On the evening of September 29th, 2016 a group of ULI members gathered for a panel discussion on the state of local construction costs. The panel, moderated by Ann Silverberg, Executive Vice President of BRIDGE Housing, discussed the current constraints being placed on the industry, potential resolutions, projected cost trends, and how modular is becoming a cost-effective alternative. The event took place at DPR Construction’s San Francisco office, the first certified net-zero commercial building in the city. Esteemed panelists included, Jeff Gherardini the Construction Manager and Vice President of Plant Construction, Gregory Mantz a Project Executive at DPR, Rick Murdock the Co-Founder and COO of Prefab Logic, and Bob Nibbi the President of Nibbi Brothers General Contractors.

Attendees left the evenings discussion with a number of key takeaways, including a better understanding of local cost trends. The overall Bay Area construction market can be regarded as an outlier when compared to national costs. The Bay Area has experienced construction costs rise approximately 6 percent per year while construction costs nationally are only seeing increases of about 1 percent per year. These increases are putting additional strain on meeting affordable housing needs. With the demands on additional capital to complete projects new developments in the multi-family sector are being targeted more towards high-end demand. Currently BRIDGE Housing has a 28,000 person waitlist of people looking for affordable housing. If supply in the local markets is unable to match this increasing demand some experts project that it will start to impact the overall economic growth of the Bay Area.

With lean market conditions being the rule, a number of local developers and contractors are dialing in on increased construction efficiency and other innovative cost mitigating solutions. With regard to controlling costs, some key principles discussed were using a design build or integrated project delivery method. Doing so can limit costs associated with project lag time, material and resource procurement, and can increase efficiency by eliminating bidding and redesign periods. A particular point of emphasis from the panel was to engage contractors early on in the process and come prepared with a complete set of plans. Other cost-effective recommendations included the offsite prefabrication of critical parts or components.

The final focus of the evening turned to modular building. In the eyes of our panelists modular is often a misunderstood option and can require an educational process. A big misconception surrounding modular is the scope of work that can be done offsite, often leading to project bids from subcontractors that are high and do not reflect the final cost of construction. Perhaps the biggest perceived benefit around modular is the capacity to combine speed and craftsmanship to finish quality projects cost-effectively. Modular building can effectively increase the speed of a project by finishing portions of the building while the land is still being developed. However, modular is not without difficulties and requires a very precise design and specification stage, once a project is started in the factory it is difficult to change course. Additionally, there may also be long lead times in order to gather all the prerequisite materials. In the end, detailed planning and assembly line standardization become critical to favorable project outcomes.

While the Bay Area continues to offer its fair share of challenges for developers and community housing, there is optimism among those helping to create cost-effective solutions and attendees left with a better understanding of the local construction cost landscape.