MONTGOMERY, ALA. Summit Housing Partners is building its latest project using modular construction, a move that is shortening the building time and providing equity from a special investment fund.
The development team expects to draw strong demand for the 55 affordable units at Heritage View Apartments, which will be located next to the Cleveland Street YMCA.
“When you believe you are going to have plenty of folks ready to move in sooner than later, being able to have buildings up and available and compressing the distance from the first building to the last building means you are not in a construction zone as long as you might be with conventional construction,” says Daniel Hughes, CEO of Summit.
The firm hopes to shorten the building period from what would be about nine months under conventional construction to about five months, Hughes says. The first units are expected to be available around April or May.
Heritage View is Summit's first experience with modular construction.
The development will be comprised of 11 two-story buildings built by Clayton Homes, a Berkshire Hathaway company, in its factory and then transported to the development site, where the apartments will be placed and assembled on a concrete slab foundation.
“You will not be able to drive down the street, look at it, and discern that it was modular in any way, shape, form, or fashion,” Hughes says.
Modular does not mean cookie cutter. Stylish gables, different materials, and other touches can be made to make each project unique. For example, Summit is adding new staircases and covered landings.
The flexibility in design and compressed construction time are among the advantages.
On the other hand, developers shouldn't expect a modular project to be cheaper than conventional construction. Summit has found the costs to be about the same or more depending upon the size and scale of a design.
Because Summit is trying modular construction for the first time, it had to be the right project. “If you are going to try something new, do something that you know is going to work—55 residences next to a historic Y is a good lease-up bet,” Hughes says.
Replacing an old, uninhabited cinderblock apartment building, Heritage View is expected to improve the entire neighborhood.
“It is good for the Y, good for the historic neighborhood, and a good solid investment for our company,” Hughes says. “And, I get the added benefit of being proud on a personal level as well."
Hughes has a personal connection with the Cleveland Street Y. He was part of the first wave of young white kids that played basketball at the facility in the early 1970s.
Montgomery is the center of the Civil Rights movement, including the bus boycott of 1956. The Montgomery Improvement Association, which sustained the historic boycott, was led by Martin Luther King Jr. After the boycott, the association had about $22,000 left in its coffers. King gave that money to the area YMCA on the condition that it be invested in a Y that would make a difference in the lives of young people. That turned out to be Cleveland Street, which provides after-school activities to about 400 children.
The $8.6 million project is funded with low-income housing tax credits allocated by the Alabama Housing Finance Authority (AHFA). The credits generated about $6.3 million in equity from a fund administered by National Equity Fund, Inc.
In addition to owning Clayton Homes, Warren Buffett's Berkshire Hathaway invests in a fund that provides equity for projects using Clayton Homes products. Morgan Stanley is also an investor in the fund.
AHFA also provided $1 million in HOME funds, and the city of Montgomery added $900,000 in HOME and Community Development Block Grant funds.
Wells Fargo provided a $5.2 million construction loan. Once construction is done, the loan will get reduced to a $740,000 first mortgage loan by the Alabama Multifamily Loan Consortium, which is made up of about 40 banks.