LifeArk Modular Housing - McKinsey Graphs

VISION

Construction Leaders of Tomorrow

“Early adopters of modular construction will likely be the construction leaders of tomorrow…

As modular players continue to gain credibility and scale, we expect modular construction to revitalize and help to finally push construction productivity to new heights. To get there, government leaders, developers, investors, and others around the world will need to take stock of the factors that determine the path modular construction takes to scale.”

*source: McKinsey; Scaling Modular Construction, September 2019

MODULAR CONSTRUCTION Benefits, Opportunity, Demand

Labor and housing shortages are the biggest predictors of where modular construction can gain traction

Modular construction can speed construction by as much as

50%

In the right environment and trade-offs, it can cut costs by

20% McKinsey; Modular Construction: From Projects to Products, June 2019

ANNUAL PROJECTED SAVINGS Europe and the United States

Modular construction in Europe and the United States could deliver annual savings of up to $22 billion*

*source: McKinsey; Modular Construction: From Projects to Products, June 2019

APPROACHES IN MODULAR CONSTRUCTION Complexity and Scale

*source: McKinsey; Modular Construction: From Projects to Products, June 2019

CHOICE OF MODULAR SYSTEMS 2D Panels vs. 3D Volumetric

2D elements call for more onsite assembly while 3D volumetric units are more fully fitted-out offsite A project’s specific requirements will determine the choice of modular system

McKinsey; Modular Construction: From Projects to Products, June 2019

COST AND TIME SAVINGS Schedule and Construction Costs

Modular construction can cut schedule by

20-50% and construction costs by 20% Accelerating Projects: - Design - Foundations - Offsite Manufacturing - Onsite Construction - Rework

*source: McKinsey; Modular Construction: From Projects to Products, June 2019

COST AND TIME SAVINGS Schedule and Construction Costs

*source: McKinsey; Modular Construction: From Projects to Products, June 2019

DEVELOPER STRATEGY Strategic Trade-Offs

Scale up, move toward product offerings with a clear value proposition, and partner

*source: McKinsey; Modular Construction: From Projects to Products, June 2019

DISRUPTION Shifts in Value Pools

All players need to prepare for shifts in value pools

*source: McKinsey; Modular Construction: From Projects to Products, June 2019

MARKET

Attractiveness of Modulars

*source: McKinsey; Scaling Modular Construction, September 2019

DISRUPTION

Engineering and Construction

Disruption of the E&C industry is exemplified by five movements: • Unprecedented (and ever-growing) flows of capital into engineering and construction technology • Blossoming field of new technologies fueled by start-ups • Corporate, large-scale tech M&A • Public-sector demand for technology adoption • New technology companies showing growing interest in the engineering and construction market

*source: McKinsey; Scaling Modular Construction, September 2019

DISRUPTION

Engineering and Construction

Technological advancement alone is not causing disruption: • Many developed economies are facing skill shortages • Fast-evolving owner and customer needs • Pressure on traditional engineering and construction company business models • Prospect of slowing economic growth

*source: McKinsey; Scaling Modular Construction, September 2019

SCALING MODULAR CONSTRUCTION Pathways to Scale

1.

Increased productivity through automation and technology

2.

Effective partnerships

3.

Capacity to deliver a desirable, cost-

1.

effective, quality product

1.

Shift in widely accepted business norms

2.

Clear demonstration of the business value

3.

Competitive market that spurs adoption and innovation

*source: McKinsey; Scaling Modular Construction, September 2019

Create an empowered, highperforming supply chain

2.

Embrace the latest solutions

3.

Lean on historical data for continuous improvement

AFFORDABILITY GAP

Measuring LA’s Affordability Gap and its Impact

•

About 70% of households in the city of LA fall into the affordability gap

•

More than one million households citywide cannot afford market-rate units in their own neighborhood

•

Most of those facing the affordability gap are low-income renters

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

AFFORDABILITY GAP

Measuring LA’s Affordability Gap and its Impact The affordability gap is most acute in neighborhoods near Downtown

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

AFFORDABILITY GAP

Measuring LA’s Affordability Gap and its Impact

The affordability gap has major repercussions for households and drains $18 billion to $22 billion from LA’s economy each year

Angelenos are paying

$6B

more for housing each year

than their incomes can sustain

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

ROOM TO BUILD Zoning Framework

Across Los Angeles,

40,000

parcels near transit utilize less than 25% of their zoning potential

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

ROOM TO BUILD Zoning Framework

Much of the housing gap can be met with lowand mid-rise redevelopment that capitalizes on the ongoing expansion of public transit

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

ROOM TO BUILD Zoning Framework

The City of LA has the capacity to add at least 1.5 million housing units, not including underutilized commercial land

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

TIME AND COST SAVINGS New Building Techniques

New building techniques like modular and prefab construction can deliver significant cost and time savings when adopted at scale

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

ACCELERATING PROGRESS Six Strategies

1. Turbo-charge the process of creating a fully integrated plan with shared accountability for all of Los Angeles 2. Adopt new construction techniques and technologies at scale to decrease costs and accelerate development 3. Gradually increase set-aside requirements to reflect the savings from new housing types and lower-cost construction methods 4. Reduce the time, uncertainty, and complexity of approval and permitting process 5. Stabilize and consolidate public financing for affordable developments 6. Strengthen the safety net for the most vulnerable tenants (MGI pg. 44)

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

PRE-FAB AND STREAMLINED FINANCING Potential Cost Savings

Pre-fab can lower the cost of multifamily construction by 5%-15% Streamlined financing could cut the preconstruction timeline by up to 45% More than 10,000 affordable units will soon convert to market rates

*source: McKinsey; Affordable Housing in Los Angeles, November 2019

HOUSING PRODUCTION GOAL Building Rates

In November 2019, LA County was given an overall housing production goal of 818,943 units, of which 475,694 units should be affordable to households earning less than 120 percent of the AMI. The county would have to increase its build rate by at least 4.5 times over current levels to achieve its overall housing production goal.

*source: McKinsey; Affordable Housing in Los Angeles, November 2019