Home builders embrace prefab

by SHARON CROWTHER
(http://www.theglobeandmail.com)

Massive disruption in Alberta’s housing sector has convinced many developers of the benefits of off-site construction

Manufacturing plants in Alberta that were once prefabricating wellsite accommodation and office space for the oil and gas industry now sit empty. Meanwhile, the province’s residential-construction industry continues to struggle in a buyer’s market where costs, quality and competitive timescales are critical to survival.

Industry leaders say it’s a combination that could change the face of modular construction in Canada.

“I think we’re going to look back on the oil and gas downturn as the best thing that’s ever happened to our business,” says Tony Isaac, president and chief executive officer of Tru-Co Structures, a modular manufacturer based in Bow Island, east of Medicine Hat, Alta., which recently refocused its business on the residential sector.

“We started out in 2006 working for the Department of National Defence and then the oil and gas industry,” he explains. “It was always an ambition of mine to get into residential, and we did a smattering of it, but the volume of demand from the oil and gas industry from 2009 to 2014, and the attractive margins that demand created, really restricted our ability to diversify.”

Now, Mr. Isaac says, “it’s time to do something we’re actually passionate about and show the residential industry what off-site construction can offer.”

Tru-Co recently began construction on a 56-unit townhouse development called ZEN Redstone for Avalon Master Builder in Calgary. It’s Tru-Co’s first residential construction of this scale and Avalon’s first multifamily development using off-site construction.

“We built two off-site demonstration homes with SAIT (Southern Alberta Institute of Technology) a few years ago,” says Chris Williams, Avalon’s vice-president, “and it’s always been in the back of our minds that we wanted to go down this route and now the timing is right for that.”

Avalon has been building in Alberta for more than 30 years. They specialize in green building practices and net-zero homes, so the reduced waste and smaller carbon footprint associated with off-site construction makes sense. But, in Alberta’s challenging market, Mr. Williams admits there are also big business benefits to be had.

“The primary reasons that we chose to build off-site is our ability to reduce the time from sale to move-in. With off-site, you can build concurrently; you build the inside and outside at the same time and you build the home while you’re digging the hole in the ground,” he explains.

Major utility services are still being installed for the ZEN Redstone site. Meanwhile, Tru-Co is building two show homes that will be in position in the next six weeks. Mr. Williams estimates construction time is halved compared to an on-site build.

“The other big benefit for us is the ability to deliver product to areas that have limited trade pools, or areas that are difficult to stage on-site construction,” he continues.

Mr. Williams says the site for his townhouse project, which is in the northeast community of Redstone, isn’t a particularly challenging site to build on, but that’s what makes it perfect.

“We’re looking to go through this process without challenges first,” he explains. “We want to get it right. We’re thinking long-term here and long-term this will allow us to expand our market.”

Mr. Williams says off-site construction also allows Avalon to better control their construction timeline.

“We can stagger construction and trigger stages when we hit certain sales targets, so we’re controlling the timescale rather than being controlled by it. It’s much more efficient and cost effective,” he says.

Mr. Isaac agrees that’s an appealing aspect for developers. “We can control our labour force much better than an on-site builder because we can work with multiple developers to fit other projects into the production line,” he says.

Cost efficiencies also come from other aspects of the quicker build process.

“Saving on construction costs isn’t the reason for off-site construction, but it is a side benefit,” Mr. Williams says. “Costs savings specific to a multifamily building include the indirect costs of reduced site supervision during framing, mechanical and finishing stages, as well as operating loan terms being reduced from eight months to four months. I’d estimate the saving on a project like Zen Redstone to be in the $2,000-per-unit range.”

Avalon currently builds around 200 homes a year in Alberta, which means the cost savings accrued through switching to off-site construction could be substantial over time.

Kevin Read is chief executive of Nomodic Modular Structures, a Calgary-based company which launched in 2012. They’re prefabrication designers and installers, outsourcing the fabrication itself to the most competitive bidder.

“Our business model means we can do timber frame, steel frame, container-based – whatever the best solution is for the site and the project,” Mr. Read says.

Nomodic started out in the oil and gas sector before moving on to build specialist lodgings in the Northwest Territories for watching the aurora borealis. Now, they too are branching into residential with their first mixed-use, multifamily condo development currently with the city for permitting.

“The site is in Sunnyside which is an inner-city community, so the developer is keen to reduce on-site construction time and disruption to the neighbourhood,” Mr. Read says.

He agrees there are cost benefits to be had for developers in the multifamily arena.

“Off-site building is actually 5 to 10 per cent more expensive because of transportation and facility costs,” he explains. “So for the single-family home market, it’s not a cheaper option – though there is a benefit in terms of quality and building in a weather-secure environment. But there are cost savings to be had when you scale up to multifamily developments, condos and hotels, because your time-to-revenue is reduced and you have shorter financing period.”

Mr. Isaac is wary of labelling off-site building as “cheaper” during what he terms “a critical time for the industry in Canada.”

“There’s pressure in the modular industry right now because of the vacuum left by the oil and gas downturn. A lot of plants are making moves towards residential construction and we have to work together and view each other as allies, not competition. Poor-quality products driven by making cost savings will only damage our industry as a whole.”

Mr. Isaac says that, if the industry can unite, there would be more than enough work for everyone.

“Modular building in North America is between 3 and 5 per cent of total construction. We could fill every plant sitting empty in Western Canada with residential construction and we’d still only be making a small dent in the market. It’s a big opportunity,” he says.