Understanding the challenges of financing modular construction: A case study for prospective multifamily units

Abstract

Modular construction, when compared to traditional site build, can significantly shorten construction schedules and speed income generation. Modular construction may also reduce construction costs. Yet, access to commercial financing remains one of the most significant barriers to modular construction.

This report and associated research attempts to contribute to this area of research interest by comparing risk and possible benefits across site and modular example project financing models. The University of Nebraska Lincoln held 10 interviews with modular manufacturers and lenders, and specific detailed projects and cash-flow analysis have been highlighted.

Results from this case study suggest that developer’s equity requirements may be as much as 30% higher for modular construction ($18.2M) compared to site-built construction ($13.6M), particularly at the beginning of the project. For the 200-unit multifamily building, if modular construction is used compared to site build, a 6-month construction time savings is possible (15 months for modular compared to 21 months for site build). The learnings from this report will be disseminated to members of the ABC, and broader offsite financing and development communities, to help give confidence of the modular construction for multi-family buildings.