers, business owners, facility managers, and general contractors representing a cross section of non-residential markets.

"Speed of construction" was the primary advantage of modular construction cited, with 79% believing modular was as fast or much faster than conventional construction. Further, 69% percent said modular construction was "as sustainable" or a "more sustainable" construction process than site-built.

Given these advantages, it would seem that modular construction would have captured more than one percent of the commercial construction market in North America. There is, however, much confusion and misconception about modular construction that still exists, as evidenced by these same respondents reporting "lack of perceived quality" as the primary disadvantage.

It helps to think of modular construction as a "process" not a specific product. Using the modular construction process, you can build temporary or permanent facilities for virtually any market:

Temporary Permanent

Residential HUD - coded manufactured housing

Modular home

Commercial Construction office, sales office, relocatable classroom, Not HUD-Code Schools, hospitals, retail stores, banks, offices, restaurants

Industrial/Institutional Temporary barracks, guard houses, emergency response and relief units Military installations, workforce housing, in-plant offices, border patrol units

An important distinction between temporary and permanent is that temporary structures are typically classified as personal property or equipment while permanent structures are classified as real property. This report will focus primarily on the commercial and institutional segment in North America. Data included in this report will reflect sales, leasing and production data for the calendar year 2008 and, when available, the first quarter of 2009.

INT R O D UCTION

About the Modular Building Institute Founded in 1983, the Modular Building Institute (MBI) is the only international non-profit trade association serving the commercial modular buildings industry. Members are manufacturers and dealers of commercial modular structures, as well as associates supplying building components, services, and financing. Members are located in 15 countries around the globe and provide all types of building space, from temporary storage units to complex multi-story permanent buildings. It is MBI's mission to grow the industry and its capabilities by encouraging innovation, quality, and professionalism through communication, education, and recognition.

About the Commercial Modular Construction Industry Commercial modular buildings are non-residential, factory built structures designed to meet federal, provincial, state and local building codes and are capable of being relocated. The commercial modular building industry is comprised of four distinct participants:

Manufacturers/Wholesale that sell primarily to dealers; Manufacturers/Direct that sell primarily to the end user/customer; Dealers which may maintain a fleet of buildings for lease and sell to the end user; and Suppliers to the dealers and manufacturers.

The industry itself encompasses many markets and applications. For practical purposes, and for this report, the industry can be generally segmented into two categories:

For more information about the association, go to

COMMERCIAL MODULAR CONSTRUCTION REPORT | 2009

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Temporary applications Facilities and products meeting short-term needs including storage units, containers, construction site offices, relocatable classrooms, and other types of mobile offices. Revenue from this segment is generally derived from the rental, lease, or sale of "fleet" products, fairly standardized in terms of construction, and all built to applicable local and state building codes where the units are to be located.

Permanent applications Comparable to "site-built" construction in terms of life span, quality, and materials, consisting of modular units built off site and assembled on site to create a permanent facility, not intended to be relocated.

The buildings themselves can be leased or purchased and typically flow through one of two distribution channels:

Dealers Companies that typically maintain an inventory of existing buildings available for lease or sale. These companies also serve as general contractors on new construction projects and acquire the modular buildings though a network of unrelated wholesale manufacturers.

Direct Manufacturers Companies that typically serve as the general contractor or subcontractor and sell direct to the end user. Generally, these companies do not maintain a fleet of existing buildings and focus on more customized projects.

Unlike residential manufactured housing, the commercial industry does not have an equivalent national building code or commercial "HUD-code" program. Most states have adopted versions of the International Building Code providing some degree of consistency from region to region. However, regardless of the application, both temporary and permanent modular construction facilities are required to meet all applicable building codes where they are located.

Countless industries regularly use permanent or temporary modular buildings including schools, banks, restaurants, hospitals, medical clinics, daycare centers and correctional facilities--just to name a few. The number of industries (as measured by North American Industry Classification System "NAICS") that lease or purchase industry product is numerous, but the most common categories include:

236220 Commercial and Institutional Building Construction 321991 Manufactured Home (Mobile Home) Manufacturing 321992 Prefabricated Wood Building Manufacturing 332311 Prefabricated Metal Building and Component Manufacturing

The primary benefits of modular buildings are fast delivery, reduced environmental impact, ease of relocation, low-cost reconfiguration, and enormous flexibility. Commercial modular buildings are non-residential structures, 60 to 90 percent completed "off-site" and designed to be constructed at one location then used by occupants at another destination.

The word "modular" describes a construction method or process where individual modules, stand-alone or assembled together, make up larger structures. Contrary to popular belief, the term does not connote the temporary or permanent nature of the building itself. It is simply another means of construction--off site, constructed in "modules." While many are two, three and four stories high, modular designs have been created for buildings much higher. Recently, UK architects designed a 24-story modular high rise, believed to be the tallest modular building constructed in the world (see below).

Modular buildings are essential in cases where speed, temporary space, and the ability to relocate are necessary. Modern, multi-story factory-built buildings with concrete and steel floors, brick exteriors, sheet-rock interiors, windows, lighting, computer hook-ups, electrical service, plumbing, heating air conditioning and restrooms can include everything you need and often are constructed in half the time of a site-built building.

Primarily, four stages make up factory-built construction. First, design approval by the end user and any regulating authorities; second, assembly of module components in a controlled environment; third, transportation of modules to a final destination; and fourth, erection of modular units to form a finished building.

Specifications for modular buildings are usually communicated to a manufacturer directly by a customer or through a dealer. Dealers, responding to the space requirements of retail customers, work with customers to order new buildings from manufacturers and arrange for delivery and installation of the buildings when construction is complete. Dealers usually offer a variety of financing and leasing opportunities and range in size from single, small sales offices with little or no lease fleet to large, well-capitalized companies with very large fleets.

O'Connell East Architects' rendering of a 24-story student dormitory, U.K (Europe's tallest modular building).

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Modular manufacturers produce buildings generally in independent, single-location facilities. Responding to dealer or customer requests, they generally operate as suppliers of modular units. Construction primarily occurs indoors away from harsh weather conditions preventing damage to building materials and allowing builders to work in comfortable conditions.

Unique to modular construction, while modules are being assembled in a factory, site work is occurring at the same time or in some cases prior to construction. This allows for much earlier building occupancy and contributes to a much shorter overall construction period, reducing labor, financing and supervision costs. Saving even more time and money, nearly all design and engineering disciplines are part of the manufacturing process.

Also unique to modular is the ability to simultaneously construct a building's floors, walls, ceilings, rafters, and roofs. During site-built construction, walls cannot be set until floors are in position, and ceilings and rafters cannot be added until walls are erected. On the other hand, with modern modular methods of construction, walls, floors, ceilings, and rafters are all built at the same time, and then brought together in the same factory to form a building. This process often allows modular construction schedules of half that of conventional, stick-built construction.

These practical time and money saving alternatives to site-built buildings effectively meet the specialized needs of diverse businesses. Customers served by modular buildings include federal, state and provincial, and local governments, school boards, corporations, non-profit organizations, retail establishments, healthcare providers, as well as individuals, partnerships, and sole proprietorships. Other uses include medical facilities, airport facilities, military installations, restaurants, churches, and remote telecommunications stations.

Some facilities are used as an adjunct to existing buildings while others are stand-alone buildings. Flexibility and reutilization are the hallmarks of modular buildings. Unlike structures built on-site which generally have fixed utilization and occupancy design, modular units fulfill a unique function of reutilization that is not site specific. It is not unusual to have a modular building serve a wide variety of users during its long life span.

The flexibility of these buildings makes them a secure investment. During severe economic downturns, these conditions allow lessors to enjoy cash flows adequate to service debt. This flexibility is further enhanced by the ability to relocate buildings to more prosperous cities or industries as opportunities arise. Certain market segments of the industry are counter-cyclical. This is particularly true of education, prisons, and governmental agencies that want to transfer funding for facility needs from capital budgets to operating budgets. This concept also applies to industries which may want to expand but are uncertain about the long-term strength of their growth. Budget driven companies often opt for leased facilities. In such cases modular buildings offer benefits and options without long-term capital commitments.

Sustainable Modular Construction

Modular construction is becoming more widely recognized as an environmentally-friendly construction process. A recent study by the U.K. group WRAP (Waste & Resources Action Programme) found that volumetric construction (modular) was found to reduce site waste produced by traditional methods by 90 percent. Volumetric construction involves the construction of units in a controlled factory environment. The units can be shipped to site in basic format or with internal and external wall finishes completed. Their study can be viewed at .uk. The Modular Building Institute has commissioned a similar study in North America which is expected to be complete in early 2010.

Modular construction is also a good fit with green rating programs such as the USGBC's LEED Rating Program and the Collaborative for High Performance Schools (CHPS) rating system for relocatable classrooms.

COMMERCIAL MODULAR CONSTRUCTION REPORT | 2009

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MBI commissioned a whitepaper detailing how modular construction fits into the LEED rating system. This paper, written by Robert Kobet, AIA, LEED AP, is intended as a free resource to architects, design professionals, and any end user wanting to familiarize themselves with the green advantages of modular construction, particularly permanent modular projects. The paper can be downloaded from .

Temporary modular buildings, such as relocatable classrooms and construction site offices, have long been viewed as a commodity by end users, and therefore driven primarily by cost. However, as end users become more educated on life cycle analysis and the true benefits of healthy work and learning environments, this paradigm seems to be shifting.

CHPS recently revised its Best Practices Manual for Relocatable Classrooms to allow for greater flexibility in attaining higher performing relocatables. In their previous version, a school had to build to a prescribed specification to attain CHPS certification, Jim Russell Racing Drivers School, Sonoma, CA and those specs were primarily based on the California classroom market. The revised version offers specifications, but also a rating system that allows schools to attain a certain number of points to reach certification. This new system, similar in nature to LEED, gives school districts more flexibility and information in weighing cost vs. benefit considerations. As such, MBI expects to see the CHPS-certified designation become the industry standard for high performance relocatable classrooms.

As fast as the green building movement has grown in recent years (reports indicate that the United States Green Building Council is the fastest growing organization in association history), MBI believes that there is still much progress to be made. As such, MBI is actively involved in promoting high performance modular design competitions and continues to offer scholarships to architecture and engineering students through our educational foundation. In 2008, MBI launched its third student design competition, asking students at accredited four year schools across North America to design a high performance modular community center for an assisted living community. The winning entry, shown below, was design by Tyler Stanley, a student at Ball State University in Indiana.

Late in 2008, MBI signed on as a partner with Architecture for Humanity to promote its "Open Architecture Challenge" to design the modular classroom of the future. The competition is a true collaboration of architectural firms, schools, and students, with over 50 teams registered as of this writing. Winners of this competition will be announced in the Fall of 2009 and will be posted at .

MBI also entered into a partnership with AIA's Student Chapter Organization (AIAS) to host another design competition that begins in the Fall of 2009. Students will be asked to design a mixed-use, multi-story modular hotel with commercial retail space on lower levels. The winning entries will be displayed at the 2010 World of Modular Convention in Orlando Florida, the 2010 AIA Annual Convention in Miami Florida, and the 2010 AIAS Forum in Toronto.

MBI will continue to position the modular construction process as more eco-friendly and believes that increasing awareness by end users will propel the industry towards exponential market growth in coming years.

2009 winning entry from the MBI student green building design competition. Senior living center, The Meadows, Charlottesville, VA. Design by Tyler Stanley, Ball State University

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