A Modular Player Scales In Urban High-rise Apartment Projects

Modular housing remains a small slice of U.S. residential construction, but a subset of builders is pushing the model forward – particularly in multifamily, where speed, labor constraints and high urban costs can make off-site construction pencil.

Philadelphia-based Volumetric Building Companies (VBC), which builds apartments, student housing and hotels, is among the firms targeting that opportunity. During a session earlier this month at The SHIFT – a placemaking conference in Orlando, Florida, hosted by Tavistock Development Co. – VBC CEO Vaughan Buckley laid out where modular works, where it doesn’t, and why VBC has stayed focused on dense urban projects.

Buckley also acknowledged the sector’s uneven track record in the U.S. Modular has been framed for years as a growth niche, but it has also produced notable failures — including Katerra, which spent more than $2 billion over six years before filing for bankruptcy in 2021.

VBC argues it has a repeatable model for specific high-cost, land-constrained markets, particularly in the Northeast and on the West Coast. Since 2009, the company has opened a 328,000-square-foot factory in Berwick, Pennsylvania; acquired a former Katerra factory in Tracy, California, totaling 577,000 square feet; and expanded in Europe with a factory in Poland of more than 100,000 square feet. VBC said it has delivered roughly 7,000 units to date.

VBC’s urban focus

Buckley founded VBC around high-density urban projects – typically 100 units or more – a niche he said many modular competitors avoided. When VBC launched in 2009, only about 0.25% of Philadelphia’s construction used off-site components, Buckley said.

“VBC approached modular a little differently than our contemporary peers at the time, and it was because we had an urban focus,” Buckley said.

VBC targets large projects because the model’s time savings and labor advantages are more meaningful in markets where construction is expensive and job sites are logistically difficult. In dense cities, Buckley said, sequencing and risk management can be more complex — conditions where he believes factory-built components can reduce friction.

“Where can you make the biggest impact? You make it in areas where labor is constrained and where the neighborhoods are tough to do business with, because of the logistical complexity of just being there,” Buckley said. “It’s a lot harder … in those environments. It’s a lot more complex from a construction sequencing perspective, and the risk level is substantially higher, so that’s really what has differentiated us.”

VBC builds with both steel and wood, but uses a steel modular structural system for high-rise construction above five stories. The citizenM hotel in Manhattan’s Bowery neighborhood, built by VBC, was the world’s tallest modular hotel when it opened in 2018 at more than 245 feet.

In 2022, the company merged with Poland-based Polcom, a manufacturer of steel-framed modular buildings. Buckley said the merger expanded the company’s ability to deliver buildings up to 35 stories, reinforcing its urban infill strategy.

“These kinds of complex sites really can only be done with a noncombustible product like steel, and now we’re bringing that to the U.S.,” Buckley said.

Where VBC’s model works well – and doesn’t

Multifamily modular construction can shorten timelines by 30% to 60% compared with traditional construction, Buckley said. This is largely because site work and module production can occur concurrently. The factory model can also reduce labor needs and improve repeatability.

Cost savings, however, are market-dependent. In lower-cost regions – especially where land is plentiful and labor is cheaper – modular’s advantages may be limited.

As a result, Buckley said VBC’s approach is most competitive in expensive, land-constrained markets such as coastal California or the I-95 corridor from Washington, D.C., to Boston. By contrast, he described Central Florida as a tougher fit for steel high-rise modular at current construction costs. VBC’s U.S. projects are concentrated in Los Angeles, Washington, D.C., Philadelphia and New York, he said.

“Orlando is a very difficult market for modular to work on a steel high-rise scale, because the cost of construction here hasn’t yet met a pivot point where the efficiency in the factory can provide you with high cost savings,” Buckley said. “But it can still provide you with schedule savings, and it can still give you a performance impact that’s positive.”

Modular’s growth trajectory

An analysis by the National Association of Home Builders found that off-site construction’s market share in multifamily is about 3%, with modular construction representing about 2%.

Even so, Buckley said he has seen growth in urban markets. He said off-site market share in Philadelphia is about 50 times larger than it was when VBC started in 2009.

Buckley also pointed to Europe, where modular multifamily is more common. In Sweden, for example, he said 30% to 40% of multifamily buildings are factory-built. He attributed higher adoption in Europe to codes that emphasize performance outcomes rather than the more prescriptive structure common in the U.S.

While he expects modular to grow in the U.S., Buckley characterized the outlook as gradual rather than explosive.

“We’ve all heard that off-site, whether it’s modular or any of the other technologies, is soon to explode, and it’s going to have massive growth,” Buckley said. “The reality is we’re not going to ever actually see it look like that.”

Buckley framed labor as a key driver. As experienced tradespeople retire, training new workers takes time and investment. Factory environments can shorten the learning curve by narrowing workers’ tasks, he said.

“I can take somebody into an electrical department in my company, and we can make that team member a competent and capable member of the team within about two weeks,” Buckley said. “I don’t need to teach an electrician how to wire, how to put a device in, how to trim out cover plates, how to make sure that polarity is good, and how to do ground testing. I need to teach this one particular person how to drill holes in a stud and to put a wire.”

What it means for builders

The long-term market share for modular housing remains uncertain. But if modular expands in multifamily over the next decade, early movers with established manufacturing capacity and repeatable processes could be positioned to win bids in the highest-cost markets – where speed, labor constraints and project complexity put a premium on execution.

“We can all agree or disagree whether or not factory construction is going to be a big part of the future in 10 years,” Buckley said. “But what I hope we can all agree on is that those who start early are going to have an advantage when it moves forward. From an execution perspective, that will be hard to match.”