“Innovation” was a predominant theme at ULI New York’s Construction Technologies and Methodologies program held last Wednesday at Clifford Chance. The discussion revolved around the Atlantic Yards project in Brooklyn, currently being developed by Forest City Ratner. FCR is innovating in the way it is constructing the residential portion of the project. It has partnered with to develop Atlantic Yards utilizing modular construction. FCR and Skanska have created a manufacturing facility in the Brooklyn Navy Yard where modular components will be assembled and then trucked to the development site.
Panelist Maryanne Gilmartin, from Forest City Ratner, explained that FCR’s decision to use modular construction was “innovation by necessity”. The residential portion of Atlantic Yards has a large affordable income housing element. Gilmartin emphasized that the project may not have penciled out had modular construction not been an option. For Atlantic Yards, the usual low-income housing standards are not in place. There are plans for high-rise buildings, there is land cost, and construction is unionized. All three are usually impediments to development of low-income housing and projects of this scope. Modular construction provides a (potential solution.
The panelists noted that using modular construction for a project of this size and scope is much more innovation in process than innovation in product. Modular construction has been done before, and it has been done before in NYC. However, it has never before been done at this scale. Forest City has partnered with Skanska because Skanska is an expert in construction and engineering, not because it has constructed a modular project of this scope successfully in the past. Tom Webb, from Skanska, noted that mistakes will be made and lessons will be learned. Unknown unknowns will become known unknowns. The innovation will be in the way FCR utilizes modular construction to develop profitable real estate, not in the way the modular components are manufactured.
Because of this process innovation, NYC’s real estate industry will be watching to see how the project moves along, if they can learn anything about the process, and if they should get involved themselves. Joseph Ienuso, from Columbia University, noted that Columbia will be very interested in understanding if it may use modular construction to better suit the needs of its undergraduate community. With constant turnover of the student body, the university constantly has to re-invent its offering. Modular construction could be relevant to Columbia, but the methods are untested. If the Atlantic Yards project can be built on time, on budget, and with enough quality to attract high-rents and quality tenants, other real estate stakeholders, such as Columbia, will most likely get involved with modular construction.
Forest City and Skanska have positioned themselves to take advantage of that upswing in demand for modular construction if it is to materialize. The module manufacturing facility that has been built at the Brooklyn Navy Yard will operate at 75% capacity at the peak of the Atlantic Yards project. The excess capacity will allow Forest City and Skanska to take orders for modules from developers and contractors working on other projects. If they are able to prove that modular construction can be implemented profitably at Atlantic Yards, they stand to reap profits from operating the additional 25% of the manufacturing plant.
The panelists made it clear that innovation is indeed alive and well in the NYC real estate industry. However, the tone of the panel was “wait and see”. It will be some time before modular construction becomes the standard for NYC developers and contractors.