Ken Semler

EPISODES


Episode 54.

Ken Semler, President & CEO of Impresa Modular

00:00:00 – 00:02:00

He is back for another episode. Kin Similar the modular build Guru. Did you know that modular builds can span from small s f R s Two hundreds of units were rooms for multi family and hotel projects. I did not, but I do now thanks to Ken, I’m dont Elliott. This is the Real Estate of Things. You’re listening to the Real Estate of Things podcast, kin Similar can’t get enough of you. Back for another week, Back for another episode. Thank you for for carving out some more time. Yeah, thanks for having me back. All right, So last week we ran through modular versus on site builds. We talked about factories, the labor side of the fence, the industry adopting modular more and more. I wanted to kick this conversation off by talking about luxury builds in modular A right. One thing about modular you can go um kind of workforce housing all the way up to higher in luxury builds. Right. So, so walk me through. Uh, y’all just completed not too long ago, a six thousand square foot luxury build. Uh, walk me through what that process looks like? And I assume it was a custom build. Uh, but what does the luxury modular world look like well, I mean, there’s a couple of different aspects that to really go down and you know, for people that are contemplating using modular construction that serve that luxury um or sector, what we actually did, I would say, at one level is the customer can really suspect unique things in the house. We can do higher in tile work, we can do higher in cabinetry, um we can do a lot of that what you would call tram and detail mill work in a luxury house at the factory, and we…

00:02:00 – 00:04:02

…can do it much faster than you would ever do it on site, typically to a higher quality even I know, don’t I don’t want to hurt anybody’s pride, but you know, even to a higher quality level. And that’s what we did. That actually, how you’re talking about was actually closer to seven thousand square feet. It was consistent, consisted of a very custom house. It took thirteen modules to come together and be set over three days to do that house. But what we’re finding is people, for example in Long Island, New York, that are doing the research and finding modularns and requesting their house be done using much or construction and really there is no limit to the size of the house. I mean, it’s really how many legos do I have? Do I make a ten thousand square foot house? Do I make a fifteen thousand squarefoot house. One of the things that’s really been I’m gonna say lost on me over these years, Dalton, is there are the contractors that the builders, the artisans that want to build a really super custom luxury house, and they don’t look at modular because well, I don’t you know, I can’t do what I want. And what I you know, have been talking to them about over the last cup several years, is Look, the glory of being a custom builder and a luxury builder isn’t in drywall, framing, electrical and plumbing. That’s not That’s not where you make your name at. You know, your signature typically is in the kitchens, the millwork, the exterior finishes. And but yet it takes you nine months building one site to get to the canvas completely, get the canvas completed so you can start doing all the things for your signature. What if I could give you your canvas in one, two or three days, not nine months, and get you started on your signature that much faster. So could you double triple quadruple your production because you’re doing what you do best, because I’m basically you’re buying your canvas for me and then doing what you do. So a couple of options in luxury, but myndelord offers great opportunities for that luxury custom builder. Got it? And what does that process look like if you are…

00:04:03 – 00:06:04

UH an experienced custom home builder but you’ve only done on site, if you’re looking to get into the modular world, what what what kind of gaps are there from a knowledge and process standpoint that you have to overcome or adapt to? Well, you know, and and that last episode we talked about you know that there’s just isn’t that that transfer of knowledge, that that learning place right now? Um? But that’s it. I mean, it’s it’s teaming up or finding a partner or a mentor joining up with someone. I would say the biggest thing is understanding how we transfer load and modular and how the structural part works out. I can do large openings. People think modular has to be One of the best conception conceptions is modular has to be boxing and I can’t have big openings because of all the structure where modules come together. And that’s not true, but it’s understanding how that has to work. Can I have a twenty six ft wide opening on a structural wall? Yes, I can have very large openings, but I also have to understand the cost of doing that. Will my factory used flitch plates? Will they will use you know, engineered lumber to give me that. Where do I kind of hide it or shove it? Or what does that impact of it on the design? Because many times we can make it look like we designed it on purpose, but we really needed something for structure. And you still get very beautiful houses, you know, by doing it. And that’s not something that’s typically learned by going to a one armed class. That’s something that’s learned over years of experience and understanding it or working with an architect that understands that, which more and more are. But we still don’t have near what we need to serve the market. Yeah, how have you seen financing evolve from modular homes? No, that’s obviously you know flame of one. That’s a good question is so you know in the past we do construction different if if it’s…

00:06:04 – 00:08:01

…if there is a construction loan. The old adages you do a little work, you get reimbursed. You do a little work, you get reimbursed. Well, with Modular, it’s kind of the big bang is the factory takes in order, but they want to make sure you have some skin in the game because depending on the project, is the bomb the bill of materials, and so the factory has to go out and buy all of the materials, then provide all of the labor and then deliver it to your site. Well, they want paid for it, or they want some skin in the game. I mean they all say, hey, Dalton, we know you’re you’re good for it, but we just don’t play. Trust you just to do it, do all this work and hope you pay for it, you know, when it gets delivered. They want the skin in the game. And so that’s what the lenders have had to kind of bend their mind around, is I have to give SA for a deposit and I don’t have anything for it, and so in your mind it’s unsecure. Now, a lot of the consumer lenders over the past several years have you know, I would say in the last fifteen or twenty, actually we don’t have those issues on the consumer side. There are a number of lenders that are fine with they understand the process, they understand the factories, and typically they will fund it at either something you know, it used to be they would actually do what we call curb side or precurb side. Precurb side was they paid it at the factory, just made you had short make sure you had insurance for the delivery, and it was all good. Um. Some want to see it get to the site before they’ll pay for it, and there are a few still that want to have it on the foundation. Um. You know, as we’ve started working with Lema one, I mean that was part of the processes that them understanding the process. Now we’re supporting on the spec side, supporting the builder developer how that process, how they’re secured, because that’s the biggest thing with any lender obviously, you know, you want to be secured and and you’re lending, and so we make sure the factory it’s you know,…

00:08:01 – 00:10:01

…yours, it’s a respected factory, it’s going to deliver, um that there’s insurance through the process so that if there is any issue, it’s an insured risk, not an know, an unmitigated risk and um. And that’s pretty much how we’ve grown into it. And you know, we’ve started that process with lenders now for respect building. And you know, the biggest issue right now is in a case by cases when you’re doing large multifamily projects where it’s a hundred ninety boxes and you have what I call that half born Maybe what happens if something happens the eight box in and the factory has been paid twenty five boxes at a time by lender. What happens? You know’s where’s the risk at and how do you mitigate it? And those lending lending projects are still done project by project? Got it? I’m glad you brought up the multi family UM modular. What are some of the bigger projects you’re aware of that are modular? Like how many units you know cross but across the country. UM. Marriott has adapted Monstra construction to the extent that they can find factories with capacity to build it. I would say probably and uh six seven years ago maybe even more, they adopted it. Now most of the other flags of the different hotel chains are trying to adopt it. But I know the first project I think they did Marriott was built out of Boise, Idaho, went to California, was a keys hundred ninety two door hotel and UM it would have taken them, they believe eighteen months to build a site construction and it was completed in six So when you do the P and L and pencil that project, you know there they would even they would tell me, hey, we paid three dollars per square foot more for the initial construction, but we had a whole twelve months of operating revenue. It more than paid for that difference. So you’ve gotta it’s always always give him my mantra. It’s final costs, not first calls. You gotta look at the end, look at that P and L based on the operating cycle. And but there’s…

00:10:01 – 00:12:01

…a citizen m hotels have adopted it. There’s UM high rises now. The structural still I think in New York, I think thirty two stories is the one project. Uh what we can do a lake gage still that gets us the seven or eight stories. We can do wood frame construction that can get us actually up to five stories. And there’s hotels, UM multifamily, medical facilities. Modular is in a big way. We do a lot of education facilities using modular and uh no, it’s UM. On the commercial side, it’s it’s very readily accepted and in the multi family projects. A company called VBS is um really taken the taken it by the by the hand and blowing it out and doing large you know, multi family projects. Did not realize that It truly seems like there are no limitations on what can be done modular versus on side, right. Yeah, I mean it’s uh, I mean, obviously I’m biased, but I really believe modular is ultimately going to become up the predominant way that we build UM single family. It will take a while. I think for like the the top largest builders, because they’re they’re vested in the current way of building, it’s really hard to change the process. And that’s what this is is a change the process for most builders and those who can adapt. I think that the great thing is for the regional builders who are trying to maneuver around the top ten builders miserable actually give them the leg up because as those top ten builders are sucking up the resources, you know, the sub basis, the supplier network UM, it will actually give the opportunity for the regional guys to be more competitive against those big guys. Yeah, that makes sense. Let’s change gears a little bit and talk about whether so, uh, as you and I are recording this, Hurricane Ian is barreling down on the coast of Florida. I think today actually it’s…

00:12:01 – 00:14:01

…it’s slated to make landfall, certainly, you know, thoughts with the crew down there in Florida, and hopefully it’s um, you know, as as light of an impact as possible. But talk about what role modular has played and can play whenever natural disasters hit. I know modular played a role whatever Hurricane Sandy hit and the rebuilding there, But what are the benefits and the roles that it’s played. Well, now, it’s a it’s a great question. Yeah, and my prayers are with the folks and you know with hurricane and now too. I mean, it’s it’s devastating. What what flooding and hurricanes do. Um, you know, we worked a lot now when like Katrina hit in Louisiana, there really weren’t a lot of modular factories that could support that area. That modula hadn’t been as prevalent at that time. But when Superstorm Sandy hit, like you said, they really hit the Jersey Shore, New York even into Connecticut. It also happened to be right beside the biggest field of factories in the United States, which is Pennsylvania just a few hours away, And it really gave Mochular time to shine and what will typically happen, especially in these coast areas, which was what this um this disaster is you know, looking to be when that you when FEMA goes in, it’s gonna say, all these houses that were on the ground, we can’t have them flood again. If they want to get flood insurance, they all have to be raised up. And always use it as you use as an example. You go to build a deck, if you build it on the ground, it’s one price. If you build an eight foot in the air, it is almost doubles. Constructing in the air is expensive. But then keep in mind with Modul, I typically have a crane there anyway. And so that was the beauty of super During the recovery for Superstorm Sandy, Modular really shined. It was the time that we’ve been fifty houses got taken out by Superstorm Sandy, and the rebuilding effort actually goes onto this day, but Modular really it got to the point it was super accepted in the area. It was the fast way to read I mean on any given day, I…

00:14:01 – 00:16:00

…could go to Toms River and eight crane booms were up installing a house. I mean, that was just how it was. And so Modulor does give an ability to really do quick recovery. And I think Florida, you know, our factories in South Carolina that could actually reach reach that, but um, there are more factories trying to come and boarded, and if there is devastation like it could be, I think Modultor is going to be in a position to really support the people and help help recover more quickly. Yeah, it’s such a great thing because there you know, it doesn’t seem like we’re getting less and less hurricanes and natural disasters, and the recovery piece is so painful. I grew up on the coast of South Carolina, and um, certainly no stranger to hurricanes. And thankfully when I was growing up there, we didn’t have any you know, massive hurricanes that caused major you know, property damage and loss of life to to a great extent. But it was it was a constant feature every year that you know, you knew whenever you entered hurricane season that you know, a decent chance you’re gonna have to evacuate at some point or another and um, and then whenever there was property damage. Yeah, the timelines on it can be horrifically elongated, and especially I think last hurricane season Louisiana just kept getting battered and battered one after the next. And yeah, just building old site versus in a factory that has some distance from it. Uh, very easy to see the massively beneficial role that modular can play in getting a speedier, more efficient recovery there. Um, How how have you mentioned regulations about you know, a storm comes through and then it changes and says, all right, you need to have everything off…

00:16:00 – 00:18:02

…the ground. From a building perspective, are there any you know? I know it varies greatly from uh, locality to locality, but uh, generally speaking to define that there are differences in regulations for on site build versus modular build. Or is it once you get there and start snapping the pieces together and finishing the product on site that there’s there’s not much difference versus whatever you would just have an on site build. Yeah. Well, I mean that’s that’s a multipart question right here. It’s uh, so we in the factory, we build to the international residential code for residential construction, so we are building to the same code. Now every state implements that’s lately differently. So for example, in Maryland they might implement the I r C code for modular construction. Prior to a site builder, they actually make it more rigid for us UM. Historically they’ve done that, say in Maryland UM. But in theory, the the code that it’s built to is the same. But once it’s on site, now the inspections, I mean, that’s the thing that people always ask the question, well, hold it, how do I how do you inspect behind the wall? Because it already get the drywall on, the trims on, it’s painted and done. How does the inspector on site know that the installation was installed properly? And there is a third party process that every state typically, well it is different state by state. Predominantly most states adopt a third party process and they take one of four engineering firms and they delegate their authority to that firm, and that firm is making sure one our plans are built are designed to building code, and then they actually inspect have a process developed in every factory to make sure that that house was built to that plan, that they approved, which actually has state state approval because of their authority, and so that’s how we’re getting it done and because I love it. People don’t realize in about there are three thousand and three counties,…

00:18:02 – 00:20:00

…parishes, or areas in the United States and only about half or less actually have building code enforcement or inspections. So if you’re site building, your site builder could be building how his dad he built thirty years ago, has no understanding of current building code, and so you’re getting a substandard house. If you’re getting it built with modular construction, it was inspected in the factory. You know it was built the current building code and the fact it’s guaranteed to be built to the building code. Once those modules get on site. You know, to the next part of your question. If you’re going to install decks, and maybe we couldn’t. We could or couldn’t build the decks in the factory, depending on where they’re located on the module. But then the decks attached, I mean we’re following the same building code. Any construction on site has to be inspected on site. Any construction that was done at the factory is insuspected by the factory inspectors and you will find a label that says it was inspected to whatever the code was that was approved by the state, and that local inspector can inspect actually the set. In some areas they do they call the mate line or mate law inspection. But if you’re adding the decks, if you’re doing you’re you’re grading your foundation. That is all done and expected on site under normal and built under an inspected under normal site milt conditions. We have covered modular We’ve covered so much, but at the same time, I feel like we have just scratched the surface of this UH saying like budding industry and something that’s so there’s so many efficiency gains. UH. It’s it’s such an UH. So much more education and publicity to give to it. So big, big thanks to you for being really a vanguard in the space and continuing to push the envelope on modular UM. So much of modulars is UH in the future out ahead of it. So much more adoption to come, and it’s exciting to UM see that helming into a fruition…

00:20:00 – 00:21:26

…today and continuing to ramp up and more and more modular. Thanks for all you do for the space, and and thank you for carving out some more time and then sitting down and recording another episode with me ken No. I appreciate time. Dalton, Thank you all right, Thanks to everybody for listening. Take care. Are you a real estate investor looking for the right lender that can finance all your deals and help you scale. Lima one Capital has the best suite of loan products in the industry barnet. Whether that’s fix and flips, fix and holds, building new construction, or buying rental properties, they have incredible financing solutions for it all. A reliable, comment sense lender is one of the most important parts of your investment team, and that’s exactly what you get with Lima one. Let Lima one Capital show you how they’ve helped thousands of real estate investor scale and increase their wealth. Check out Lima one dot com or call eight hundred to five nine zero five nine five to speak with a consultant and preparation for your next project. Thank you for joining us today on the Real Estate of Things podcast. Subscribe and tune in weekly for new content from the industry’s best while we continue to unpack the nuances of this dynamic market. Follow us across social media for additional insights and analysis on the topics covered in each episode, and remember to rate, review, and share the show.



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