Discussion Forum

US Steal? America for Sale
Original Comment:
U.S. Steel is one of the most iconic companies in the history of the United States. They even got mentioned in the Godfather! U.S. Steel was the company that built Disney’s Contemporary Resort as a modular building in 1971. U.S. Steel’s South Works facility in Chicago once employed over 20,000 people. The company was a symbol of this country’s manufacturing prowess.

However, beginning in the 1970s, South Works began a long period of downsizing, finally closing for good in 1992. Twenty-five years later, the lot still sits vacant. Despite several efforts to develop the property, nothing yet has materialized. Until now.

The Chicago Tribune reported a plan involving two European companies to build as many as 20,000 modular homes on a 440-acre unused tract of land known as South Works. The Tribune quoted Mayor Rahm Emanuel as saying “this agreement is a major milestone towards converting an unused stretch of land that represents Chicago’s industrial past into a vibrant community that will contribute to the Chicago’s economic, cultural and recreational future.”

On one hand, you have to admire the grit and tenacity of Mayor Emanuel to make something happen with this land. Embracing modular construction is another bold move for Rahm, one that will need to be squared with construction unions. But is selling off part of the Windy City to foreign interests really a good idea? Even if it is the “baddest part of town”, to quote Jim Croce.

The two companies cited in the story are Emerald Living, a unit of Dublin-based WElink Group, and Spanish partner Barcelona Housing Systems. Now, the last time these two names surfaced in the same news story, we learned that a U.K. housing authority had cut a massive US$3.3 billion deal with them. Under the deal, five factories would be opened in the U.K., employing U.K. residents and building 25,000 prefab homes for the U.K. over five years. Sweet deal for everyone, right? Well, not the U.K. modular manufactures who were left out of the deal.

Oh, and one more thing – there was a third partner in the U.K. deal: Chinese mega corporation, China National Building Material Company. It is actually the Chinese company opening the plants and building the homes in the U.K. “based on designs pioneered by Spanish specialist Barcelona Housing System.” Why are those words important? Because it’s the same language that appears in the news stories about the Chicago deal - “The site will have a substantial residential component of up to 20,000 housing units built with innovative, environmentally-friendly technology pioneered by Emerald Living’s partner, Barcelona Housing Systems (BHS).”

The Barcelona deal was apparently selected over a “vague” Chicago-based proposal and another proposal from a Chinese company. But who exactly will be building these homes?

Who cares, you say – no one else was building anything on the southside. Let a Spanish (or even Chinese) company have at it! It will ultimately be better for the city and better utilize an unused piece of land. All true.
The sitting mayor of Chicago is going to tell people it’s a good deal to have a Spanish (and perhaps Chinese) manufacturer build 20,000 homes on a piece of land once occupied by the mighty U.S. Steel? Why? Because part of the deal included the company opening a factory in Chicago and agreeing that factory would be unionized. That’s how Rahm squares the deal with labor bosses.

The modular home industry builds between 25,000-35,000 homes nationwide on an annual basis. A project for 20,000 homes would keep ten modular factories, each employing an average of 125 workers, busy for the next ten years! Oh, and by the way, Elkhart, Indiana is less than two hours from Chicago. That area is also home to nearly a dozen residential and commercial modular manufacturers who would probably like a bit of that action (remember when then-President Obama visited the area multiple times during the recession)? So many questions:

-Is it good for overall industry growth that 20,000 new Chicago homes will be modular instead of site--built?

-Does the development and potential revitalization of the southside of Chicago justify selling off part of the iconic city to foreign interests?

-Do we care if worker paychecks are from Spanish or Chinese companies?

-Is this “modular developer” the new industry model?

Maybe I’m just naïve, or even jealous. Why aren’t more developers working with U.S. manufacturers on innovative solutions to our urban housing issues?
This article is not intended as a wake-up call for the modular construction industry. It’s a far bigger story than that. This is a wake-up call for the North American construction and manufacturing industries at large. And it’s a wake-up call for our political leaders.

There is way too much information here for me to properly vet and vent in one article. I plan on writing a series of articles about this issue, what it means for the industry, and most importantly, what we should do about it.
Started on August 4, 2017 by Tom Hardiman
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Additional Comments:
I think the problem is fairly straight forward. Most of the modular cos. in the U.S. aren't' adequately capitalized to take on such a project inasmuch most are small family run cos. Additionally, the industry, for the most part, is risk adverse. That said a possible solution to what happening in Chicago is to form a consortium of US based fabricators to make a counter offer the bid that is on the table from the international group. As the saying goes, 'if you're not part of the solutions you're part of the problem 'and here's an opportunity to work together to find a solution.
Updated on August 7, 2017 by Peter LaBonte

As an Illinoisan, I can state emphatically that long-term this will be a dismal failure with politicians laying claim to economic development, earning re-election based on it and then cashing checks for themselves, pals and relatives from China, Spain or other locations. The project will then flounder, fail and cost every tax payer a pretty penny or two. Why so cynical? Like I said before, I live in Illinois. I know how things operate.

How should the modular industry respond?

Recognize the dangers. One thing I can tell you for sure, is that modular units from this project will only be more cost-effective if it is a government project and there are tons of subsidies issued to use the units built by the Chicago project. Watch out for inside deals and middle of the night shenanigans (Illinois style). Unless the current modular industry does its share of greasing the right politician's palms, government sector work may dry up for the short run. The other option is to stay vigilant and aggressive in where and how these units are sold, as well as noting and making aware to all the almost inevitable fraud that will accompany any government enterprise in Illinois.

Another danger is lack of quality. They will be hiring largely novices in most positions or importing them from the countries involved or friends of friends. This could cause everything from construction issues to design problems. This abomination will challenge the current message of the true modular industry, that we provide high quality and design improvements and flexibility.

To combat this project it is time to call in favors, draft legislation and meet this threat head on in both the state and federal level. There should be a cadre of natural allies from free-enterprise legislators to those that want to protect the existing business in enough jurisdictions. These contacts should be used to prevent this concept from spreading and the product from being distributed widely to government jobs.

Lastly, despite the ultimate failure that will eventually befall this enterprise, it could be like a wrecking ball to the industry for sometime. No government run project goes silently into the night fast enough. So the industry should leverage what it has to fight, be vigilant and prevent this leviathan from gaining ground in the various markets they will be pursuing. The modular businesses should be able to demonstrate clearly why private enterprise, modular builders are superior and market to the public the differences.

Of course this could just be a way for Chicago politicians to gain some graft as usual in Chicago, but I would rather fight hard now than to find out it was a serious attempt to actually seize control of a large sector of the modular industry.
Updated on August 4, 2017 by Russ Ward

Doubling homes built with modular construction by ANY manufacturer is a good thing for industry. On west coast - I would get hang ups from EVERY manufacturer ( and there are not many) that builds residential modular homes - if I proposed a 20,000 home deal. USA needs a company that understands production modular home construction and is willing to invest in a plant that can supply homes in a timely and cost effective manor.
Updated on August 4, 2017 by Bill Cavanaugh

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