It’s 42 degrees mid-afternoon in Chandler, a Phoenix suburb, and steel billionaire Barry Zekelman shows off his housing factory. At one end of the factory, hollow structural steel from one of Zekelman’s steel plants enters, and at the other, “modules” exit that will be stacked to form apartment complexes. Zekelman points to an area where the steel is lined up, already cut into pieces of the right size so that workers can simply take the one they need.
“It’s a puzzle,” he says. “You’ve seen jobs where you had to measure and cut again. We cut it like a puzzle. Nobody has to measure.”
Building homes joined together in an air-conditioned factory seems more efficient than traditional construction, especially considering the scorching heat. The modules will eventually be combined into three- and five-story apartment complexes, especially in the southwest. The idea is old: Sears offered prefabricated housing in its catalog more than a century ago. There have been some modest successes, but there have been more spectacular failures, the most recent of which was SoftBank-backed Katerra, which burned through $2 billion before filing for bankruptcy in 2021.
One big problem: Factories require huge capital costs, but construction is cyclical, an inherent mismatch. Additionally, real estate is the most local of sectors, almost every city has its own preferences, cost structure and regulations, making standardization difficult. “I’m sure you’ve heard the joke that modular technology has been 10 or 15 years away for the last 75 years,” says Greg Smithies, a partner at Fifth Wall and co-head of its climate technology investment team. But the potential is so great that today even large real estate developers like Greystar are entering the modular sector.
Zekelman, who is 57 years old and has a fortune of $3.4 billion according to estimates from Forbes has been experimenting with its business model for the past eight years and is now betting big as a builder, developer and owner of modestly priced apartment complexes. It’s a huge leap from steelmaking, the raw materials business where he made his fortune. But Zekelman believes that a housing factory is not that different from a steel tube factory, and prefabricated houses can be produced cheaper and faster than traditional construction. An added advantage is labor: By hiring employees to work in factories, Z Modular is less reliant on construction contractors who have been in short supply, causing delays in housing projects across the country.
With climate change driving hurricanes and extreme heat, Z Modular’s steel-based construction may have an added advantage. Zekelman says his Arizona apartment complexes have more efficient heating and cooling (important when temperatures exceed 100 degrees) because of their materials than traditional buildings. They can also withstand storms and, especially, fires better than wood construction, giving Zekelman an advantage in durability and, potentially, insurance costs.
Since launching Z Modular as a subsidiary of his family’s $4 billion steel company, Zekelman Industries, in 2016, Zekelman has invested about $1.2 billion in the initiative. “I love it when people tell me what I can’t do or what’s not done that way,” he says. “I am a nonconformist. I think, ‘Well, why not?'”
To date, it has built three factories, in Killeen, Texas, and Birmingham, Alabama, as well as in Chandler (places with little regulation and high demand for housing) and has begun producing apartment complexes. Z Modular has built nine apartment complexes (with 2,245 units) and expects to complete a total of 15 complexes (with 3,858 units) by the end of 2025. Zekelman estimates that Z Modular (which has been losing money since its inception) raised between $3 million and $4 million in total last year, when its apartment complexes opened to tenants. It expects rental income to approach $20 million this year and $50 million next year as it rents an increasing number of apartments at modest prices.
This is an extraordinarily capital-intensive business, and not even Zekelman’s wealth will be enough to support his expansion dreams. It is already considering whether to take Z Modular public or partner with a REIT or private equity firm to raise the cash needed to develop tens of thousands, or perhaps even millions, of apartments. “Hopefully, I can be that pied piper and everyone will believe in my story and want to be a part of it,” he says. “I’ve done it before and I want to do it again. “I think this is a bigger opportunity than my steel pipe business could be.”
Zekelman’s steel business dates back to his father, Harry, a Jewish immigrant from Poland who came to Windsor, Ontario, from a displaced persons camp in Italy. The elder Zekelman became an entrepreneur with businesses that included electrical box manufacturing and industrial real estate.
His father had health problems and, in 1986, died suddenly. The steel tube business was losing money with revenue of just $1.5 million. It would have been easy to close it and take a tax loss. Instead, Zekelman, who was 19 and a freshman at York University, dropped out to run it with his older brother. (His younger brother, then in high school, joined later.)
“I needed a challenge,” he says. “I tended to like crises because solving them gratified me. Sometimes I create my own problems to have something to do. If everything is going smoothly and perfectly, I ruin everything. “I can’t sit still.”
By offering financial incentives to factory workers to work faster and more efficiently and by pressuring salespeople to increase the volume of products sold, the younger generation turned the business around. In 1992, they raised $16 million to buy state-of-the-art equipment. That risky bet paid off when the new equipment allowed the company to operate much faster and at a lower cost, without carrying much inventory.
High risk comes naturally to Zekelman, an adrenaline junkie who likes to race boats and cars, scuba dive and helicopter sled, and who has named all of his yachts Man of Steel. He bought his latest superyacht, an 86-meter vessel with a dance floor and two pools, from Steven Spielberg for $150 million. “You don’t become great unless you can fly very close to the sun and not get burned,” he says.
Today, Zekelman Industries (100% owned by Barry Zekelman and his brothers Alan, 62, and Clayton, 55) produces about 2.5 million tons of steel in 17 factories. None of his brothers have an operational role. “I would say I became kind of a bully, so to speak,” he says. “I had to act faster than them. I regret it a little… On the other hand, you can’t love me for what I do and then punish me for what I do.”
The company makes all of its steel tubes and pipes in North America, and Zekelman criticizes steel imports. In 2022, he agreed to pay a fine of $975,000 (one of the largest fines ever imposed by the Federal Election Commission) for illegally helping to divert $1.75 million in donations from one of his companies to a super PAC that supports Trump, whose steel tariffs he supported. (Foreign citizens are prohibited from contributing to US political campaigns.) In October of this year, Zekelman filed a lawsuit against Mexico for violating trade agreements and selling steel in the US market, alleging that these violations forced the closure of its Long Beach, California, factory and the planned closure of a plant in Chicago.
Zekelman had no intention of becoming a modular housing developer. Instead, he entered the business by chance after meeting Julian Bowron, who had invented a corner connection block that could be used to join steel tubes in modular constructions. The room skeletons created this way were very strong and Zekelman thought it would help him sell more hollow structural steel in the construction industry. He invested in Bowron’s business, VectorBloc, and says he ultimately paid $2 million for the company.
The first modular projects were a financial drain. A 2016 project as a subcontractor for short-term family housing units in Washington, DC ended in litigation between Z Modular and general contractor MCN, with claims and counterclaims for breach of contract. Zekelman’s efforts to build hotels later fell apart during the pandemic, when Americans stopped traveling. “I sold hotels worth $300 million. Honestly, that would have killed the business,” says Z Modular president Mickey McNamara, an attorney who has worked with Zekelman since 2007 and is also executive vice president of Zekelman Industries. The problem: too many different projects, with multiple owners, in a variety of different states, making standardization nearly impossible. “I knew in my gut, and Barry knew in his, that that wasn’t the way to run the business,” McNamara says. “You need to have control over it.”
Zekelman took control and bought land to build his own apartment complexes. He estimates that cutting costs at a housing factory is like doing so at a steel pipe plant. It says it cut 30% of costs between the first and second generations of the apartment complexes, with additional smaller cuts with the third and fourth versions, which are now being built. Z Modular’s original apartment complexes were three stories; Its new design has five levels, and the company says it could go up to 10. “Every time someone touches something, I think there’s an opportunity to save money and time,” he says. “I’m not looking for big prizes. “I’m making pennies, nickels and dimes.”
The big question is capital: as a real estate developer, Z Modular will have to buy the land, build the factories, develop the buildings and maintain them as rental properties. “Until you figure out how to scale this new way of building without huge amounts of money, you’re going to have a lot of limitations,” says Andrew Staniforth, former vice president of Forest City Ratner, who is now CEO of Assembly OSM, a modular construction startup backed by for venture capital.
That’s why Zekelman is thinking about possible private equity partners or perhaps an initial public offering. He has big dreams of expanding to other states, or even countries, a big contrarian bet even for a billionaire. “I would like to solve the housing problem around the world,” he says. “If I can build 1,000 apartments extremely efficiently, why can’t I build 100,000 or a million? Why can’t I be in Spain or Argentina or Saudi Arabia or Africa? Why not?”.
This article was originally published by Forbes US.
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