Greystar’s Andy Mest On Modular Construction’s Promise, Potential

This series goes deep with some of the most compelling figures in commercial real estate: the dealmakers, the game-changers, the city-shapers and the larger-than-life personalities who keep CRE interesting.

For the last six years, Andy Mest, a managing director at Greystar, has been trying to push the multifamily industry in the U.S. forward.

His premise of adopting modular, factory-built construction to make the industry more efficient required years of investment and innovation. The effort included convincing the nation’s largest apartment owner to build its own factory in Knox, Pennsylvania, to manufacture steel-framed apartment modules to ship via truck and assemble on-site like Legos.

Earlier this month, Mest’s big bet began to pay off. In Coraopolis, a suburb of Pittsburgh, Greystar just finished the 312-unit, six-building Ltd. Findlay, a modular development that went up 40% faster with 90% less waste and 10% lower project costs.

Now, Greystar has six such projects in the pipeline.

“The rule of thumb in the industry is that you fill up two dumpsters per apartment,” Mest told Bisnow. “So that would have traditionally meant 624 dumpsters. In our case, we used 65.”

While modular building has always been a niche segment of the industry, Greystar’s experiment symbolizes an opening for the method to become more mainstream and more stable, while the flameout of unicorn tech construction company Katerra stands as a cautionary tale.

With housing unaffordability endemic and construction labor and material supply issues suddenly front-and-center due to potential Donald Trump administration policy shifts, there is more potential to make modular construction a bigger part of the nation’s housing solution. Bisnow spoke to Mest about the hurdles to scaling up the modular machine, the benefits of the factory and the big multifamily complaint that these new buildings can help fix.

This interview has been edited for length and clarity.

Bisnow:  What do you feel like you've learned from this first project, in terms of what it takes to do modular projects in the U.S. and what this means for Greystar and the future of multifamily?

Andy Mest: When you look back and say we started at zero in the factory, it’s pretty remarkable at the end of the day. The reality is, as a vertically integrated business, we're able to make changes and collaborate together and find solutions to what could be problems. A great friend of mine who's also a consultant to us — we worked together in the UK, in Ireland — said there are no problems in life, there's solutions you just haven't found, and it's something that I kind of take forward with me every day. 

And so when you look back at the speed in which we executed, notwithstanding outstanding delays with power and some design issues not related to the vertical side of the project, it's amazing what we were able to accomplish. That’s what I found to be most remarkable, to be so deep into our next project already with manufacturing and construction, starting to see the fruits of the labor.

Bisnow: Tell me more about the second project, where it is and perhaps how you’ve adjusted the time frame?

Mest: That project is called Ltd. Southfields, and that is in Elkton, Maryland, with 330 apartments across seven buildings. We are four and a half months into the project and we're now in the process of completing the fourth building on-site. Pittsburgh was a much more complex site with bigger design challenges. This was a more simplified site, with a lot more breathing room before we started in terms of planning, and lessons learned from the first project. We're going to have 180K SF under roof in five months, which is absolutely remarkable.

Bisnow: When it comes to housing and affordability, people can sometimes talk about modular like it's a silver bullet. Of course, there’s still a big financial market challenge for new development. We know this process saves time, so can you talk me through all the ways, from a financial standpoint, the modular approach benefits a new project? 

Mest: The biggest thing that modular delivers versus traditional construction is the delivery of first units or first revenue. Getting those first units 40% to 50% faster than you would traditionally is a huge lift to a project. The lift doesn't come so much on the yield side, that's more of an [internal rate of return] kind of needle-mover. It inherently helps the project overall, because then you're able to service debt at that point where you've got income coming in. 

Then you have the ability to lease units faster, right? We're able to turn a larger quantity of units over and bring those to the market quicker, assuming that we have the leasing velocity and the demand behind it.

I think a couple other pieces probably get lost a little bit in translation. There’s also a lot more certainty early on and over the life of the project. If you get into any force majeure conditions, where God forbid, there's a tropical storm or a major kind of shock to the supply chain, by building in the factory, 50% of those costs are well controlled. We don’t have that instability. It’s the same with any sort of ripples or ramifications from anything that could happen in the macro market from a downturn or change in the market.

You're starting to eliminate risk factors that exist on every deal. The time with which they impact you is truncated.

Bisnow: Has the fact that you have one completed project opened up a lot of funding opportunities for yourself and others in the modular space?

Mest: Being able to deliver one of these successfully, and then having a second ongoing project that also is going successfully — both on the schedule and on budget — helps to build credibility. But the Greystar name, I think, is the most important piece. We're doing this as a vertically integrated approach. This past week, we had four new lenders up to visit us at the factory. 

Bisnow: What needs to change, or what needs to shift, to massively scale this up?

Mest: There are a lot of levers that need to be looked at. Today, we're producing almost 12 apartments a week at the factory. We believe our capacity is double that. 

You need to have the development opportunities in front of you when you're going at that pace. We're still in our infancy, but we've got a solid pipeline of deals. It’s about trying to size the factory and our output at the factory to the development opportunities that we have to fulfill. In a challenging capital market environment, not every deal pencils like it did when rates were significantly lower.

Bisnow: We may be entering a world in 2025 where there's a huge shift in suppliers, supply chains and tariffs, and also there's a potentially significant labor shortage. Does the modular system in a way inoculate you, or at the very least make you much more resilient from these kinds of swings?

Mest: From our perspective at the factory it doesn't change, because we're relying on a local workforce and not a migrant workforce. There's really no change there for us. Does it provide some security for our projects? I would say yes, but also no, because we still have a reliance on on-site labor. I would say it provides partial insulation to that. 

And generally speaking, and not totally intentionally, the way it's worked is we are buying nearly everything that goes into our product domestically. We don’t have a lot of exposure overseas, in terms of tariffs.

Bisnow: How important is vertical integration to the success of modular? There have been a lot of examples of companies trying to do these innovative new ways of building that just don’t seem to get the kind of momentum you have achieved. 

Mest: The way I would state it, without saying anything negative about the industry, is I think it's not just critical, but a very, very important piece of longevity and success. I'll kind of leave it at that. 

Bisnow: What’s your best sense, now that you have one project open, how building with a steel module helps with operations and maintenance?

Mest: We believe our residents will find it to be the quietest place they've ever lived. And that was a big thing that we tried to combat early days in the design, trying to find and address the number one complaint in apartments. Noise has been a resounding number one complaint for the 25 years I’ve been in the business, it’s the one thing I’ve always heard: “How do we make the acoustics better, but do it cost-effectively?”

Bisnow: What is it about the way our industry works in the U.S. that we don't borrow more ideas from the rest of the world? As someone who has a much more international view of this industry, why do you think this isn’t as common in the U.S.?

Mest: There are a lot of great companies in America that are thinking about this in some way, some form, through different solutions, whether it's project management software [or] innovative scheduling. But at the end of the day, you have the cards you're dealt. And if those cards you're dealt can't complete the task that you need to do, at some point you have to evolve. 

I think it also takes forward thinking. This isn't a knock on the construction industry. A lot of these big conglomerates exist across Europe, Asia and the rest of the world and don't bring those technologies here because they don't think there will be very good take-up. [Greystar] has the ability to see what's happening there and use that global reach to try and bring some of those innovations here. 

Unfortunately, I think a lot of times, it always just comes down to cost. Not enough people are willing to take the risk of trying something new on their project, or the capital partners aren't willing to take the risk of doing something new.  

Bisnow: What do you see as the next big innovation advancement in construction and development? What are you excited about, anything from robotics to artificial intelligence to better scheduling?

Mest: I haven't seen anything out there that is earth-shattering at the moment. I think the real innovation is for subcontractors to start thinking the way we think, as modular manufacturers, and embracing that their world is changing, and embracing prefabrication as part of their process. It's more about us coming together, both from the trade and manufacturing side, to say, “how do we innovate together to make this process better, faster, more accurate and more cost-effective?”

I don’t know what the future holds with AI, but AI won’t change the will and the way. It might give you better information but it's not going to tell you that you should try something new and make you do it.

Bisnow: What is a bold prediction you have for 2025?

Mest: The bold prediction for 2025 is that I think capital markets, both on the lender side and and from the equity side, will become a little bit more used to the new norm and stop thinking about prices falling and rates getting back to all-time lows, and just accept this is the new norm and get back on the path of developing the number of housing units that the market requires.

Bisnow: Can you give us a sense of what your typical weekend routine looks like?

Mest: I spend a lot of time with kids, my three boys, who are all active in sports. I mean, I spend seven days a week being the dad taxi. It’s spending time with them and my wife of course. I don’t really get to golf as much as I’d like to. I have hit the max output of sporting engagements. I wouldn't trade it for anything. It'll be gone before we know it.