Not too long ago, if you were to bring up modular construction, thoughts immediately went to a low quality, cheap, below standard product. But today the perception of modular construction is changing. Developers are beginning to embrace modular construction and its potential benefits for new projects. With today’s technological advances, modular construction is now producing reliable, high-quality multifamily communities like never before. Let’s take a closer look at some of the pros and cons of modular construction with a HUD loan: PROS DAVIS BACON COST SAVINGS Davis-Bacon wage requirements do not apply to work performed at the factory constructing the modular units, which can save you a substantial amount of money. Davis-Bacon wages will kick-in on-site when the modular units are offloaded from the delivery truck. HIGH-QUALITY Modular construction companies are delivering high-quality products that are equal to or above traditional stick-built projects. LIHTC TRANSACTIONS Low-Income Housing Tax Credit (LIHTC) projects are looking to utilize their tax credits and/or bonds as efficiently as possible. With the recent price decrease in tax credits, the cost savings that modular construction can bring to a project can literally be a deal saver. EXPEDITED TIMING Since modular units are constructed in a factory, you can avoid weather delays and other issues that are associated with on-site, stick-built projects. This means a shorter construction period and additional cost savings in interest, insurance, labor and more. EFFICIENT BIDDING You are able to get a more exact bid on time and labor for a large portion of the project’s costs when using modular construction. MORE OPTIONS You are not limited to in-state or nearby fabricators. You can expand your search area to find the right product at the right price point. CONS Although the pros are very appealing and often outweigh the cons that come along with modular construction, we’d be remiss if we did not tell you about potential areas of concern with modular construction. NON-MORTGAGEABLE FEES HUD does not allow as a mortgageable cost the cost for storage of the units and the insurance for that storage. If you are using modular construction for a LIHTC project, you can easily cover these costs through other sources; however, this will add additional costs for a market rate project. ADDITIONAL RESEARCH Not all modular companies are the same, so you have to do your research. If you are considering a HUD loan, we can work with you to help you find the company that’s best for you and for HUD based on their experience and reputation. PERMITTING/PLAN APPROVAL You may need to use a third-party expert to ensure that the modular plans you receive are approved by the state and local municipality. These are just some of the big-picture items to be aware of if you are thinking about using modular construction to build your next project. As they say though, the devil is in the details and there are many more items to consider. With cost savings of 10-20%, depending on market and design, modular construction might be the right option for your next new construction project. Love Funding recently used our industry expertise to help a borrower secure a HUD loan for a modular construction project in New Jersey. If you think modular construction may be a good fit for your next HUD insured transaction, give us a call. Our team of experts is more than willing to help guide you down the road and ensure you have a successful experience with modular construction.
Everything You Need to Know About Modular Construction