Paul Lewakowski, Lionheart Development
Lewakowski left construction for the financial industry, and then went on to executive management. From 1999 to 2002, Lewakowski was president and CEO of the Veos, PLS, where he led a distressed company to record profitability and an IPO. He provided capital fundraising and consulting services to small firms in the Chicago area, and then returned to the construction industry, leading a condo renovation in Florida. He then traveled to New Orleans to assist his brother with rebuilding the Gulf Coast after Hurricane Katrina, and began to pursue the opportunity to bring modular development to the region.
NuWire: Can you give me a quick explanation of what modular homes are and what they are not, in order to clear up any misconceptions that people might have?
Lewakowski: I suppose modular homes often get confused with mobile homes. Seeing this confusion posing future problems, the governor of this state of Louisiana made a formal statement separating it clearly in the sense that a mobile home would be a home that is on a movable chassis and a modular home is a home that's not on a chassis and cannot move. So that would be the definition in the technical sense. We all know what mobile homes look like, but the modular home is a home that is built in the traditional means, the same that would be built on-site, but it's built off-site and then moved to the property in sections.
NuWire: What in particular about modular homes in your opinion should be appealing to investors and/or developers?
Lewakowski: Originally I was doing modular on a very high level in Chicago. We were doing anywhere from $800,000 to $4 million homes. What is appealing to both the customer and the developer, on my end, is that you're taking so much of the risk out of the game. When you're building on-site...you're dealing with, of course, the weather factor, accidents, theft, you're dealing with everything that could happen in an open environment versus everything that could happen in a controlled environment
Also, you have a much higher quality control standard when you're doing custom modular than you would have if you were building on-site because there's so many people looking over. You have third-party inspectors that are...examining the house and the plans with the state code books open. You have many more engineers and architects involved. Basically the process that you run through is very thorough and precise, just much more of a controlled process. Not to mention the technicality of the carpentry is so perfect because they use large machinery to cut the wood, and virtually no margin of error in finishings and trims.
You're also controlling the insurance company's risk by eliminating much of the risk factor from accidents that may happen on the job. You're controlling the financing company's risk because the finance company is in a situation where they know the majority of the work is being put on the manufacturer.
So if we're controlling all those risks, at the end of the day, you’re really controlling the customer's risk and therefore the price. We give our customers a guaranteed maximum price because...there really aren’t many surprises or cost overruns. Overall, the price is cheaper because all those things are under control, if that makes any sense.
NuWire: What is the typical cost per square foot on modular homes?
Lewakowski: The cost to the customer, typically...depends on the area and depends on [where] you're shipping to....But typically you're looking at 20 percent cheaper than what it would cost you to build on-site.
At this point in time in Louisiana, building using modular construction is extremely cheaper because you have a supply and demand problem here in Louisiana....There's a huge demand for building services and the supply of qualified workers is low comparative to the demand. Typically, what would balance that scale would be price. So if the price comes up, the demand would go down because the price is higher, except the demand isn't going down because everybody needs new homes because there's been a hurricane...commercial properties and multi-family units are also affected.
This is why I brought this concept to the area in the beginning. It makes a lot of sense in Louisiana because of a variety of reasons: the time to build is a whole lot longer, the quality is a whole lot less for on-site building because there's not a supply of skilled workers...and the price is higher. So if you're building on site it's going to cost you more for a project that's going to take longer and be of a lesser quality.
We're kind of a hybrid company because we do custom modular....The customer can bring in any set of plans and I will build it using modular construction. This is one way to do it. Or...if they don’t already have something in mind, we can use our architects that have designed plans to be built on-site here in New Orleans, take those plans and build a home using modular construction. So everything we do is custom designed.
On a standard level, it's still 20 percent cheaper, but you have a custom home that is exactly as you've designed it or how you’ve asked an architect to design it and we build it that way. The price will vary depending on exactly what you want in it. We allow our customers to self select all the interiors, flooring, lighting, bathrooms, etc., and we have our purchasing department, meaning you don't have to pick between one of five choices, and you're getting a cheaper price and the quality control and a time delivery aspect that goes along with that.
NuWire: How does delivery of these homes work? And are buyers potentially limited on which types of properties that modular homes can be placed on?
Lewakowski: These days, there's very, very few properties we can't place a house on because the guys that operate the cranes are fantastic. You have to deal with power lines and trees, and so on and forth. But we haven't found one yet where we couldn't set the house.
The price for delivery will change depending on the manufacturer you're using and how many miles away that manufacturer is from the actual property. It's not a fixed price. So if you're using a manufacturer in Iowa, for example, which we do, to deliver to Louisiana, that will cost you more than using a manufacturer in Georgia delivering to Louisiana.
The only restrictions are in height. You do have some height restrictions. However, we can do 10-foot ceilings....These days we can do anywhere from 8 to 10 foot on a single story or the second story of a house.
NuWire: What other factors would weigh into the cost?
Lewakowski: More than anything, the most important factor that weighs into the cost is the quality. We use the best manufacturers in the United States, the companies that are known, and they've been building custom homes for 35 years.
Stratford Homes is a manufacturer we use out of Wisconsin, but they also have a plant in Iowa. We pay more for shipping, but we will ship all the way from Iowa to Louisiana because of Stratford’s quality and their employees' abilities. The average employee at Stratford has worked there for 17 years. We are using the highest quality. We also use Haven Homes, and they have a new plant in South Carolina. It's further to ship, but they're known as the best. So we'll pay more for a higher quality product.
We are finding here in Louisiana that the quality of these custom modular homes are much higher quality than what is being built on-site in the majority of the cases. They're also...more efficient....Because you have to travel down the road with it, the framing is done all in two by six walls and since they're thicker walls they have more insulation. Also the ceiling has more wood and therefore more insulation. And then they wrap the whole house in wood for sturdiness to travel down the road. So the end result is that you end up with a very, very sturdy home.
NuWire: Can you talk about any kinds of zoning restrictions that you have had to deal with?
Lewakowski: There have been some zoning restrictions only because of the misunderstanding between modular and mobile homes—there's a couple of cities here that had never done modular, and they were confused with modular and mobile homes, even though there’s a very obvious difference which the governor has addressed, but you're also controlled by a different entity. The National Home Builders Association governs modular, and mobile homes are governed by the mobile home dealers.
So we've gone into a city, and that city—Abita Springs is one example—didn't accept modular homes, so we went to the mayor, we went to the city council meetings, and we actually had their laws changed...because we showed them what we're doing and what kind of homes we're building and the quality of it and their...city council and mayor took a vote on it and they changed the law.
The same with a city that's close to New Orleans called Kenner, La. They didn't accept modular, but we...petitioned to the city council....It's almost like, you know, times change. It's almost like switching from a coal engine into a gas or diesel engine. Things change. It's a new way of building.
NuWire: Do you typically see the resale values of modular homes being on the same level as stick built, or are they higher or lower?
Lewakowski: They're the same...Everything just depends on the quality of the home.
You can get a quality modular home or you can get a modular home that's built horribly. You know, the same with stick building. You can get a contractor that does a horrible job or pay more for a contractor that does a fantastic job. That will not change.
In general, there's just much more quality control in the modular arena because there has to be, and there’s just nothing close to it if you’re trying to build on-site; there’s no comparison. And you won't be able to tell whether it's modular or not modular once that home is set.
NuWire: Can you talk a bit about the advantages of owning a modular home and then also touch on the disadvantages a little bit?
Lewakowski: Once the home is up...the advantage you have is that you know you're getting something that's built well. For example, when they build the deck of a modular home...they'll lay out the floor joists, build the box around them, put the plywood on top, and then...their machinery will physically lift that whole deck up and they'll look under the deck to see if any nails were missed...and if there was any nails missed they'll put them back in and they'll make sure everything is done perfectly. So you're ending up with a very, very efficient home.
Typically when they're building on-site they're going to build towards the code. Here in New Orleans, for example, the code will tell you, you use two by four walls with R-11 insulation. Well, every modular is two by six exterior walls with R-19 insulation. The ceiling, the code may say use two by 10s, but we're using two by 12s, so instead of R-30 insulation we're using R-40 insulation. So you'll have a very, very cost efficient home that's built at a very high quality.
Another example: the local code will tell you that on the corners of your house you have to put...two sheets of plywood next to each other to...make it more sturdy, whereas we’re going to wrap the whole house in plywood. The code will tell you in Louisiana that you have to build...to withstand 140-mile-an-hour wind gusts. [If] you're building on-site...it’s up to the engineers to figure out how to do that, and they do a very good job, but since you have so much quality control in the manufacturing plant, you are guaranteed it's going to come out that way.
The only difference between modular companies I’d say, where it used to be a disadvantage...is that some companies ask you to pick between one of the five or 10 choices so you're getting a very square, boxy-looking, plain house. With us, that's not even an issue since we’re doing custom modular. Very few people, I will say, are doing what we’re doing, providing custom modular homes where you can bring in your own set of blueprints and have the house built according to your plans or hire local architects that have designed homes for traditional on-site and we're building them custom modular. So the old idea of, “I'm stuck between picking out between one of the five choices and I want to build a home that's mine,” that's gone away for the companies who are doing custom modular where the entire design and layout of the house is completely up to the customer.
NuWire: Can you talk a bit about construction financing and if it's available on these homes just like stick built homes?
Lewakowski: Of course! Even the banks have come around. Everyone's turned the corner. Traditionally, a construction loan was done in phases....In other words, once the foundation is done you will get a payment, once the framing is done you will get a payment, once the drywall is on and the trim is done you will get a payment, and so on and so forth. There was a longer process. For us, our process happens so much faster that by the time the construction loan comes out, the house is finished.
When building using modular construction, you will have two large payments and a small one. Overall, there are less payments. The banks are aware of how it works. Their risk is lower, so they're happy to say, "Okay, we just have to change the way we do things." And today...most banks are very familiar with modular—certainly here. They'll say, "Okay, we'll give you this amount, 35 percent up front, and that will get your whole foundation done and your whole house built."
Then once the house is delivered, they're going to pay the next larger payment. So the financing is simple these days.
NuWire: Are there any major differences between multi-family units and normal single family ones in terms of construction cost and time and delivery and all of that?
Lewakowski: One of the biggest projects utilizing modular construction that's being done here in Louisiana right now will be coming together in New Orleans East. It's a multi-family complex, 16 buildings, 208 units. It will be about 420 boxes that will be shipped. It's...in the tens of millions of dollars. The investors hope to do it through Lionheart Development and one of our manufacturers.
Once you start going, you can go...three stories without using steel. Once you get higher than that, you have to start using steel for support underneath. People that are doing multi-family are loving it because...their risk is controlled, their time is controlled, they know what they're going to get and they know when it's going to come and it's not going to take forever.
NuWire: You're in New Orleans...I'm just kind of curious in hearing your perspective as a person that's building modular homes in that area. If you can just kind of talk generally on that, that would be great.
Lewakowski: Before I got to Louisiana, I was doing custom modular in [the] Chicago area, because it made more sense there.
When I came to Louisiana, I started helping with the rebuilding effort. And then seeing the state of things here, the problems with unskilled labor and expensive materials, poor timing, overall a huge demand for home construction, I decided to do custom modular here.
Before the storm, there were not any companies doing modular here in New Orleans. The architecture is very old...the city has its own unique architecture and its own mentality, so when we brought the concept of custom modular homes to the people in the city, no one was very familiar with it. They had the misconception that it was of a lower quality and would ruin the architectural theme and culture of the city, and so forth.
It was hard to get people's heads around what modular is and what the quality is today. The part they were interested in the most was getting their home fast, but still they had issues like, "Well, I'm going to get a lesser quality home, and it's not going to be New Orleans style, and the face of the city's going to change," and all those things. Until we said, "No, no, no; we'll use all the local architects that know what the homes here are supposed to look like and we’ll do it fast and better, you’ll see…"
A lot of people have been coming from all parts of the country to New Orleans to see how things are progressing, maybe to see if there are any opportunities for them; lots of builders and developers and investors coming....When they see what we’re doing and they see how it works and they see the quality of it, it doesn't take long for them to be sold on it.
