Pioneering modular manufacturer Capsys will shutter in March after almost 20 years in business, founder Nicholas Lembo told The Real Deal. The company’s end highlights the challenge rising rents pose to the industry.
Capsys, which produced modules for developments such as the micro-apartment building 335 East 27th Street in Manhattan and the townhouse complex Atlantic Center in Fort Greene, had been on the hunt for a new location since 2010, when it learned its long-term lease at the Brooklyn Navy Yard would not be renewed. The company is paying around $4 per square foot under its lease – far below average rates at the Yard.
“New York City is too expensive, the only spaces that I found were out far out in New Jersey and Pennsylvania,” Lembo said. “The rent there is very inexpensive, but the problem with that is if we move the plant there, we would not be able to retain any employees and would be starting a new business.”
Capsys, founded in 1996, was the only modular manufacturer in New York City for almost a decade. Today, Forest City Ratner’s modular factory is Capsys’ neighbor at the Navy Yard.
Most modular manufacturers are based outside of major cities, where rents are cheaper. For example, DeLuxe Building Systems, which built modules for the Inwood apartment building The Stack, is based near Scranton, Pennsylvania. But transporting modules overland is expensive and time-consuming. “What gave us an edge is by manufacturing these things locally we could ship units locally,” Lembo said.
Some architects and developers also prefer local production because it allows for better communication. “Personally, I found it very important to be close to the factory as a designer,” Eric Bunge of nArchitects, the designer of 335 East 27th Street, recently told The Real Deal, adding that he visited the Capsys factory on a weekly basis during production. He explained that visits helped him spot mistakes and avoid delays. “You have more control and precision,” Bunge said. “You develop a rapport with them.”
Recently, Lembo claimed, the cost advantage of producing locally eroded after the city tightened restrictions on the transportation of modules, which now require a pricy police escort. But ultimately, it was the rising cost of manufacturing space that spelled Capsys’ end. Rents at the city-owned Navy Yard are below market, providing a haven for numerous manufacturing companies that would otherwise be priced out of the city. But prices today are a far cry from what they were in the 1990s, when Capsys first signed its lease. At Building 77, a new manufacturing building at the Yard, space reportedly goes for $20 per square foot and up.
Capsys’ end casts doubt over the future of modular manufacturing in New York as overseas producers are beginning to make inroads here. Polcom, a Polish manufacturer, is building modules for a new hotel in Williamsburg in Poland and will ship the units across the Atlantic. “It was cheaper to transport from Poland by boat than to do it by truck from Indiana,” the hotel’s developer Charles Blaichman told TRD.
Lembo said Capsys will complete its current and final project, the 800-home affordable housing project Nehemiah Spring Creek in East New York, before closing. More than 40 employees currently work at the Capsys factory, according to a spokesperson – down from a high of more than 80. The spokesperson said some of them will likely find work at one of Lembo’s other companies, Monadnock Construction and Monadnock Development, and that the Brooklyn Navy Yard’s job placement center will help the others. The spokesperson expects “the vast majority” of Capsys’ employees will swiftly get a new job.