How Vantem is Helping Developers Succeed with Modular Housing Projects[podcast transcript]

John McMullen

Hello, and welcome to Inside Modular: The Podcast of Commercial Modular Construction, brought to you by the Modular Building Institute. Welcome, everyone. My name is John McMullen. I'm the Marketing Director here at MBI. Today I'm joined by Chris Anderson CEO of Vantem. Chris is here to talk about how Vantem, an international modular manufacturer, is working with developers in the US and abroad to sidestep industry barriers and build more modular housing. Chris, welcome.

 

Chris Anderson

Hi, John. It’s good to be here.

 

John McMullen

Thank you so much for your time, I really appreciate it. So, tell me about yourself, Chris. What's your background and what led you to Vantem?

 

Chris Anderson

So, I'm a serial entrepreneur, I guess. Vantem is the second company that I started, co-founded a prior company before this, where we did sustainably harvested wood products, mostly construction products, that we were shipping all over the world. The idea for Vantem really was born out of that company. So, when we sold it, we kept the that intellectual property and idea behind and started our Vantem venture.

 

John McMullen

How would you describe Vantem to someone who really isn't familiar with a company?

 

Chris Anderson

So we leverage a proprietary technology that allows us to build very, very energy efficient modular structures, and we leverage it to build affordable, energy efficient, modular, single-family homes and multifamily homes. We’re working together with developers where we really focus on solving the two biggest problems they have, which are cost problems and financing problems for their projects. We do that leveraging that energy efficiency that we have.

 

John McMullen

I know Vantem has a broad portfolio internationally, you sort of alluded to it just a second ago. But let's talk about the system that you mentioned that you use to build these structures. That proprietary system that you've got, what can you tell me about that technology? How has it evolved over the years?

 

Chris Anderson

So, the core of our technology is a proprietary structural panel. It's a structural insulated panel that's made with a special ceramic facing on both sides and a insulation material in the middle. The way that it's made makes that panel very, very structural. So, it doesn't really require additional wood or steel to support, weight, and, and structure. The other thing is that because it's a ceramic facing, there are a lot of other attributes that the panel has. It doesn't grow mold, it's fire resistant, and so forth. So, what we do is we deploy that panel to build modular products where the panel is used on the exterior envelope of the single-family home or the multifamily, giving it all those attributes I mentioned. Strength weatherability, but especially energy efficiency, because it's a much more energy efficient way to build the panel since it doesn't have any extra wood or steel in it. It ends up when we use it to build the entire envelope of a structure. You can think of it a lot a lot like an icebox. So, it's a complete insulated structural envelope on the outside that's not interrupted by any wood or steel. So, an extremely effective way to hit very high energy efficiency ratings.

 

John McMullen

Let's focus on Vantem’s approach to single-family modular. You mentioned just a second ago, that's your primary market here in the US, is that right?

 

Chris Anderson

It is currently that we our first factory that we actually acquired and converted in southern Georgia affinity is a single family factory. So that is what we're producing. today. We are bringing a plant online in September that is specifically aimed at multifamily. And we'll be really, at that point with the rest of the rollout that we're doing. We'll be covering single family multifamily and a very strong emphasis on senior living, which obviously it's just a variant of multicam.

 

John McMullen

Very exciting. Where's that factory going to be in the US?

 

Chris Anderson

It’s in South Carolina. So it's right on the South Carolina North Carolina border.

 

John McMullen

Yeah. How would you describe what you're doing differently from other national home manufacturers? I mean, you've got your panel technology. Are there other factors that you bring in to play that make your single family residences different than the other modular structures that that people are building?

 

Chris Anderson

Yeah, so the core difference is that panel and what it lets us do in terms of very high energy efficiency, right, the homes that we build and the apartments that we will be building can hit, the highest ratings, the Like Zero Energy Ready, or full net zero, which is the gold and the platinum standard for energy efficiency, and we can do it at a cost that's much lower than anybody else, because this panel allows us to now what's unique in our case is that we're deploying this into a complete ecosystem. So Vantem is not just a modular manufacturer, we are, we also, essentially are a complete one stop shop for the developer where we bring the entire solution, you know, the Set the stitch, we bring the contracting element into it, when needed. And most importantly, we bring the financing for the projects, which, you know, we're able to do at costs, and at, you know, leverage ratios that are that are much more favorable because of that energy efficiency.

 

John McMullen

So tell me about how you work with developers. What's that process like for both for you and for them.

 

Chris Anderson

So we have a number of different kinds of developers, but most of them are just really high quality developers that have wonderful projects, in terms of a great piece of land a great concept. And that's usually where we come into the picture. So we'll take a look at what the developers plan is for that site. And then do all of the architecture engineering to modular also then structure the financing for that project. Currently, most of the projects that we're taking on our projects that have been sitting on the shelf, because the costs may not work, right, because the site building costs have been increasing tremendously. So they don't pencil on a cost basis. Or, increasingly, they don't, they don't work out from a financing standpoint, because, you know, banks have retracted and the developers not able to borrow as much as they were able to borrow before we saw both of those problems. Greenlighting essentially projects that otherwise are on the shelf.

 

John McMullen

What is Vantem able to offer developers in terms of time savings and finance options?

 

Chris Anderson

So I mean, all modular well executed, provides great time savings, right? So, that's well known. A project that might take two years otherwise, you know, we're able to do in eight to 12 months, for example, on multifamily. Because of the modular component. What's unique to Vantem is, we solve all of the other problems that developers sometimes have, particularly developers that haven't worked with modular in the past, right. And, and we all know, there are a lot of, you know, developers that haven't had the best experience, because, in my view, in our view, there are some unique skill sets some unique understanding of how you have to structure a project for it to be successful and modular, right. And we're able to kind of partner real closely and hold our partner's hand through the process, make sure that the specification and scope of work, for example, for the site work is done properly for modular, it's not the same, right as a normal scope of work.

 

So, through that, plus a really efficient modular build, that's kind of juice by this panel that we talked about, were able to dial back the costs that they were that they that on these projects to maybe what they were looking at for site building 234 years ago. So there's a there's a, there's a cost reduction by going with us. And we make sure that that cost reduction actually happens, because we're in control of the project all the way through, you know, the turnkey aspect of it right. Then on the other side, from a from a financing standpoint, what we're able to do is also dial the clock back to what developers liked to see, which is being able to borrow for their project, somewhere around 75 to 80% of the project costs were as today as most folks no banks have retracted to the point where they're only lending 5055 developers feel really fortunate if they're getting 60%. Well, what we're able to do is work with that, but then overlay on top of it additional green finance, that plugs in and get you back up to that 75 to 80%. Additionally, we are able to bring in equity into the projects were needed, also juiced by the energy efficiency of what we do because we have investors that are interested in investing into energy efficient green projects, right. So, we're able to bring in some equity that's well priced to the projects as well when it's needed.

 

John McMullen

You mentioned as part of your response just now green financing. What does that mean exactly?

 

Chris Anderson

Well, at its core, what it is, is investors of all kinds from pension funds to maybe family offices that are looking to invest in ecologically responsible or energy efficient Shouldn't carbon mitigated projects, right? That's the there's, there's there is a quite a lot of capital out there looking to invest in these kinds of projects, both as debt, and as equity. And there aren't a lot of projects that really are certified and can actually deliver on that promise of being, quote, great. So, what we're doing really is linking our projects to those investor bases that we have, and sources of financing from specialty banks and bond issuers, things of that nature. That essentially, let us do what I just described.

 

John McMullen

So these green financing options that come in, and they're used in combination with these other forms of the financing and equity and all these to allow the project to come to fruition. Is that right?

 

Chris Anderson

So we'll take, you know, the project usually might, you know, have already a bank for the senior debt that maybe they're only lending 50%. So then we'll bring in another 25 to 30%, of green financing green debt, to get back up to that 75 80%. And, and usually, the developers are putting in the land as equity. And they don't, you know, maybe the project doesn't have enough equity in it. That's where we bring in the investors that put into balance with the equity.

 

John McMullen

I was reading on your website, and in some other places in preparation for this interview, Vantem has just completed some work with a large developer in Florida. I think it was Trinity development partners, I think it was, what can you tell me about that project?

 

Chris Anderson

So we've had actually several projects with Trinity of really good specialty developer. In Florida, as you said, the one that we just structured and will begin production in September is a project that actually started out as townhomes. When we went in and analyze that, together with that developer, we figured out that it would make more sense to restructure that as a Senior Living Option because the numbers work better. And the financing that we'd be able to bring to the table was better. Our partner developer, Trinity, loved it. So, the project has been converted to a Senior Living Project. That's kind of an example of the type of analysis that we bring to the table. Then of course, we do the rest in terms of the engineering, the architecture and finalize the financing for that package.

 

John McMullen

In addition to the work you guys are doing here in the US, Vantem I know does work internationally. Tell me about what you've been able to learn from these different operations. What if any best practices have you been able to apply here in the US from your projects around the world?

 

Chris Anderson

So, we started our rollout here in the US now to about two years ago. The rollout is based on what we learned in our initial international rollout, which was largely in South America. Part of that is just all of the body of testing that we developed over now almost 15 years. A body of products that I think as you mentioned before range from single-family homes into multifamily and hotel and even educational facilities. That process that we went through of rolling out the product and our concept overseas. First, let us really flex our muscles and experiment a lot. Right. So we did a lot of different types of projects. And I think we're able to really identify that as we came into the US. Our sweet spot is, as I said before, single family, multifamily specifically. That up to four story, multifamily or five story on a podium and senior living. That's really where we're focused. The reason that that determination was made is all of that experience that we had over the prior 15 years or so.

 

John McMullen

What's your take on the state of the single family modular housing market here in the US, you say you've been doing it a couple of years you got acquired affinity, in your experience is mirroring the commercial side of the industry or do you see any differences? What is your take on that?

 

Chris Anderson

I think there's a few common threads, but we see it is quite different. And I'll talk more about the opportunity set that we see the opportunity set that we see in single family is affordable single family. And frankly, all of the opportunity sets that we're focused on are the affordable side, right? So the housing shortage that there is in the US is phenomenal. It's huge, but the majority of that shortage is on that bottom third of the price spectrum that that has become really hard for traditional developers and traditional builders to make money on right i mean construction costs, particularly driven by labor cost increases have driven just the price points of building a square if get a decent housing beyond what is accessible to most people. And I think the opportunity set for modular in general, is that we have less labor hours for unit of production than sight building, right? I mean, that's why Henry Ford decided to build cars on an assembly line, rather than continue to build them in garages. Same thing for modular we build in a factory, so we're able to control labor and control costs. So you know, we're bringing that cost savings to the single family home market, so enabling, you know, sales at prices that actually are affordable. So there may be gluts in certain areas, which are particularly higher, higher priced areas, just like you have gluts and commercial. But when you're really focused on that bottom third of the of the cost pyramid, the demand is I mean, it's almost infinite.

 

John McMullen

So why hasn't the adoption of single-family modular homes been greater? What's holding it back?

 

Chris Anderson

Well, I think the two biggest issues are that there aren't a lot of companies in the modular space that are offering a full turnkey product and a full turnkey project. I think most or many companies see themselves as a super sub to a project and feel that the extent of what they need to deliver as a product to the jobsite, and maybe with the set, right, but what ends up happening is because we're just such a small part of the market less than 5%, right, overall, most developers don't have any experience in the modular space. So when you leave them kind of, to invent how to incorporate the modular into their traditional projects. A lot of times it doesn't go well, right. So it's not uncommon to talk to developers to try it and say, oh, boy, those cost savings that I was promised, looked good on paper, but they didn't materialize. Right? That's a common theme, you hear it over and over again? Well, the reason is that that middle space of how to execute a modular project or what others call a hybrid project, well, by scoping the work well, costing it out well, and supervising it, well doesn't always happen. And that's where you know, the momentum stops is if you don't have great success on projects, of course, people aren't going to continue doing it. And you see that you'll see that, unfortunately, quite often.

 

John McMullen

What's the best way for a residential developer who's interested in modular who wants to use it? What's the best way for them to get started? What process should they follow?

 

Chris Anderson

Well, I think the most successful projects are where the module where the developer is flexible, right? That and really works with the modular supplier on all aspects of making sure that the project, what they have in mind for the product really makes sense for modular number one, number two, that the entire project is conceptualized in a way that you can maximize those efficiencies, right. So I might answer your question a little bit differently, what I don't think is a great ideas for developer to fully develop a project with the engineer drawings and, you know, concrete specifications that they want before engaging the modular supplier, that it's too late. You really need to partner early and make sure that the design process the engineering process, the whole concept is done in a way that you absolutely maximize the efficiencies of modular and in those cases, you will see those benefits if it's executed all the way through if the follow through is there.

 

John McMullen

What's next for Vantem? We've talked about new factory coming online in South Carolina work in Florida. Seems a lot of your work is in the southeast. Can we expect Vantem to be in California, Washington soon? What are your plans?

 

Chris Anderson

Yeah, no, absolutely. So we are focused tightly on our rollout in the southeast first. So our goal is to put in place about five factories in the southeast in the next couple of years. And next year, we're going to begin the analysis of which is the next area that we're going to expand to but our goal is over the next seven years to have 20 plants across the US covering all the major markets. And California will be one of them as you asked about specifically.

 

John McMullen

Well, yeah, I just know they have a talk about a glut for housing and they need to you know, they can get especially on the affordable side. Right. This has been great. I really appreciate your time. Sounds like Vantem is doing all the right things and I'm excited to see how you guys progress.

 

Chris Anderson

Thank you so much a real pleasure. Appreciate the interest.

 

John McMullen

My name is John McMullen. This has been another episode of Inside Modular: The Podcast of Commercial Modular Construction. Until next time.