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Vallejo's Blu Homes to shift modular construction out of North Bay

Blu Homes, which has been prefabricating houses in a cavernous Vallejo factory for five years, is shifting back to outsourced production to make its homes more affordable outside the greater San Francisco Bay Area.

The company just promoted to CEO Zephan McMinn, a 33-year-old Santa Rosan steeped in the construction management and law, and plans to announce in April “significant” price decreases and a broadening of the market served beyond Northern California, according to Maura McCarthy, co-founder and vice president of market development.

As part of that, production of Blu Homes' hinged-panel modular homes will move from a former submarine periscope plant at the redeveloped Mare Island Naval Shipyard, she said. Blu started production there in late 2011 and three years ago leased around 100,000 more square feet in surrounding buildings for materials storage and offices.

Before consolidating construction at the shipyard, Blu built homes for sites in 22 states and worked with five contract factories. The company is considering two of those factories, including one in Colorado, to take on Blu Homes projects, McCarthy said. That shift of manufacturing will happen by April 1.

“We're committed to building in America but not necessarily in California,” she said.

CHALLENGING NORCAL COST STRUCTURE

Costs of doing business in Northern California have contributed to all-in prices - home, delivery and installation plus site work, foundation, excavation and driveway - that average $1.0 million–$1.5 million, McMinn said. Per square foot, the all-in price range across the models is $425–$475. That pricing may work in the greater Bay Area but not so much in other parts of California and particularly out of state, he said.

The Vallejo plant, with its 80-foot cathedral-esque center ceiling, is well-suited for modular-building construction, McCarthy said. But the production volume and unit pricing needed to justify that space are a better fit for builders of commercial projects, she said.

A handful of California companies do commercial modular work, and a couple operate in the cost structure of Northern California. Blu and landlord Lennar Mare Island have been talking with several modular builders and industrial firms about subleasing much of the factory.

As Blu Homes scales down production in Vallejo, it expects to maintain a 10- to 15-person project development and management office there, compared with as many as 50 two years ago, McMinn said. There also will be a small construction-management and labor crew to facilitate the delivery of the panels by truck and crane at job sites.

The company had roughly 100 working at the Vallejo plant at peak production in early 2016. Now there are less than 50 there, McCarthy said.

Longer-term options include converting one of the model homes at the design center in Vallejo into offices and relocating it to a more central location for North Bay projects and employees, such as the city of Sonoma, he said.

“This has been a heartfelt and sometimes difficult decision,” McMinn said. “This particular building has some part of our identity, but when you look at our goal to make beautiful homes for the common many, this is helping us get closer to this goal.”

TWO-YEAR TRANSITION

The retooling of Blu Homes' operations has been two years in progress. A couple of years ago, Blu looked at two options for factories outside California but at the time decided against purchasing one of them, McCarthy said.

In August 2015, Blu increased its prices for its turnkey units. A year ago, the company announced it would limit its project focus on Northern California. Last August, prices went up again.

The 2017 new product line is expected to be priced 15 percent–25 percent lower, McCarthy said.

Blu Homes has completed more than 250 products, with some projects involving more than one home put on a single site.

Haney started Blu Homes in 2008 and is now executive chairman. The company was set up to set up the financial structure and create technology such as the 3-D Configurator software for clients and their design consultants to adapt the home models to their liking. In the past year, the company has been looking for someone with construction experience to scale up Blu Homes from a tech startup to modular-construction company, McCarthy said.

McMinn joined Blu Homes in April 2015 as director of project management and was promoted later in the year to senior director of preconstruction services. Before that, he had nearly three years as director of project management and business development for Santa Rosa-based RE West Builders and about 11 years with his father's construction-management firm, McMinn & Associates of Santa Rosa.

He was working with the family company during its handling of the complete renovation of the McDonald mansion in Santa Rosa for homeowner and area high-technology entrepreneur John Webley.

McMinn earned a law doctorate from Empire of College in Santa Rosa and passed the California bar in mid-2013. During that time he joined RE West, getting involved in the $22 million Adobe Canyon Estates project in Kenwood plus commercial tenant-improvements work and custom homes. With his law license in hand, he took on the additional role of general counsel.

McMinn is the second CEO for Blu in the past year. The promotion of Chief Operating Officer Kaitlin Burek Haggerty to CEO was announced in June of last year. She was one of the original company founders and based in Boston.

“She has decided to leave Blu for family reasons, and is relocating to the East Coast after her time as interim CEO,” McCarthy said. “She is well-loved by the team and will be missed.”

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers construction, commercial real estate and wine.

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