Warren Buffett to Offer a New Spin on Modular Construction
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Warren Buffett to Offer a New Spin on Modular Construction

A startup owned by Berkshire Hathaway aims to make the construction industry more like car manufacturing.

By Konrad Putzier
Thu, May 20, 2021 1:40pmGrey Clock 2 min

A startup owned by Warren Buffett’s Berkshire Hathaway Inc. aims to shake up the construction industry by making it more like car manufacturing.

MiTek Inc., a Missouri-based construction-technology company, is launching a new modular building venture with New York City-based architect Danny Forster & Architecture. The company plans to build entire rooms for hotels and apartment buildings in factories, and then send them to a construction site to be stacked on top of each other.

MiTek has more than 6,000 employees and sells building components, construction software and services like engineering. The company said it is investing tens of millions of dollars in the modular venture, and plans to start working on its first projects early next year.

Modular construction isn’t new, but companies have struggled to be profitable. Transporting entire rooms to construction sites can be expensive, and some finished buildings have suffered from leaky facades.

Other efforts to streamline the construction process have also had issues. Katerra Inc., a Silicon Valley-based startup, has been looking to move a bigger part of construction work to factories and become a one-stop shop that cuts out middlemen like plumbers and architects. But it has struggled under this model, and its main backer, SoftBank Group Corp., had to bail it out.

MiTek looks to modernize modular construction by requiring assembly by general contractors. Instead of building entire rooms in a factory and driving them to a construction site on a flatbed truck, MiTek wants to ship kits of manufactured building parts along with instructions.

General contractors would then construct rooms from these parts, which would include a steel cage forming the structural support for the room, in a warehouse or other type of industrial building near the construction site.

Shipping the parts, rather than entire rooms, keeps transportation costs low and allows MiTek to supply the country from its factory in Lebanon, Pa., said Todd Ullom, the company’s vice president of modular building solutions.

That companies continue to invest in modular construction despite the challenges speaks to the business model’s promise, proponents say. Construction is a massive industry, plagued by rising costs and inefficiencies. Anyone who manages to automate it the way Henry Ford once changed car manufacturing stands to make a fortune, some industry observers say.

“How come an entire industry is operating on mid-to-late-20th-century mode when we’re a quarter of the way, almost, into the 21st century?” said Barry LePatner, a New York-based construction attorney. “It drives me crazy.”

MiTek’s approach brings its own challenges. Relying on customers to assemble rooms based on written instructions can be tricky. Many general contractors are resistant to change, which could lead to friction and mistakes.

Mr. Ullom, who worked as a general contractor for more than 30 years, said relying on a single supplier instead of numerous subcontractors reduces risk, and the instructions are simple to follow. He said MiTek would offer on-site training.

MiTek also plans to automate much of its 225,000-square-foot factory, for example by using robotic welders, not unlike how auto makers assemble cars. Architect Danny Forster’s firm has designed what could become the world’s tallest modular hotel, a planned 26-story building for Manhattan. He said other modular-construction companies moved work from building sites into factories but failed to make it faster or more efficient.

“A lot of times it has been bringing the chaos of the construction site and just putting a roof over it,” he said.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 18, 2021.



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Boost for World Economy as U.S., Eurozone Accelerate in Tandem

Surveys point to a fresh acceleration in the U.S., even as growth in the eurozone strengthens

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Global economic growth is becoming more broad based, with surveys indicating that business activity in both the U.S. and the eurozone gained momentum in May.

The eurozone economy contracted in the second half of 2023 following a surge in energy and food prices triggered by Russia’s invasion of Ukraine, and the subsequent rise in interest rates intended to tame that inflation.

By contrast, the U.S. economy expanded strongly over the same period, opening up an unusually wide growth gap with the eurozone. That gap narrowed as the eurozone returned to growth in the first three months of the year, while the U.S. slowed.

However, surveys released Thursday point to a fresh acceleration in the U.S., even as growth in the eurozone strengthened. That bodes well for a global economy that relied heavily on the U.S. for its dynamism in 2023.

The S&P Global Flash U.S. Composite PMI —which gauges activity in the manufacturing and services sectors—rose to 54.4 in May from 51.3 in April, marking a 25-month high and the first time since the beginning of the year that the index hasn’t slowed. A level over 50 indicates expansion in private-sector activity.

“The data put the U.S. economy back on course for another solid gross domestic product gain in the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Eurozone business activity in turn increased for the third straight month in May, and at the fastest pace in a year, the surveys suggest. The currency area’s joint composite PMI rose to 52.3 from 51.7.

The uptick was led by powerhouse economy Germany, where continued strength in services and improvement in industry drove activity to its highest level in a year. That helped the manufacturing sector in the bloc as a whole grow closer to recovery, reaching a 15-month peak.

By contrast, surveys of purchasing managers pointed to a slowdown in the U.K. economy following a stronger-than-expected start to the year that saw it outpace the U.S. The survey was released a day after Prime Minister Rishi Sunak called a surprise election for early July, banking on signs of an improved economic outlook to turn around a large deficit in the opinion polls.

Similar surveys pointed to a further acceleration in India’s rapidly-expanding economy, and to a rebound in Japan, where the economy contracted in the first three months of the year. In Australia, the surveys pointed to a slight slowdown in growth during May.

Businesses reported that they were raising their prices at the slowest pace since November, which should reassure the European Central Bank. However, the eurozone continued to add jobs in May, suggesting that wages might not cool as rapidly as the ECB had hoped.

The ECB released figures Thursday that showed wages negotiated by labor unions in the eurozone were 4.7% higher in the first quarter than a year earlier, a faster increase than the 4.5% recorded in the final three months of 2023

The ECB has signalled it will lower its key interest rate in early June, while the Fed is waiting for evidence that a slowdown in inflation will resume after setbacks this year.

Nevertheless, eurozone businesses and households shouldn’t bank on successive cuts to borrowing costs, ECB Vice President Luis de Guindos said. “There is a huge degree of uncertainty,” he said. “We have made no decisions on the number of interest rate cuts or on their size,” he said in an interview published Thursday. “We will see how economic data evolve.”

Continued resilience in the eurozone economy would likely make the ECB more cautious about lowering borrowing costs after its first move, economist Franziska Palmas at Capital Economics wrote in a note. “If the economy continues to hold up well, cuts further ahead may be slower than we had anticipated,” she said.

– Edward Frankl contributed to this story.

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