commercial modular construction report modular construction report | 2009. ... dealers which may...

COMMERCIAL MODULAR CONSTRUCTION REPORT

The Modular Building Institute (MBI) is the only international, non-profit trade association representing the commercial modular construction industry and was founded in 1983. MBI serves the non-residential modular construction industry in its mission to grow industry capabilities by encouraging innovation, quality, and professionalism.

Our regular membership includes wholesale manufacturers, direct manufacturers, and dealers of commercial modular buildings, while our associate members are companies supplying building components, services, and financing to the industry.

MBI also provides the only industry and annual trade-show along with the only financial industry report that surveys the commercial modular construction industry. It is relied upon by both banking and financial sectors for projects and forecasting on commercial modular construction in all its respective markets.

Combined Brigade/Battalion Headquarters building for the Combat Aviation Brigade at Fort Bliss, El Paso, Texas. Currently under construction and scheduled for completion in fall 2009.

CONTENTS

Executive Summary ...................................................................................... 1

Introduction ................................................................................................... 1

Sustainable Modular Construction ............................................................3

Permanent Modular Applications ...............................................................5

Temporary Modular Applications ..............................................................7

Regional Reports ........................................................................................11

Alberta, Canada .......................................................................................11

Central/Midwest United States ............................................................11

Mid-Atlantic United States ....................................................................12

Northeast United States .......................................................................12

Northwest United States ......................................................................12

Southeast United States.........................................................................13

Southwest United States .......................................................................13

West United States .................................................................................14

Robert W. Baird Financial Survey ............................................................15

Data Collection ...........................................................................................15

Review of Descriptive Statistics ...............................................................15

Dealers: Industry Data ...............................................................................16

Dealers: Supplemental Data ......................................................................18

Manufacturers: Industry Data ...................................................................20

Manufacturers: Supplemental Data ..........................................................22

Market Indicators ......................................................................................22

Summary .......................................................................................................23

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COMMERCIAL MODULAR CONSTRUCTION REPORT | 2009

B o a R D o F D i R e c t o R s M B i s t a F F

Executive DirectorTom Hardimanx 158, [email protected]

Director of Operations Steven Williamsx 153, [email protected]

Director of Member ServicesAileen Hollandx 156, [email protected]

Communications ManagerAudra Bookx 152, [email protected]

Western Regional ManagerBob [email protected] 209-786-5116

Office ManagerAnnie Diggsx 157, [email protected]

President Marty MullaneyPresident/CEO Satellite Shelters, Inc.

Vice President Joseph LopardoVice President, Modular Buildings Williams Scotsman

2nd Vice President-Elect Mike RidleyExecutive Vice President Britco Structures

Past President Mike Mount President Sunbelt Modular, Inc

Secretary Brent Morgan Vice President & General Manager ATCO Structures Inc.

Treasurer Gary BockrathCFOActon Mobile Industries

Executive Director Tom HardimanExecutive DirectorModular Building Institute

Board MembersMichael Bollero President/CEO Southern Modular Industries, LP

Kendra Cox Assistant Production Manager Blazer Industries, Inc.

Walter Griffin Modular Program Manager Mule-Hide Products Co., Inc

Gary Humphrey VP of Operations Pac-Van, Inc.

John Kennedy Manager M Space Holdings LLC

Harry Klukas Senior VP Black Diamond Group

John Lieffrig Regional Vice President ModSpace

John Michael COO Atex Distributing, Inc.

HEADQUARTERS944 Glenwood Station Lane Ste. 204Charlottesville, VA 22901Toll Free: 888-811-3288 Fax: 434-296-3361

MBI WESTERN OFFICEPO Box 1057Valley Springs, CA 95252Phone: 209-786-5116Fax: 209-786-5114

Strada at Mercato, Naples, FL

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M B i s t a F F

Executive DirectorTom Hardimanx 158, [email protected]

Director of Operations Steven Williamsx 153, [email protected]

Director of Member ServicesAileen Hollandx 156, [email protected]

Communications ManagerAudra Bookx 152, [email protected]

Western Regional ManagerBob [email protected] 209-786-5116

Office ManagerAnnie Diggsx 157, [email protected]

e x e c u t i v e s u M M a R yAlthough 2008 was a down year for construction in general, those familiar with modular construction have many reasons to be optimistic about the future growth of the industry. In October of 2008, Building Design+Construction conducted a survey of a subsection of its subscriber base, asking readers about modular construction. These respondents were made up of architects, engineers, developers, business owners, facility managers, and general contractors representing a cross section of non-residential markets. “Speed of construction” was the primary advantage of modular construction cited, with 79% believing modular was as fast or much faster than conventional construction. Further, 69% percent said modular construction was “as sustainable” or a “more sustainable” construction process than site-built. Given these advantages, it would seem that modular construction would have captured more than one percent of the commercial construction market in North America. There is, however, much confusion and misconception about modular construction that still exists, as evidenced by these same respondents reporting “lack of perceived quality” as the primary disadvantage. It helps to think of modular construction as a “process” not a specific product. Using the modular construction process, you can build temporary or permanent facilities for virtually any market:

Temporary

Permanent

An important distinction between temporary and permanent is that temporary structures are typically classified as personal property or equipment while permanent structures are classified as real property. This report will focus primarily on the commercial and institutional segment in North America. Data included in this report will reflect sales, leasing and production data for the calendar year 2008 and, when available, the first quarter of 2009.

i n t R o D u c t i o nAbout the Modular Building InstituteFounded in 1983, the Modular Building Institute (MBI) is the only international non-profit trade association serving the commercial modular buildings industry. Members are manufacturers and dealers of commercial modular structures, as well as associates supplying building components, services, and financing. Members are located in 15 countries around the globe and provide all types of building space, from temporary storage units to complex multi-story permanent buildings. It is MBI’s mission to grow the industry and its capabilities by encouraging innovation, quality, and professionalism through communication, education, and recognition. About the Commercial Modular Construction IndustryCommercial modular buildings are non-residential, factory built structures designed to meet federal, provincial, state and local building codes and are capable of being relocated. The commercial modular building industry is comprised of four distinct participants: ● Manufacturers/Wholesale that sell primarily to dealers;● Manufacturers/Direct that sell primarily to the end user/customer;● Dealers which may maintain a fleet of buildings for lease and sell to the end user; and ● Suppliers to the dealers and manufacturers. The industry itself encompasses many markets and applications. For practical purposes, and for this report, the industry can be generally segmented into two categories:

For more information about the association, go to www.modular.org

ResidentialHUD - coded manufactured housing Modular home

CommercialConstruction office, sales office, relocatable classroom, Not HUD-CodeSchools, hospitals, retail stores, banks, offices, restaurants

Industrial/InstitutionalTemporary barracks, guard houses, emergency response and relief unitsMilitary installations, workforce housing, in-plant offices, border patrol units

Temporary applications Facilities and products meeting short-term needs including storage units, containers, construction site offices, relocatable classrooms, and other types of mobile offices. Revenue from this segment is generally derived from the rental, lease, or sale of “fleet” products, fairly standardized in terms of construction, and all built to applicable local and state building codes where the units are to be located. Permanent applications Comparable to “site-built” construction in terms of life span, quality, and materials, consisting of modular units built off site and assembled on site to create a permanent facility, not intended to be relocated. The buildings themselves can be leased or purchased and typically flow through one of two distribution channels:

Dealers Companies that typically maintain an inventory of existing buildings available for lease or sale. These companies also serve as general contractors on new construction projects and acquire the modular buildings though a network of unrelated wholesale manufacturers. Direct Manufacturers Companies that typically serve as the general contractor or subcontractor and sell direct to the end user. Generally, these companies do not maintain a fleet of existing buildings and focus on more customized projects.

Unlike residential manufactured housing, the commercial industry does not have an equivalent national building code or commercial “HUD-code” program. Most states have adopted versions of the International Building Code providing some degree of consistency from region to region. However, regardless of the application, both temporary and permanent modular construction facilities are required to meet all applicable building codes where they are located. Countless industries regularly use permanent or temporary modular buildings including schools, banks, restaurants, hospitals, medical clinics, daycare centers and correctional facilities—just to name a few. The number of industries (as measured by North American Industry Classification System “NAICS”) that lease or purchase industry product is numerous, but the most common categories include:

236220 Commercial and Institutional Building Construction 321991 Manufactured Home (Mobile Home) Manufacturing 321992 Prefabricated Wood Building Manufacturing 332311 Prefabricated Metal Building and Component Manufacturing

The primary benefits of modular buildings are fast delivery, reduced environmental impact, ease of relocation, low-cost reconfiguration, and enormous flexibility. Commercial modular buildings are non-residential structures, 60 to 90 percent completed “off-site” and designed to be constructed at one location then used by occupants at another destination. The word “modular” describes a construction method or process where individual modules, stand-alone or assembled together, make up larger structures. Contrary to popular belief, the term does not connote the temporary or permanent nature of the building itself. It is simply another means of construction—off site, constructed in “modules.” While many are two, three and four stories high, modular designs have been created for buildings much higher. Recently, UK architects designed a 24-story modular high rise, believed to be the tallest modular building constructed in the world (see below). Modular buildings are essential in cases where speed, temporary space, and the ability to relocate are necessary. Modern, multi-story factory-built buildings with concrete and steel floors, brick exteriors, sheet-rock interiors, windows, lighting, computer hook-ups, electrical service, plumbing, heating air conditioning and restrooms can include everything you need and often are constructed in half the time of a site-built building.

Primarily, four stages make up factory-built construction. First, design approval by the end user and any regulating authorities; second, assembly of module components in a controlled environment; third, transportation of modules to a final destination; and fourth, erection of modular units to form a finished building.

Specifications for modular buildings are usually communicated to a manufacturer directly by a customer or through a dealer. Dealers, responding to the space requirements of retail customers, work with customers to order new buildings from manufacturers and arrange for delivery and installation of the buildings when construction is complete. Dealers usually offer a variety of financing and leasing opportunities and range in size from single, small sales offices with little or no lease fleet to large, well-capitalized companies with very large fleets.

O’Connell East Architects’ rendering of a 24-story student dormitory, U.K (Europe’s tallest modular building).

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Modular manufacturers produce buildings generally in independent, single-location facilities. Responding to dealer or customer requests, they generally operate as suppliers of modular units. Construction primarily occurs indoors away from harsh weather conditions preventing damage to building materials and allowing builders to work in comfortable conditions.

Unique to modular construction, while modules are being assembled in a factory, site work is occurring at the same time or in some cases prior to construction. This allows for much earlier building occupancy and contributes to a much shorter overall construction period, reducing labor, financing and supervision costs. Saving even more time and money, nearly all design and engineering disciplines are part of the manufacturing process.

Also unique to modular is the ability to simultaneously construct a building’s floors, walls, ceilings, rafters, and roofs. During site-built construction, walls cannot be set until floors are in position, and ceilings and rafters cannot be added until walls are erected. On the other hand, with modern modular methods of construction, walls, floors, ceilings, and rafters are all built at the same time, and then brought together in the same factory to form a building. This process often allows modular construction schedules of half that of conventional, stick-built construction.

These practical time and money saving alternatives to site-built buildings effectively meet the specialized needs of diverse businesses. Customers served by modular buildings include federal, state and provincial, and local governments, school boards, corporations, non-profit organizations, retail establishments, healthcare providers, as well as individuals, partnerships, and sole proprietorships. Other uses include medical facilities, airport facilities, military installations, restaurants, churches, and remote telecommunications stations.

Some facilities are used as an adjunct to existing buildings while others are stand-alone buildings. Flexibility and reutilization are the hallmarks of modular buildings. Unlike structures built on-site which generally have fixed utilization and occupancy design, modular units fulfill a unique function of reutilization that is not site specific. It is not unusual to have a modular building serve a wide variety of users during its long life span.

The flexibility of these buildings makes them a secure investment. During severe economic downturns, these conditions allow lessors to enjoy cash flows adequate to service debt. This flexibility is further enhanced by the ability to relocate buildings to more prosperous cities or industries as opportunities arise. Certain market segments of the industry are counter-cyclical. This is particularly true of education, prisons, and governmental agencies that want to transfer funding for facility needs from capital budgets to operating budgets. This concept also applies to industries which may want to expand but are uncertain about the long-term strength of their growth. Budget driven companies often opt for leased facilities. In such cases modular buildings offer benefits and options without long-term capital commitments.

s u s t a i n a B l e M o D u l a R c o n s t R u c t i o nModular construction is becoming more widely recognized as an environmentally-friendly construction process. A recent study by the U.K. group WRAP (Waste & Resources Action Programme) found that volumetric construction (modular) was found to reduce site waste produced by traditional methods by 90 percent. Volumetric construction involves the construction of units in a controlled factory environment. The units can be shipped to site in basic format or with internal and external wall finishes completed. Their study can be viewed at www.WRAP.org.uk. The Modular Building Institute has commissioned a similar study in North America which is expected to be complete in early 2010.

Modular construction is also a good fit with green rating programs such as the USGBC’s LEED Rating Program and the Collaborative for High Performance Schools (CHPS) rating system for relocatable classrooms.

MBI commissioned a whitepaper detailing how modular construction fits into the LEED rating system. This paper, written by Robert Kobet, AIA, LEED AP, is intended as a free resource to architects, design professionals, and any end user wanting to familiarize themselves with the green advantages of modular construction, particularly permanent modular projects. The paper can be downloaded from modular.org.

Temporary modular buildings, such as relocatable classrooms and construction site offices, have long been viewed as a commodity by end users, and therefore driven primarily by cost. However, as end users become more educated on life cycle analysis and the true benefits of healthy work and learning environments, this paradigm seems to be shifting.

CHPS recently revised its Best Practices Manual for Relocatable Classrooms to allow for greater flexibility in attaining higher performing relocatables. In their previous version, a school had to build to a prescribed specification to attain CHPS certification,and those specs were primarily based on the California classroom market. The revised version offers specifications, but also a rating system that allows schools to attain a certain number of points to reach certification. This new system, similar in nature to LEED, gives school districts more flexibility and information in weighing cost vs. benefit considerations. As such, MBI expects to see the CHPS-certified designation become the industry standard for high performance relocatable classrooms.

As fast as the green building movement has grown in recent years (reports indicate that the United States Green Building Council is the fastest growing organization in association history), MBI believes that there is still much progress to be made. As such, MBI is actively involved in promoting high performance modular design competitions and continues to offer scholarships to architecture and engineering students through our educational foundation. In 2008, MBI launched its third student design competition, asking students at accredited four year schools across North America to design a high performance modular community center for an assisted living community. The winning entry, shown below, was design by Tyler Stanley, a student at Ball State University in Indiana.

Late in 2008, MBI signed on as a partner with Architecture for Humanity to promote its “Open Architecture Challenge” to design the modular classroom of the future. The competition is a true collaboration of architectural firms, schools, and students, with over 50 teams registered as of this writing. Winners of this competition will be announced in the Fall of 2009 and will be posted at http://www.openarchitecturenetwork.org.

MBI also entered into a partnership with AIA’s Student Chapter Organization (AIAS) to host another design competition that begins in the Fall of 2009. Students will be asked to design a mixed-use, multi-story modular hotel with commercial retail space on lower levels. The winning entries will be displayed at the 2010 World of Modular Convention in Orlando Florida, the 2010 AIA Annual Convention in Miami Florida, and the 2010 AIAS Forum in Toronto.

MBI will continue to position the modular construction process as more eco-friendly and believes that increasing awareness by end users will propel the industry towards exponential market growth in coming years.

Jim Russell Racing Drivers School, Sonoma, CA

2009 winning entry from the MBI student green building design competition. Senior living center, The Meadows, Charlottesville, VA. Design by Tyler Stanley, Ball State University


p e R M a n e n t M o D u l a R a p p l i c a t i o n s Mobile offices, portable classrooms and construction offices are what many people think of when they hear the term “modular construction.” This, however, is an inaccurate and incomplete assessment of the industry. Modular construction generically includes all prefabricated structures built off-site in “modules” and delivered on site for installation. At that point, there is a distinction among permanent modular and temporary modular applications.

Permanent modular buildings make up approximately 20-25% of the quote requests received by both MBI and 360MobileOffice*. It is difficult to accurately pinpoint how large this segment is as permanent modular providers often are competing for similar projects with traditional site-built contractors and in many cases in regions that do not have a separate modular construction approval program. Permanent modular buildings are considered real property, built to the same codes, and are depreciated in a similar manner as conventional site-built facilities. As such, the markets for permanent modular construction are similar to the markets for site-built contractors, with a few exceptions.

Education From single classrooms to complete campuses, permanent modular construction offers public, private, and charter schools what other construction methods cannot: accelerated project timelines, more economical pricing, and less disruption. Permanent modular schools are indistinguishable from other schools and can be constructed to any architectural and customer specifications. MBI members design and build schools of all types and sizes using traditional building materials like wood, steel, and concrete. Virtually any size permanent school can be built, installed, and ready for occupancy, some in as little as 90 days. Perhaps most importantly, using off-site technology, open construction sites are eliminated while school is in session. Students are safer and teachers compete with less disruption.

General Office Permanent modular buildings serve as corporate headquarters, satellite bureaus, institutional and administrative buildings, and offices for small businesses. Modern single- and multi-story buildings can be configured in a number of ways to include independent offices, conference rooms, elegant lobbies, kitchens, restrooms, and large open spaces for cubicles or other partition systems. MBI members have architectural and engineering designs for workspace planning, storm water management, landscaping, parking, and zoned heating and air conditioning. If it is time to capitalize on company growth, modular buildings are a fast, economical approach.

Retail/Hospitality Modular construction is accelerated construction. Why is this so important to banks, restaurants, convenience stores, daycares, and other retail establishments? Because earlier occupancy means quicker return on investment. In fact, it’s not uncommon for many modular buildings to be up and running in as little as 24 hours—an important consideration for retailers of all types. Typical retail applications include hotels and motels, restaurants and diners, banks, golf pro shops, convenience stores, gas stations, car washes, college bookstores, and concession stands, to name a few. MBI manufacturers and dealers provide full-service general contracting including site, mechanical, and electrical work. Permanent modular construction can accommodate emerging business demands and can be customized to meet financial needs, space requirements, and deadlines.

Healthcare Permanent modular construction offers quiet, safe, and clean applications for medical, surgical, clinical, laboratory, and dental use. The insight

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Bank of the Pacific, Bellingham, WA

Jim Russell Racing Drivers School, Sonoma, CA

Millmont Elementary, Reading, PA

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MBI members have from designing and building thousands of medical facilities has resulted in satisfied healthcare professionals the world over. Whenever organizations or communities need a new rehabilitation clinic, emergency room, operating room, hospital extension, laboratory, diagnostic center, or other medical facility, permanent modular buildings can be custom built to the tightest budgets while maintaining strict medical and aesthetic specifications.

Equipment & Storage Day in and day out, noncombustible permanent modular construction offers durability and strength for equipment and storage. Communications shelters, chemical storage buildings, generator housing, materials storage, and mechanical control rooms are all custom designed and built by MBI members to guard business investments. Theft, inclement weather, and extreme climates are no match for the quality found in these high-tolerance heated and air conditioned buildings thatare wood, steel, or precast concrete and that have exteriors of steel, brick, stone aggregate, or stucco. Security & Control Permanent modular buildings can be custom built to address a variety of access and control situations. Toll booths, tickets sales offices, guard stands, and weigh stations are common smaller applications. One- and two-story wood and steel buildings have straight walls or walls that are tilted to improve views and reduce glare. Much larger, more complex buildings can include correctional facilities that range from small regional jails to full-blown maximum security prisons. Cells can be equipped with toilets and showers, lighting, bunks, fixed windows, and security doors—all factory installed.

Industrial/In-Plant Offices When factory floor space is at a premium, one- and two-story modular in-plant offices, mezzanines, and storage platforms offer durability and permanence, while at the same time being flexible enough to relocate when needs change. Industrial buildings are custom engineered to suit each application, made of non-combustible steel construction, and assembled with unique fastening systems that lock panels together quickly and easily. A wide variety of windows, doors, electrical and communications packages, sound and temperature controls, and fire prevention systems can also be installed. Common applications are quality control rooms, break rooms, and computer and equipment shelters.

Government Government customers consist of federal, state and local public sector organizations and administrations. The industry has enjoyed success in focused niches such as prisons and jails, courthouses, military installations, as well as national and border security buildings.

Military The U.S. Army Corps of Engineers (USACE) has been tasked to find ways to streamline its acquisition and construction processes in order to reduce costs and speed up overall delivery of projects, while at the same time providing quality facilities. The Army requires a minimum 15% reduction in cost and a minimum 20% reduction in time to occupancy. USACE created eight Centers of Standardization (COS) that are not only the design centers of expertise but also will become the acquisition experts for the facility types for which the COS is assigned. Forty-one facility types were identified for standardization. Modular providers have been successful at completing various types of facilities for the Corps, specifically administrative facilities and troop housing.

Wells Fargo Bank branch, Buckeye, AZ

Fort Bliss UEPH, El Paso, TX


t e M p o R a R y M o D u l a R a p p l i c a t i o n sThe primary differences between permanent and temporary applications for modular buildings is that in many cases, temporary buildings are not permanently affixed to real estate, are considered personal property or equipment, and can be depreciated over a shorter span. Additionally, temporary modular buildings in general have a useful life of approximately twenty years if properly maintained (capital improvements can extend the useful life of these units).

Education Temporary modular buildings have become a critical factor in managing student demographics and increasing enrollments. Modular classrooms are also ideal for use during new construction or renovation. Convenient, flexible, cost-effective temporary buildings can be delivered and operational in as little as 24 hours. Temporary modular classrooms are measured for quality and code-compliance by state or third-party agencies through routine and random inspections, testing, and certification services. Single classrooms or multiple buildings can be arranged in clusters to create a campus feel. MBI members supply steps, decks, ramps, and even furniture. Members also offer lease, purchase, and lease-to-purchase financing for a variety of public and private school needs.

General Office When production demand rises, modular buildings can temporarily enlarge a current facility without permanent alterations to the site. Because the space is not permanent, many companies are able to expand without the budget approval process necessary for traditional capital expenses. Temporary modular offices can be single- and multi-story buildings configured to include independent offices, conference rooms, and large open spaces for cubicles or other partition systems. Large and small businesses as well as local and state governments are typical users of temporary modular office space.

Retail Accelerated modular construction saves time and money. Standard floorplans are available for immediate delivery while custom buildings are built to customer specifications in weeks, not months. Unique to modular construction is the fact that while buildings are being built in a quality-controlled factory, site work is occurring at the same time. This means a much shorter overall construction period. Why is speed so important? Earlier occupancy means faster revenue generation. Typical retail applications

include new home sales centers, banks, golf pro shops, automobile dealerships, college bookstores, and concession stands. When emerging business needs are short term, temporary modular buildings accommodate any financial situation, space requirement, and deadline.

Healthcare Temporary modular buildings that are used in healthcare applications are designed and constructed to uncompromising standards of quality. A new clinic, hospital extension, laboratory, diagnostic center, MRI unit, dentist office,

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Temporary Unit by Tecno Fast ATCO S.A.

Charlottesville Waldorf School, Charlottesville, VA

Wells Fargo Bank branch, Buckeye, AZ

or other medical facility can be open for business and serving communities in as little as a few days. When interests are for serving patients as quickly as possible in the most safe and aesthetically pleasing environments available, temporary modular construction offers quick quiet, safe, and clean buildings. Furthermore, there is an unlimited choice of interior décor and furniture and equipment leasing.

Construction-Site & In-Plant Temporary modular buildings have their roots in construction-site trailers, where speed, temporary space, and relocatability are important. Used as standard field offices, construction-site and in-plant buildings are available for immediate delivery. Standard construction is wood, but steel units are available to meet noncombustible requirements. In-plant buildings are available as single- or two-story units for industrial environments with noise-reducing insulation and are typically moveable by forklift and include electrical and communications wiring, heating, air conditioning, and even plumbing.

Security Temporary modular buildings can be custom built for a variety of access and control situations. Toll booths, tickets sales offices, guard stands, and weigh stations are common applications. One- and two-story wood and steel buildings have straight walls or walls that are tilted to improve views and reduce glare. MBI members supply a full line of portable storage containers for either short- or long-term use. Heavy-duty storage units feature ground-level entry with double-swing doors for easy accessibility and are ideal for construction-site storage, equipment storage, warehousing, recordkeeping, industrial manufacturing, retailing, and other applications.

Equipment & Storage Economical and convenient equipment and storage buildings offer on-site protection from inclement whether and theft. Day in and day out, modular buildings offer durability and strength. Equipment shelters for construction sites, chemical storage buildings, temporary generator housing, and other applications are designed and built by MBI members to guard business investments. These buildings can be as simple as steel containers to units that are heated and air conditioned with exteriors of brick, stone aggregate, or stucco.

LUXE Sales Center, Burnaby, BC

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a w a R D s o F D i s t i n c t i o n 2 0 0 9

Every year the Modular Building Institute holds its Awards of Distinction contest, with winners announced at the annual World of Modular industry show. Pictured here are the 2009 entries as displayed at World of Modular, in Las Vegas, Nevada. Winners are announced at an awards banquet and then featured all year at modular.org. To view 2009 winners and case studies, visitmodular.org/awards.

n o t e s :

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R e g i o n a l R e p o R t s

ALBERTA, CANADA ...............................................................................................................................................................................................

In Alberta, Part 10 structures (relocatable industrial accommodations) are required to be manufactured by plants, which are certified by the Province of Alberta through Alberta Municipal Affairs. Manufacturing facilities are subjected to an on-site inspection/audit by Alberta Municipal Affairs to evaluate and assess the manufacturer’s capabilities and qualifications as related to Part 10 structures. Certified manufacturing plants can then purchase Provincial Part 10 labels from Alberta Municipal Affairs.

All Part 10 manufactured structures are required to have Alberta Municipal Affairs labels applied to them before leaving the plant. There are two types of labels for non-residential units issued by Alberta Municipal Affairs—a red label for newly constructed units and a green label for renovations to existing units. For this report, we will examine red labels.

Based on information obtained from Alberta Municipal Affairs, production of modular facilities in the Province continued its upward trend, with the number of red labels issued increasing 6.3% for the year.

Alberta Municipal Affairs 2005 2006 2007 2008Red Label 4,572 6,237 7,252 7,713

However, production dropped significantly in the latter part of the year as oil prices decreased. The majority of production in this region for the year was workforce housing associated with oil sands development.

Mining these vast quantities of reserves requires massive resources and infrastructure support and entire workforce housing camps and villages were constructed to support these developments.

On a positive note, according to information obtained by Statistics Canada (www.statcan.gc.ca), non-residential construction was up 7.9% overall across all markets and regions.

CENTRAL/MIDWEST UNITED STATES .................................................................................................................................................

The Central and Midwest regions of the United States have been experiencing economic difficulties during the past few years, more so due to other industries outside of commercial construction.

The center of the manufacturing activity in this region, and arguably in the United State, is Indiana. The Indiana Department of Fire and Building Code Enforcement (a division of Indiana Department of Homeland Security) indicates well over 30 manufacturers based in the state are building all types of modular and off site products. However, there are only about a dozen or so that manufacture the bulk of the commercial modular buildings for the region.

A vast majority of these manufacturers are known as “wholesale” manufacturers in the industry, as they primarily sell buildings to dealers for resale or lease rather than directly to the end customer. These buildings tend to be more stock items such as construction offices, relocatable classrooms and single story offices. However, there are manufacturers in this region with experience in designing and constructing complex permanent facilities.

Each non-residential modular unit manufactured in Indiana is required to bear a state insignia ensuring it was built to all applicable building codes. Each mobile label is specific to the non-residential industry, while the modular label can be for either residential or non-residential. Data obtained from the Indiana Department of Fire and Building Services indicate that the temporary side of the business is still doing very well in this region, home to numerous wholesale manufacturers.

Indiana Dept of Fire & Bldg Svc 2005 2006 2007 2008Mobile (temporary) 2,378 2,397 3,722 3,868Modular (permanent) 3,470 3,820 3,524 3,441

This data indicates that the wholesale production in this region remained steady, primarily in early 2008.

MID-ATLANTIC UNITED STATES ..............................................................................................................................................................

Based on labeling data obtained from the Maryland Department of Housing and Community Development, new unit construction for this region dropped significantly.

State 2005 2006 2007 2008Maryland 2,636 2,422 2,739 1,538

However, dealers in this region likely fared better than their counterparts in other regions, due in large part to the active government market. This region, more so than others, benefits from leasing activities from the various federal agencies. Modular companies in the region are almost certainly on GSA schedules, as agencies seem to have an insatiable appetite for temporary offices. One only has to drive through downtown Washington, D.C. to see the industry’s impact.

NORTHEAST UNITED STATES .....................................................................................................................................................................

Production data for this section was obtained from the Industrialized Buildings Commission.

The Industrialized Buildings Commission (IBC) was created in the early 1990s when the states of Minnesota, Rhode Island and New Jersey each enacted the Interstate Compact for Industrialized/Modular Buildings. The Commission administers a certification labeling program, whereby one label is affixed to each module manufactured for the covered states.

The number of labels issued is a strong indication of production in these Northeast states. For 2008, IBC issued 2,520 “non-residential” labels, less than that issued in the prior year.

IBC labels 2005 2006 2007 2008NJ, RI, MN, ND 3,603 3,275 3,210 2,520

However, “R” (residential) labels for IBC include facility types such as apartments, hotels, and assisted living centers, along with one and two-family dwellings. It is likely that some of the “R” labels were issued to companies primarily engaged in commercial manufacturing. Nonetheless, a year-over-year comparison of labels issued shows a 21.5% drop.

NORTHWEST UNITED STATES ...................................................................................................................................................................

Data obtained by the Washington State Department of Labor and Industries, the state agency with authority over commercial modular structures, shows that 2008 was down from 2007 figures but on par for 2006 production. The department issued 727 labels for non-residential modular structures in 2008 compared to 1,121 in 2007.

WA Dept of L&I 2005 2006 2007 2008Educational (includes daycare) 255 186 434 338Business (includes const. site) 639 539 495 282Total all non-residential labels 1,131 765 1,121 727

Data obtained by 360MobileOffice, a mobile office and modular building lead-generation service (www.360mobileoffice.com), shows that, surprisingly, Washington State ranked fifth overall in terms of number of leads generated per state.

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SOUTHEAST UNITED STATES......................................................................................................................................................................

The Southeast United States has historically been a strong market for the commercial modular industry. However for the past few years, this area has experienced a significant downturn.

Most of the manufacturers of non-residential modular structures in this region are based in Georgia and Florida. In accordance with state code requirements in these states, each module or unit manufactured is required to bear the insignia for the state in which it is being delivered. In most cases, a manufacturer will affix multiple state labels to the same unit, allowing dealers with more flexibility in relocating structures at a later date.

Based on data obtained by the Georgia Department of Community Affairs, the total number of state labels sold for non-residential units has continued its downward trend.

Type of Label 2005 2006 2007 2008Georgia non-residential 3,675 4,547 3,946 2,811

It is not likely that this downward trend will continue long term for the Southeast. Education enrollment and expenditures for public K-12 facilities are expected to continue to increase to record levels for the next several years. Florida and Georgia are two of the top four states in terms of the largest 10-year enrollment increases in the country. Additionally, Florida can claim seven of the top 25 largest school districts in the country, and Georgia adds another.

Mobile and modular facilities also have a demonstrated track record for providing quick space solutions during times of emergencies or natural disasters. It is no secret that the Southeast United States is particularly susceptible to these types of occurrences. Rebuilding efforts resulting from Hurricane Katrina are finally materializing, as many school districts in Louisiana have turned to building entire campuses utilizing modular construction.

SOUTHWEST UNITED STATES ...................................................................................................................................................................

In Texas, the commercial modular construction industry is regulated by the Texas Department of Licensing and Regulation, Industrialized Housing and Buildings (IHB) Division. According to data obtained by the Texas IHB production reports, commercial modular activity in the Lone Star State has been steady for the past four years. The report, available at: http://www.license.state.tx.us/ihb/pdf/WEB%20PRODUCTION%20INFO.pdf shows the number of modules reported by the manufacturer as being shipped.

Texas Industrialized Housing Data 2004 2005 2006 2007 2008Commercial modular units shipped 3,503 4,390 5,099 5,745 3,524*

Texas production figures were on pace to exceed 5,000 floors, indicating that this region remained relatively stable.

The growing K-12 student population should continue to fuel industry growth in this region, as Texas ranks fifth in terms of largest 10-year enrollment growth, and has two of the top fifteen largest school districts in the country.

Military construction will also play an increasing role in the growth of the industry in Texas. In 2005 the US Army Corps of Engineers embarked on a master planning program to change the way it executed its MILCON program. Frustrated at not getting quality facilities in the timeframe it needed them, the Corps established a continuous building program that emphasized the standardization of facilities and processes while expanding the use of manufactured building solutions including permanent modular construction. This program is beginning to pay dividends as evidenced by large projects awarded to modular companies at Fort Bliss, with others anticipated in the Southwest in coming years.

*Through August 2008.

WEST UNITED STATES .......................................................................................................................................................................................

In California, the commercial modular industry is regulated by two agencies, Department of Housing and Community Development Manufactured Housing Program (HCD) and Division of the State Architect (DSA). HCD administers the construction and alteration of commercial modular, special purpose commercial modular and multi-unit manufactured homes, monitoring design and construction through third party agencies. However, HCD does not have jurisdiction over educational units. DSA provides design and construction oversight for K–12 schools and community colleges, and develops and maintains accessibility standards and codes utilized in public and private buildings throughout the State of California.

HCD issues state labels for commercial modular and special purpose modular construction, but DSA does not track which facility plans are modular vs. conventional “stick built.”

2005 2006 2007 2008CA HCD 4,643 5,285 4,025 2,733

HCD labels are only part of the picture in California, as the education market is the dominant market for non-residential modular construction. California currently utilizes nearly 90,000 relocatable classrooms and adds another 2,500-4,000 annually. According to the California Department of Education, the state had 9,372 public schools in 2005 comprised of 292,059 classrooms. Of that number, 73% are twenty five years or older. The California DOE estimates that the state needs to add 18 total classrooms per day through 2010 for its K-12 needs.

This region also includes two of the nation’s largest school districts in Los Angeles County and Clark County Nevada. Clark County’s population has increased dramatically from just fewer than 800,000 in 1990, to nearly 2 million in 2006.

Data obtained by 360MobileOffice matches MBI’s own data to show that this region receives more requests for quotes and leads than any other region in North America.

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R o B e R t w . B a i R D F i n a n c i a l s u R v e y D a t a c o l l e c t i o nData for this report was compiled from previously conducted quarterly reports collected and analyzed by Robert W. Baird & Company. In 2006, MBI entered into an alliance with Baird to conduct these surveys to determine various trends within the industry. Approximately 60 dealer and manufacturing companies (both members and non-members of MBI) participate in the quarterly surveys. In addition to the Baird surveys, MBI obtained data from a variety of sources including a prepared survey questionnaire sent to members and non-members in the industry, public SEC filings, information obtained from state and provincial modular regulatory agencies, sales leads information from 360MobileOffice, and direct communication with company leaders. While continually striving to improve the data available to the public, we believe that this report represents the most comprehensive data currently available on the industry in North America.

About Baird. Baird, established in 1919, is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Baird’s principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s private equity operations. Robert W. Baird & Co. is a member of the New York Stock Exchange and other principal exchanges and the Securities Investor Protection Corporation (SIPC). Robert W. Baird Ltd. and Baird Capital Partners Europe are authorized and regulated in the United Kingdom by the Financial Services Authority.

About 360MobileOffice. 360MobileOffice is a nationwide customer referral website, specializing in qualified mobile office, modular building, storage container, and mobile self-storage container sales leads. Specifically, 360MobileOffice provides manufacturers and suppliers with qualified sales leads based on their specific product and geographic profile.

R e v i e w o F D e s c R i p t i v e s t a t i s t i c sAn “average” can be calculated using three different methods. The mean is the numerical average, which is the sum of the responses divided by the number of responses. “Mean” is the most commonly understood meaning of average. The median is the response that lies in the middle of a sequence, i.e., the value above and below which there are an equal number of responses (regardless of the values of those responses). The mode is the most frequently occurring response. The mean and median are provided throughout this report.

In a sample or population that has a normal or “bell-shaped” frequency distribution, the mean, median and mode all have the same value. This generally occurs when there are a large number of similar responses. “Similar” is a relative term. Similarity among observations is reported as a standard deviation which measures the dispersal of the observations. A sample population with a normal distribution has 68% of the observations within one standard deviation of the mean, and 95% of the observations within two standard deviations of the mean. When a small number of atypical observations distort the mean relative to the median and mode, the distribution is skewed. This generally occurs when there are a small number of responses or when the responses contain a significant outlier. By way of example, if survey results provide significantly different measures of average lease fleet size, then the population has a wide distribution (many dealers with 400 units and one dealer with 60,000 units). WHEN THE POPULATION IS SKEWED, AS IS THE CASE WITH SOME OF OUR DATA, A MEDIAN AVERAGE GENERALLY PROVIDES A BETTER ESTIMATE OF THE “AVERAGE” RESPONDENT.

Calculation of the appropriate “average” is essential in the quest to ascertain the size of the commercial modular building industry. As an example, if we were curious as to the total number of mobile offices and modular buildings in active lease fleets, the most accurate measure would be if all industry participants would truthfully disclose the number of units in their own lease fleet at a given point in time. Since this is not feasible, a reasonable method to estimate the total number of units in domestic lease fleets is to calculate a reliable average and multiply by the number of active industry participants. Accuracy of this estimate is a function of numerous factors including clarity of the survey questions asked, veracity of the responses, confidence in the calculated averages and estimate of the total number of industry participants.

D e a l e R s i n D u s t R y D a t a “During the recent quarter, by how much has leasing revenue increased/decreased compared to a year ago, excluding acquisitions?”

Quarter Percent

1Q09 -10...................................................................................4Q08 +8...................................................................................3Q08 +9...................................................................................2Q08 +14...................................................................................1Q08 +12...................................................................................4Q07 +12...................................................................................3Q07 +12...................................................................................2Q07 +16...................................................................................1Q07 +14

On average, dealers typically derive 28% of revenues from leasing activity. Leasing revenue decreased in the first quarter 2009 for the first time since the quarterly surveys began.

“Over the next twelve months, at what rate do you forecast your leasing revenue will grow, excluding acquisitions?”

Actual YoY Growth As Reported Quarter Percent Forecasted One Year Later

1Q09 -3 .....................................................................................................................................................4Q08 +6 .....................................................................................................................................................3Q08 +8 .....................................................................................................................................................2Q08 +8 .....................................................................................................................................................1Q08 +9 -10.....................................................................................................................................................4Q07 +10 +8.....................................................................................................................................................3Q07 +7 +9.....................................................................................................................................................2Q07 +10 +14.....................................................................................................................................................1Q07 +13 +12

Dealer optimism clearly has been dampened. For the first time this segment is projecting lower leasing revenues over the next 12 months. A review of past forecasts demonstrates that the dealer segment has been fairly accurate with these projections, until this last survey.

“During the recent quarter, how much has average rental rate increased or decreased compared to a year ago?”

Quarter Percent1Q09 +4...................................................................................4Q08 +3...................................................................................3Q08 +4...................................................................................2Q08 +7...................................................................................1Q08 +2...................................................................................4Q07 +4...................................................................................3Q07 +6...................................................................................2Q07 +6...................................................................................1Q07 +2

Many factors influence rental rates including competition, geography, and the quality and type of inventory available.

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“During the recent quarter, how much has average utilization rate increased or decreased compared to a year ago?”

Quarter Basis Points (100 = 1%)

1Q09 -450bps...................................................................................4Q08 -350bps...................................................................................3Q08 -100bps...................................................................................2Q08 -150bps...................................................................................1Q08 -200bps...................................................................................4Q07 0bps...................................................................................3Q07 -150bps...................................................................................2Q07 -100bps...................................................................................1Q07 0bps

Overall, dealers reported an average utilization rate of 72% across all unit types at 12/31/08, and 67% at the end of the first quarter—down considerably from last year. Some regions are experiencing utilization rates in the low 60% – high 50% range. The impact of lower utilization rates can be seen in the projected fleet spending forecast below, which is also considerably lower.

“During the recent quarter, by how much has unit sales growth revenue increased/decreased compared to a year ago, excluding acquisitions?”

Quarter Percent

1Q09 +13...................................................................................4Q08 +9...................................................................................3Q08 +1...................................................................................2Q08 +12...................................................................................1Q08 +1...................................................................................4Q07 +6...................................................................................3Q07 +18...................................................................................2Q07 +10...................................................................................1Q07 -4

On average, dealers derive 41% of their revenue from the sale of new units and another 6% from the sale of used units. Twenty-five percent of revenue comes from “value-added” services such as delivery, installation, stairs and ramps. This revenue segment continues to be solid, perhaps due to many dealers “rightsizing” their fleets to accommodate lower utilization rates.

“Over the next twelve months, at what rate do you forecast your unit sales revenue will grow, excluding acquisitions?”

Actual YoY Growth As Reported Quarter Percent Forecasted One Year Later

1Q09 +7 .....................................................................................................................................................4Q08 +9 .....................................................................................................................................................3Q08 +8 .....................................................................................................................................................2Q08 +22 .....................................................................................................................................................1Q08 +5 +13.....................................................................................................................................................4Q07 +7 +9.....................................................................................................................................................3Q07 +9 +1.....................................................................................................................................................2Q07 +7 +12.....................................................................................................................................................1Q07 +22 +1

There appears to be less consistency in the growth and predictability of unit sales revenue from the dealers. However, this segment continues to show forecasted growth.

“During the recent quarter, by how much has the cost of new units increased/decreased compared to a year ago?”

Quarter Percent

1Q09 -6...................................................................................4Q08 +3...................................................................................3Q08 +3...................................................................................2Q08 +6...................................................................................1Q08 +3...................................................................................4Q07 +1...................................................................................3Q07 +1...................................................................................2Q07 +4...................................................................................1Q07 +4

“Over the next twelve months, at what rate do you forecast your fleet spending will increase compared to the prior twelve months?”

Quarter Percent

1Q09 -18...................................................................................4Q08 -14...................................................................................3Q08 -22...................................................................................2Q08 -2...................................................................................1Q08 -12...................................................................................4Q07 -2...................................................................................3Q07 +19...................................................................................2Q07 +11...................................................................................1Q07 +8

Dealers have reduced capital expenditures for fleet purchases in response to lower utilization rates. The increase in inventory purchases in 2007 may have contributed to the decrease in utilization rates in 2008. On the plus side, the decrease in projected capital expenditures as well as projected increase in unit sales demonstrates that dealers are actively managing the size of their fleet.

D e a l e R s s u p p l e M e n t a l D a t aMBI sent a follow-up survey to dealers asking for more information regarding unit sales. Dealers responded with the answers below:

Effective age of lease fleet? Approximately 5.78 years

Number of months on lease to recoup capital investment? Approximately 44 months

Mean average age of used unit sold? 7 years

Mean average sales price/original cost ratio? 120%It should be noted that the answer to this question depends greatly on the type and condition of the unit. Additionally, this response depends greatly on the business model of the individual dealer. Some dealers choose to continue leasing units for a longer period of time before selling, as gross margins on the leasing side of the business tend to be higher than on the sales side.

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Dealer fleet composition – Dealers indicated that approximately 36% of the lease fleet is comprised of construction siteoffices; 20% general offices; 26% classrooms or educational units; 12% containers; and 6% other types of units.

When asked about gross revenue generated from various markets, the top markets are shown below:

Market Mean

Office (including construction site) ..................................... 34Education ........................................................................... 25State or Fed Gov’t (other than Ed or Military) ..................... 12Healthcare ........................................................................... 7Industrial/Workforce housing ................................................ 7Retail/Commercial ................................................................ 6Military ................................................................................. 6

When asked about depreciation and residual values of the lease fleet, responses varied based on condition and capital improvements to the fleet, market use of the fleet, and the composition of the types of units in the lease fleet (storage containers, construction offices, classrooms, etc.).

The economic value of a leased mobile office or modular building is determined by comparing the total cost of the asset with the income producing capacity over its useful life. Cost includes the initial manufactured cost plus all expenditures for items such as maintenance and taxes incurred during its useful life. Income includes lease revenue during the buildings useful life and sale value upon disposition. Residual value is understood to be the anticipated “value” of the building at the end of the lease.

Across all lease fleet types, dealers reported that the mean number of years used to depreciate their units was 13 years. The mean residual value for the unit was 25%. See appendix for additional information on depreciation and residual values.

M a n u F a c t u R e R s i n D u s t R y D a t a

Manufacturing revenue growth, excluding acquisitions, compared to one year ago:

Quarter Percent1Q09 -20...................................................................................4Q08 -4...................................................................................3Q08 -14...................................................................................2Q08 -14...................................................................................1Q08 -2...................................................................................4Q07 +5...................................................................................3Q07 +6...................................................................................2Q07 +11...................................................................................1Q07 -9

Much of this decline in 2008 is driven by the dealer segment decrease in capital expenditures for fleet products, impacting the wholesale manufacturing segment.

Manufacturer revenue forecast for the next twelve months

Percent Dealer Cap ExQuarter Forecasted by Mfg Forecast

1Q09 -10 -18.....................................................................................................................................................4Q08 -14 -14.....................................................................................................................................................3Q08 +1 -22.....................................................................................................................................................2Q08 -3 -2.....................................................................................................................................................1Q08 +2 -12.....................................................................................................................................................4Q07 +4 -2.....................................................................................................................................................3Q07 +4 +19.....................................................................................................................................................2Q07 +7 +11.....................................................................................................................................................1Q07 +10 +8

“During the recent quarter, how much has the number of floors produced increased/decreased compared to a year ago?”

Quarter Percent 1Q09 -23...................................................................................4Q08 -14...................................................................................3Q08 -17...................................................................................2Q08 -11...................................................................................1Q08 -3...................................................................................4Q07 +4...................................................................................3Q07 +8...................................................................................2Q07 +9...................................................................................1Q07 -11

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Manufacturer lead time:

Quarter Weeks

1Q09 7weeks...................................................................................4Q08 3weeks...................................................................................3Q08 7weeks...................................................................................2Q08 5weeks...................................................................................1Q08 6weeks

Manufacturer lead times indicate that the backlog in the factories is also decreasing. Geography and market segmentation play a large role in determining industry lead times.

Pricing from manufacturers to dealers (the cost for a dealer to acquire a new unit) was essentially flat for 2008, increasing slightly during peak months.

Quarter Percent 1Q09 +2...................................................................................4Q08 -2...................................................................................3Q08 0...................................................................................2Q08 +1...................................................................................1Q08 0

Floors produced for permanent applications vs. temporary applications

Both direct and wholesale manufacturers were asked the percent of floors produced for permanent applications. Not surprisingly, direct manufacturers produce a larger percentage of their floors (55%) for permanent applications. This figure is down considerably from 2007, when direct manufacturers reported 90% of floors for permanent applications.

Alternatively, wholesale manufacturers produced 38% of their floors for permanent needs, up from 20% in 2007.

Direct Mfgs Wholesale Mfgs Total Floors

Averagefloorsproduced 456 647 1,103..................................................................................................................................................Percentproducedforperm 55% 38% 45%..................................................................................................................................................Avg.permfloorsproduced 251 246 497

Using a weighted average of floors produced, and given that the industry has approximately an equal number of wholesale and direct manufacturers, MBI estimates that approximately 45% of all floors produced are for permanent applications, an increase from 2007. This data indicates a trend towards more permanent modular applications. We expect this trend to continue in 2009 as the utilization rates for lease fleet products remains below average and dealers scale back on temporary fleet product purchases.

Commercial modular construction manufacturing facility

M a n u F a c t u R e R s s u p p l e M e n t a l D a t aPercent of floors sold for multi-story projects: Wholesale manufacturers reported 12.5% while direct manufacturers reported 33%

Profit margins for 2008:

Manufacturer Type Gross Profit Margin Net Profit Margin

Wholesale 16.25 7.25.....................................................................................................................................................Direct 21.0 10.0

M a R k e t i n D i c a t o R s There are several market indicators that serve as predictors for the health and viability of the commercial modular industry:

Non-Residential Construction Starts If this number increases, that generally has a positive impact on the commercial modular industry. Dealer utilization rates historically increase due to increased demand for construction site offices. Companies engaged in permanent modular construction also benefit.

School Population Increase in K-12 According to the United States Department of Education: “Public school enrollment in prekindergarten through grade 8 rose from 29.9 million in fall 1990 to 34.2 million in 2003. After a small decrease between fall 2003 and fall 2004, elementary enrollment increased to a projected total of 34.6 million for fall 2007. Public elementary enrollment is projected to continue this pattern of annual increases through 2016. Public school enrollment in the upper grades rose from 11.3 million in 1990 to 14.9 million in 2005, with a projected enrollment of 15.0 million for 2007. Public secondary enrollment is projected to decrease 2 percent between 2007 and 2011, and then begin increasing again through 2016. Public secondary school enrollment in 2016 is expected to be about 2 percent higher than in 2007.”

World of Modular, Annual Tradeshow (pictured here). Keynote address and educational breakout (pictured opposite page)

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School Funding Since 30% of the commercial modular industry is in the education market, school funding has a critical impact on business. Steady or increased funding levels to repair or replace aging infrastructure have a mostly positive impact on the industry, while decreases in funding create uncertainty and delay in construction expansions.

Military Construction Projects The U.S. Army Corps of Engineers (USACE) has been tasked to find ways to streamline its acquisition and construction processes in order to reduce costs and speed up overall delivery of projects,

while at the same time providing quality facilities. The Army requires a minimum 15% reduction in cost and a minimum 20% reduction in time to occupancy. In response to these new requirements, USACE created eight Centers of Standardization (COS) that are not only the design centers of expertise but also will become the acquisition experts for the facility types for which the COS is assigned. Forty-one facility types were identified for standardization.

The Architectural Billings Index (ABI) ABI is a leading economic indictor of construction activity and shows an approximate nine to twelve month lag time between architectural billings and construction spending, with a score above “50” indicating an increase in billings.

s u M M a R y

By virtually every measure, the industry produced fewer units in 2008. According to the quarterly surveys, manufacturers reported 23% fewer floors produced. Labeling information from several sources indicate that production in some areas could be off by as much as 30-35%.

These challenging times, however, may actually benefit the modular industry in the long term, as weaknesses in the site-built industry grow. Customers are increasingly expecting faster schedules, better prices, more environmentally-friendly options and higher quality. This provides an incredible opportunity for an industry that, in general, has capitalized on speed and cost, but is a relative newcomer to the green building movement.

As U.S. Government agencies continue to embrace both modular and green building concepts, acceptance of both becomes more widespread and more affordable for private industry customers.

Given that the advantages of modular construction are real and the primary disadvantage is perceived, the more the public becomes aware of the industry’s potential, the stronger the industry will become.

The modular process has the built-in advantages of quality control, speed of construction, and waste reduction at cost competitive prices. Virtually every other major industry has been automated and streamlined in the last one hundred years, except construction. By delivering on this potential, the industry as a whole could break through within the next three to five years.

Every year the Modular Building Institute holds its annual convention and tradeshow, World of Modular. The 2009 event gathered industry leaders and customers to network and attend training sessions. For over a quarter-century, MBI has hosted the only industry networking and tradeshow for commercial modular construction providers and their partners and providers. To get more information on World of Modular, visit modular.org.

a p p e n D i xDepreciation/Residual ValuesThe economic value of a leased mobile office or modular building is determined by comparing the total cost of the asset with the income producing capacity over its useful life. Cost includes the initial manufactured cost plus all expenditures for items such as maintenance and taxes incurred during its useful life. Income includes lease revenue during the buildings useful life and sale value upon disposition. Residual value is understood to be the anticipated “value” of the building at the end of the lease.

The mean annual depreciation has ranged between 5-6% for the last several years

While there is no specific IRS ruling pertaining to depreciation of modular buildings, the following are intended to be general guidelines:

Always consult a professional tax advisor

Visit the IRS Website for additional resources:http://www.irs.gov/publications/p946/index.html

The determination as to which depreciation recovery period to apply to the building is based upon whether the property is considered real or personal.

Generally speaking, the buildings (modular units) alone do qualify for a faster depreciation than real property. However, once affixed to a foundation, the decision as to whether the property is real or personal (temporary or permanent) falls within the jurisdic-tion of the local code official.

To help determine if a property is considered real (permanent, not intended to be moved), consider the following:

The question of real vs. personal can be answered by both investigating the original building design and a term called inherent per-manency. Inherent permanency is a definition that addresses the question of “Is this structure designed and intended for permanent use?” This issue is relevant, as nearly any structure can be moved. To the extreme end of that scale, the London Bridge was moved to Arizona—but certainly no one will say that this represents relocatability. The question of inherent permanence asks at what point you can consider a structure easily movable and when is it not easily relocatable or reasonably achievable.

Utilizing the 6 way test that was established in the federal court cases of Whiteco and further used extensively in the Fox Photo case (a modular commercial structure), the courts recommend that it be viewed under the 6 way test as established in the Whiteco case:

1. Is the property capable of being moved and has it in fact been moved? To facilitate off-site construction, modular construction requires the manufacture and transport of sectional units from the factory to another site where they will be connected together. The practice of assembly and disassembly of modular units is an everyday industry occurrence. The modular units are designed to be legally transported form the factory over the public highway before use, therefore, reuse after disassembly is commonplace in practice and intended. Further, under contractual obligation, typically the structure must be removed at the termination of the contract of when needed. This most likely will not be the case for on-site constructed facilities.

2. Is the property designed or constructed to remain permanently in place? Non-residential modular construction typically is de-signed and manufactured to be readily relocatable. Foundation systems that are used by modular structures are a function of com-pliance with locally prescribed model construction codes to support the structure. Depending on the prevailing local construction codes, foundation systems, not the structure, may or may not be sedentary or appear to be permanent.

For buildings leased, the term of the average original operating lease contract is, typically less than five years. At the termination of the lease, the structure must be removed from the site, relocated, and then would be utilized at another site.

Since the structure’s modular units are initially intrinsically designed to be transported for highway movement from the factory to the first site, these structural units maintain their transportability for secondary and subsequent moves. For these secondary moves, the act of disassembly typically does not substantially damage these sectional modular units. Additionally, it is common that once the modular units are removed, many of these units may be inventoried, re-configured, and reused at other sites.

3. Are there circumstances that show that the property may or will be moved? The term of the lease or the use of the structure dictates the removal of the modular sections. At the termination of the lease or use, lessor or user is required to disassemble and transport each of the modular sections to another site or return to inventory for re-use at a later time.

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Since these structures are initially constructed in a remote factory, this design allows an industry-wide marketing application of short use of the structure in one location and the ready relocation to another site. This practice is prevalent in the educational, of-fice, airport, institutional, restaurant, correctional, and medical facilities markets to name but a few.

Since these structures have been transported over public highways at least once, the ability exists universally to disassemble and re-transport sectional units with minimal costs for permits and transit. The fees to obtain local disassembly permits are nominal in cost as well.

4. How substantial a job is removal of the property, and how time consuming? The job of removing the modular sections of the structures is facilitated by the very initial design and manufacture of the sectional units. Because of the inherent sectional design, disassembly time is minimal. Typical of costs, including time consumed and materials for disassembly and removal are less the 20% of the replacement costs of the total structure.

Typical disassembly time is less than the time spent in the initial assembly. Typical removal includes disassembly and transporta-tion to another site or to storage. Once in storage, the sectional units may again be transported and reassembled or reconfigured to suit the needs of the next lessee or owner. It is common industry practice to inventory sectional units, and re-configure on a site, as directed by the lessee or owner. The question of cost, time and intrinsic design provide the contrast between readily relocatable and improbability and costly relocation of a structure.

5. How much damage will the property sustain upon removal? Since these sectional units are inherently designed, manufactured, and transported in sectional format for site coupling, these units suffer minimal damage during disassembly. Typically disassembly and removal damage is less the 10% percent of replacement costs to the property. Once disassembled and transported, each sectional unit is capable of being readily re-used in another application or site.

Site restoration costs are minimal after removal, and are usually addressed in contract language; therefore the intent to remove the structure is an integral part of the design and application. Contract leases typically specify that the structure is personal property in finite land and structure leases.

6. What is the manner of affixation to the property to the land? For the non-residential modular industry, the manner of affixation to the property is typically determined by local prevailing model construction codes. The manner of affixation to the site is not an indication of intent of permanence, rather it is a commonplace, as most states have a preemptive statewide construction code for the structure, and local agencies determine appropriate foundation, utility, and land use issues.

The affixation between the structure and the foundation system can be varied. With pier and pad systems, it is gravity or bolted systems or tack-welded systems. The attachment to the foundation is determined by structural requirements and not by intention of permanence.

Typical foundation systems used in conjunction with modular units allow for ready return to pre-installation status with little or minor site reconstruction costs. Foundation selection factors include wind, seismic, support, use, and access requirements in determination of ap-propriate systems. Typically, the termination of real or personal property is not one of the factors in the selection of foundation systems.

g l o s s a R y

Modular: A method of construction that utilizes pre-engineered, factory-fabricated structures in three dimensional sections that are transported to be tied together on a site. Typically, modular construction means that between 80 to 95% are completed at the factory and then delivered to the site for final affixation.

Conventional: A construction method that utilizes assembly of structures on-site, employing multi-layered design and construction processes.

Permanent: Commercial structures serving fixed or lasting facility needs, and not envisioned to be removed or relo-cated. Can utilize either conventional or modular construction methods.

Relocatable: Commercial structures utilizing modular construction methods that can be transported over public roads. Designed to be constructed for efficient secondary relocations without the removal of the floor, roof, or other significant structural modification. Generally under 2000 sq. feet in size, but can be affixed in larger configurations. Other com-monly used terms include: temporary, mobile, and portable.

a c k n o w l e D g e M e n t s

The Modular Building Institute gratefully acknowledges these contributors to this commercial modular construction report:

360MobileOffice – www.360mobileoffice.com

Alberta Municipal Affairs

California Department of Housing and Community Development

Georgia Department of Community Affairs

Indiana Department of Homeland Security, Fire and Building Services Division

Industrialized Buildings Commission

Maryland Department of Housing and Community Development

Robert W. Baird & Company

Texas Department of Licensing and Regulation, Industrialized Housing and Buildings Division

Washington Department of Labor and Industries

Al l s tatements other than s tatements of his torical fact included in this report are forward-looking s tatements and involve expectat ions, bel ie fs , p lans, intent ions or s trategies regarding the future. Al though the associat ion bel ieves that the expectat ions ref lected in these forward-looking s tatements are reasonable , i t assumes no responsibi l i ty for the accuracy and completeness of these forward-looking s tatements and gives no assurance that these expectat ions wil l prove to have been correct . The associat ion assumes no obl igat ion to update any forward-looking s tatement .

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Satellite Shelters Learn more at www.satelliteco.com

M B i 2 0 0 9 p a c k a g e s p o n s o R s

MBI sponsors are commercial modular construction leaders who have taken the initiative to align themselves with the institute in a collaborative effort to promote the industry, educate participants within the industry, and ensure a positive and ethical business environment throughout the industry. We gratefully acknowledge our Diamond Preferred, Titanium, Platinum, Gold and Silver sponsors:

Firestone Specialty Products 2007 Silver Sponsor. Learn more at www.firestonesp.com/modular_roofing.asp

Modular Building Institute944 Glenwood Station Lane, Ste. 204

Charlottesville, VA 22901Toll Free: 888-811-3288

Fax: 434-296-3361

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mOdular.Org

commercial modular construction report modular construction report | 2009. ... dealers which may...

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