The main criticism of modular construction in real estate is that if factory-built modules do not cost less per square foot than traditional construction, the model fails. Daniel Kaufman, president of Kaufman & Company, argues this misses the real value in today’s construction environment.
“Our biggest savings are time,” Kaufman says. “Getting a project completed faster, getting revenue in the door, is very impactful. Does the price per square foot—do we save money there? No, at this time, we do not.”
Kaufman points to his firm’s first fully modular residential project in Spokane, Washington, which was completed in four months, compared with the typical 18 to 24 months for traditional construction. He says this change in speed alters the financial model enough to offset any per-square-foot cost premium.
Kaufman’s case centers on when a project starts generating income. In a traditional 24-month build, a developer pays debt and overhead for two years before earning revenue. With modular construction, a project can begin earning income in the fifth month.
“I can get revenue in the fifth month of a project, as opposed to the 24th month,” Kaufman explains. “That’s where we see the savings. And so that mitigates the higher price per square foot.”
This acceleration shifts project economics. Debt service begins earlier but is matched by income to cover it. Equity capital is freed up for new deals more quickly, accelerating capital redeployment. Return on investment changes sharply when the holding period before stabilization drops from two years to just four months.
Kaufman says this advantage is even more critical now, given that construction costs are high and volatile. Rather than waiting for modular costs to drop as production scales up—a process he expects to occur over time—developers can benefit immediately from faster project delivery.
Kaufman also highlights a key operational benefit: modular construction helps solve the current labor shortage in construction. “One of the biggest challenges right now in the United States is a fractured labor force,” Kaufman says. “There isn’t labor everywhere you need it.”
Traditional construction requires coordinating multiple trades on-site, with each needed at specific times. Shortages of electricians, plumbers, or other trades can stall an entire project. Modular construction, Kaufman says, avoids these delays by centralizing all labor in a factory.
“Building in a factory, all your labor’s in one place,” he says. “You never have to worry about not having an electrician or a plumber or a painter—they’re all there working in that environment.”
According to Kaufman, this consolidation also improves quality because work is performed indoors and is not exposed to the weather. His Spokane project reached full occupancy in what he describes as record time, which he attributes partly to the quality and speed of factory construction.
However, Kaufman notes a significant challenge: modular construction is limited by logistics. While traditional construction can happen almost anywhere, modular construction is constrained by the distance modules can be shipped from the factory.
“A modular facility really could only service a single metropolitan area,” Kaufman explains. “The logistics of getting truck after truckload of these modules—you really can’t go very far.”
For example, a 30-unit modular project may require more than 15 truckloads to transport all modules from the factory to the site. Each shipment requires space for unloading and crane time for installation. Shipping modules more than about 100 miles quickly becomes too expensive due to fuel, trucking, and labor costs.
“If I have one in Los Angeles, it could only handle Los Angeles,” Kaufman says. “It won’t be able to handle San Francisco. It won’t be able to handle Reno, Nevada. Reno would need its own. San Francisco would have to have its own.”
Modular construction works best for developers who have long-term plans in specific cities and the capital to invest in local production capacity. Kaufman says his firm is considering either acquiring existing modular facilities or building new ones, but the process requires time and resources.
Currently, only about 5% of DanReDev’s projects use modular construction. Kaufman wants to increase it to 10 to 15% next year, but says the main barrier is production capacity.
“We just don’t have that ability yet,” Kaufman acknowledges. “Getting that scaled up takes time. We are not going to pivot fully to a modular-first company, because we don’t have that ability yet.”
He says the firm regularly evaluates modular facilities nationwide but has not yet found any that meet the requirements for scale and financial stability. As a result, DanReDev is building its own modular capacity in markets where it expects to have a lasting presence.
“We feel like it’s a worthwhile investment to invest in these markets that we’re going to be in for a long time,” Kaufman says.
If Kaufman is correct, the debate over modular construction has focused on the wrong metric. For years, the industry has debated whether modular can match or beat the per-square-foot cost of traditional construction. But in an environment with high costs and labor shortages, faster delivery may be more valuable than marginal cost differences.
Capturing this value requires significant upfront investments in factory capacity and a long-term commitment to specific markets. Developers without this capital or focus will find modular impractical. For firms that can invest, the speed advantage can provide a lasting edge.
The future of modular construction may depend less on matching traditional construction costs and more on whether developers can fund dedicated production in their target cities. As labor shortages and project delays persist, those who prioritize speed—and can support the necessary investment—may be best positioned to benefit from modular’s real strengths.
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