Will BTR modernise residential construction?

August 2019

The customer-focused culture of BTR is challenging us to rethink the rental market; now it looks set to disrupt residential construction and modernise its delivery. Offsite assembly suits the high quality and rapid deployment requirements of Build to Rent. An increasing number of new BTR developers are exploring the offsite route and some are lucky enough to secure supply in a somewhat low capacity market.

 

Major players like Greystar are bringing forward schemes in Croydon and Greenford which involve the delivery and assembly of thousands of modular units.  So is this the way forward? The approach suggests a shift towards vertical integration with greater control of the design and delivery of the product being sought by experienced BTR players. The benefits are better product quality, predictability and supply chain control, which together can help to reduce cost and risk. BUT it is not always as easy as aligning design and procurement. When developers approach their investor’s investment committee or their bank for construction funding, they are met with questions about:

  • the procurement risk of tying their product delivery to the output of a single supplier
  • the risk, in a restricted market, that the product supply might not be picked up by a new supplier in the event of the corporate failure of the original off-site manufacturer....and that the scheme has to start again from scratch
  • the problem that these considerations pose to obtaining contract  insurance for the build contract at all; and
  • the fact that the industry's own efforts with BOPAS accreditation has only resulted in some 70 accredited businesses so far.

 

And so, all too often, the developer opts for a traditional build... and the off-site industry misses out on revenue that could help it expand to meet the growing demand. However this is not always the case, and despite some of the risks, progressive BTR companies recognise that in building a BTR portfolio, it needs to adopt different approaches to design and procurement.

 

Just this month, legal experts, Trowers Hamlin released a collaborative report entitled “Funding Barriers to offsite housing – Separating fact from fiction”.  They conclude that there is no reason why appropriately delivered offsite should be treated any less favorably than traditionally built homes for the purpose of charging.  They should not be viewed as depreciating assets. Indeed, there is evidence that manufactured homes represent an opportunity to achieve a design life that exceeds that of traditionally built homes. But traditional approaches to performance security must adapt to allow for the specific features of offsiting to deliver confidence.

 

Shaun Grainger of PIB Insurance Brokers has some very interesting comments about his company’s proactive approach to underwriting offsite construction. Ultimately, this is the key to securing the necessary construction and investment funding.

 

Our take on his view can foresee a world where insurance premiums are actually lower for offsite construction because the insurer is underwriting a “product” that is itself already BOPAS accredited, reducing costly on-site inspecting.  Greater control and clarity should reduce claims but to get there the industry must tackle specific concerns of safety and durability in use and added risks like those in transportation. 

 

Let’s set the scene by looking at the recent development of the off-site industry.

 

Like every market innovation new names and definitions abound; so you will hear Offsite Construction, Design for Manufacture and Assembly (DfMA) and Modern Methods of Construction (MMC) used pretty interchangeably.  The whole industry is not as recent as you may think.  In reality, it has had a long and laboured development. Early work was done in the late 1990’s which led to the “Rethinking Construction report” - often referred to as the Egan report.  Interest, most recently, has been crystallised by Mark Farmer’s review of the construction labour market in the UK for the Ministry of Housing, Communities & Local Government (MHCLG), known as, “Modernise or Die”.  This has found widespread resonance in an industry struggling with mistrust, poor value, poor delivery and poor quality, along with a legendary inability to meet program or budget.  The house building industry today, for instance, is required to increase output by 50% just to meet Government targets, but set this against a backdrop of a workforce forecast to decrease by 25% to 2026.  We currently aren’t growing new builders!

 

Offsite finds a new champion

 

Offsite at its simplest, is a system which is based on a kit of parts, produced in a factory environment, with the aim to assemble this high quality product quickly and efficiently on site.  The process has found favour already with sectors that have a very repeatable product like the hotel and student accommodation industries.  There are many solutions ranging from full volumetric modular which literally allows you to crane in a room to more componentised solutions.  The MHCLG released its “MMC definition framework” in March which gives a very helpful introduction to the entire spectrum. See below:

 

 

BTR schemes aspire to high quality and robustness in the longer term and they have significant levels of repetition with relatively small variations between unit types on offer. This aligns with brand placement, volume production, predictably and the capacity to quickly turn capital into revenue.  To do this, systems must be standardised across schemes to maximise buying power and minimise maintenance costs, delivering Facilities Management efficiency.  Offsite seems to have found its new champion; look at these key matches:

 

 

Production: as with any mass produced items, once you have set your production line up, you want it running with minimum disruption at ‘full tilt’; you want your systems, assemblies and finishes to be standardised and efficient - just as you would with BTR - and you want that speed of output-to-site to allow the capital investment to generate income quickly.

 

Risk management: Once the system is created and tested, the risk so prevalent with traditional construction - where every scheme is a prototype - is virtually eliminated. If it worked under test on one scheme, with equivalent parameters there is no reason for it not to work on the next, or the one after that...

 

Longevity: The use of repetitive, tested detailing and predictable servicing means that you know exactly how and where to maintain the building; you can be assured that the traditional construction industry’s penchant for making it up as you go has been avoided... in effect you have taken your building away from a poorly supervised site environment into a managed, safe, supervised environment in a factory where Quality Assurance can be rigorous and continuous. Further supporting this is the BOPAS scheme, led by major insurers, the OffSite industry and other key stakeholders which provides surety of quality, longevity and production quality.

 

Design quality: No one wants boring buildings, or repetitious “prefabs” so most schemes are hybridised to a greater or lesser extent, allowing different systems to exploit their key benefits, delivering exciting, good looking buildings which reflect the brand and quality of their owners. 

 

Once the strategic decision to use off-siting has been made, we at Geraghty Taylor focus on product definition, appropriate standardisation and supply chain management.  We look to design the Mods, Pods and Cogs  (room modules, pod components like kitchens and bathrooms and micro components like utility cupboards) that will fit together to create the building.

 

Leading to a new generation of construction employment

 

The move to factory based production brings with it some key advantages for growth.  The appeal of this environment over the cold, wet, site-based employment of traditional build is clear.  It can appeal to a wider cross section of employees, both by age and gender.  It is also digitally empowered so can literally “key” into the career aspirations of the young.  You might be interested to know that both Lego and IKEA are looking to “disrupt” in this space.

 

BUT managing a growth path is not without its difficulties.  The UK market is dominated by a handful of systems and capacity to deliver at peak has been questioned.  Securing your supply can very quickly be difficult in strong markets where there are insufficient “fall-back” suppliers of sufficient quality.

 

The quality point is important, as the “prefab” of old carried with it concerns about robustness and finance, which, in the form of mortgages, was often limited.  Insurers are asking ‘Will these buildings last’?  The industry is convinced they will and has created its own accreditation system; BOPAS.  This is a risk-based evaluation which demonstrates that homes built from non-traditional methods & materials will stand the test of time for at least 60 years.  But there are currently fewer than 70 BOPAS accredited operations and when you see the reduced options available for building at height, you can appreciate why insurers worry that the developers are placing a lot of risk with one supplier.  But isn’t this just the same as a contract with a traditional main contractor over whom you have little real control.

To address this, volume consumers are developing their own systems like L&G’s  and large international developers are simply extending their supply routes from their existing domestic or international procurement centres into the UK.  Geraghty Taylor has just completed a full modular design plan for a major client wanting to adapt their own domestic model to the UK, or you could say design “British multifamily”.  They will look to deploy 10,000 units over the next 5 years or so and achieve substantial cost savings due to the volume.

 

It is clear that the Government have identified the need to support and encourage the sector.  There are grants and funding available and the initiatives of the MHCLG through the Construction Leadership Council are invaluable.

 

 Buildoffsite is an organisation set up to promote the adoption of offsite solutions. It’s membership include Developers, Contractors, Consultants and Suppliers and it is an excellent source of information for all aspects of offsite strategies and technical solutions.  Their recently created BTR group aims to promote offsite solutions specifically to the BTR industry. 

 

It is generally accepted that Construction needs to be modernised and this process is already underway. There are going to be challenges along the way, but  BTR presents a significant opportunity for our new sector to drive meaningful, technology-rich change into the construction industry through offsite solutions. To be successful all parties will need to co-operate to ensure delivery of the bright ambitions of BTR.

 

Offsite thinking is in Geraghty Taylor’s DNA and we always design with offsite in mind.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

The customer-focused culture of BTR is challenging us to rethink the rental market; now it looks set to disrupt residential construction and modernise its delivery. Offsite assembly suits the high quality and rapid deployment requirements of Build to Rent. An increasing number of new BTR developers are exploring the offsite route and some are lucky enough to secure supply in a somewhat low capacity market.

 

Major players like Greystar are bringing forward schemes in Croydon and Greenford which involve the delivery and assembly of thousands of modular units.  So is this the way forward? The approach suggests a shift towards vertical integration with greater control of the design and delivery of the product being sought by experienced BTR players. The benefits are better product quality, predictability and supply chain control, which together can help to reduce cost and risk. BUT it is not always as easy as aligning design and procurement. When developers approach their investor’s investment committee or their bank for construction funding, they are met with questions about:

  • the procurement risk of tying their product delivery to the output of a single supplier
  • the risk, in a restricted market, that the product supply might not be picked up by a new supplier in the event of the corporate failure of the original off-site manufacturer....and that the scheme has to start again from scratch
  • the problem that these considerations pose to obtaining contract  insurance for the build contract at all; and
  • the fact that the industry's own efforts with BOPAS accreditation has only resulted in some 70 accredited businesses so far.

 

And so, all too often, the developer opts for a traditional build... and the off-site industry misses out on revenue that could help it expand to meet the growing demand. However this is not always the case, and despite some of the risks, progressive BTR companies recognise that in building a BTR portfolio, it needs to adopt different approaches to design and procurement.

 

Just this month, legal experts, Trowers Hamlin released a collaborative report entitled “Funding Barriers to offsite housing – Separating fact from fiction”.  They conclude that there is no reason why appropriately delivered offsite should be treated any less favorably than traditionally built homes for the purpose of charging.  They should not be viewed as depreciating assets. Indeed, there is evidence that manufactured homes represent an opportunity to achieve a design life that exceeds that of traditionally built homes. But traditional approaches to performance security must adapt to allow for the specific features of offsiting to deliver confidence.

 

Shaun Grainger of PIB Insurance Brokers has some very interesting comments about his company’s proactive approach to underwriting offsite construction. Ultimately, this is the key to securing the necessary construction and investment funding.

 

Our take on his view can foresee a world where insurance premiums are actually lower for offsite construction because the insurer is underwriting a “product” that is itself already BOPAS accredited, reducing costly on-site inspecting.  Greater control and clarity should reduce claims but to get there the industry must tackle specific concerns of safety and durability in use and added risks like those in transportation. 

 

Let’s set the scene by looking at the recent development of the off-site industry.

 

Like every market innovation new names and definitions abound; so you will hear Offsite Construction, Design for Manufacture and Assembly (DfMA) and Modern Methods of Construction (MMC) used pretty interchangeably.  The whole industry is not as recent as you may think.  In reality, it has had a long and laboured development. Early work was done in the late 1990’s which led to the “Rethinking Construction report” - often referred to as the Egan report.  Interest, most recently, has been crystallised by Mark Farmer’s review of the construction labour market in the UK for the Ministry of Housing, Communities & Local Government (MHCLG), known as, “Modernise or Die”.  This has found widespread resonance in an industry struggling with mistrust, poor value, poor delivery and poor quality, along with a legendary inability to meet program or budget.  The house building industry today, for instance, is required to increase output by 50% just to meet Government targets, but set this against a backdrop of a workforce forecast to decrease by 25% to 2026.  We currently aren’t growing new builders!

 

Offsite finds a new champion

 

Offsite at its simplest, is a system which is based on a kit of parts, produced in a factory environment, with the aim to assemble this high quality product quickly and efficiently on site.  The process has found favour already with sectors that have a very repeatable product like the hotel and student accommodation industries.  There are many solutions ranging from full volumetric modular which literally allows you to crane in a room to more componentised solutions.  The MHCLG released its “MMC definition framework” in March which gives a very helpful introduction to the entire spectrum. See below:

 

 

BTR schemes aspire to high quality and robustness in the longer term and they have significant levels of repetition with relatively small variations between unit types on offer. This aligns with brand placement, volume production, predictably and the capacity to quickly turn capital into revenue.  To do this, systems must be standardised across schemes to maximise buying power and minimise maintenance costs, delivering Facilities Management efficiency.  Offsite seems to have found its new champion; look at these key matches:

 

 

Production: as with any mass produced items, once you have set your production line up, you want it running with minimum disruption at ‘full tilt’; you want your systems, assemblies and finishes to be standardised and efficient - just as you would with BTR - and you want that speed of output-to-site to allow the capital investment to generate income quickly.

 

Risk management: Once the system is created and tested, the risk so prevalent with traditional construction - where every scheme is a prototype - is virtually eliminated. If it worked under test on one scheme, with equivalent parameters there is no reason for it not to work on the next, or the one after that...

 

Longevity: The use of repetitive, tested detailing and predictable servicing means that you know exactly how and where to maintain the building; you can be assured that the traditional construction industry’s penchant for making it up as you go has been avoided... in effect you have taken your building away from a poorly supervised site environment into a managed, safe, supervised environment in a factory where Quality Assurance can be rigorous and continuous. Further supporting this is the BOPAS scheme, led by major insurers, the OffSite industry and other key stakeholders which provides surety of quality, longevity and production quality.

 

Design quality: No one wants boring buildings, or repetitious “prefabs” so most schemes are hybridised to a greater or lesser extent, allowing different systems to exploit their key benefits, delivering exciting, good looking buildings which reflect the brand and quality of their owners. 

 

Once the strategic decision to use off-siting has been made, we at Geraghty Taylor focus on product definition, appropriate standardisation and supply chain management.  We look to design the Mods, Pods and Cogs  (room modules, pod components like kitchens and bathrooms and micro components like utility cupboards) that will fit together to create the building.

 

Leading to a new generation of construction employment

 

The move to factory based production brings with it some key advantages for growth.  The appeal of this environment over the cold, wet, site-based employment of traditional build is clear.  It can appeal to a wider cross section of employees, both by age and gender.  It is also digitally empowered so can literally “key” into the career aspirations of the young.  You might be interested to know that both Lego and IKEA are looking to “disrupt” in this space.

 

BUT managing a growth path is not without its difficulties.  The UK market is dominated by a handful of systems and capacity to deliver at peak has been questioned.  Securing your supply can very quickly be difficult in strong markets where there are insufficient “fall-back” suppliers of sufficient quality.

 

The quality point is important, as the “prefab” of old carried with it concerns about robustness and finance, which, in the form of mortgages, was often limited.  Insurers are asking ‘Will these buildings last’?  The industry is convinced they will and has created its own accreditation system; BOPAS.  This is a risk-based evaluation which demonstrates that homes built from non-traditional methods & materials will stand the test of time for at least 60 years.  But there are currently fewer than 70 BOPAS accredited operations and when you see the reduced options available for building at height, you can appreciate why insurers worry that the developers are placing a lot of risk with one supplier.  But isn’t this just the same as a contract with a traditional main contractor over whom you have little real control.

To address this, volume consumers are developing their own systems like L&G’s  and large international developers are simply extending their supply routes from their existing domestic or international procurement centres into the UK.  Geraghty Taylor has just completed a full modular design plan for a major client wanting to adapt their own domestic model to the UK, or you could say design “British multifamily”.  They will look to deploy 10,000 units over the next 5 years or so and achieve substantial cost savings due to the volume.

 

It is clear that the Government have identified the need to support and encourage the sector.  There are grants and funding available and the initiatives of the MHCLG through the Construction Leadership Council are invaluable.

 

 Buildoffsite is an organisation set up to promote the adoption of offsite solutions. It’s membership include Developers, Contractors, Consultants and Suppliers and it is an excellent source of information for all aspects of offsite strategies and technical solutions.  Their recently created BTR group aims to promote offsite solutions specifically to the BTR industry. 

 

It is generally accepted that Construction needs to be modernised and this process is already underway. There are going to be challenges along the way, but  BTR presents a significant opportunity for our new sector to drive meaningful, technology-rich change into the construction industry through offsite solutions. To be successful all parties will need to co-operate to ensure delivery of the bright ambitions of BTR.

 

Offsite thinking is in Geraghty Taylor’s DNA and we always design with offsite in mind.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding