Barry Zekelman at Z Modular’s Chandler, Arizona, modular-housing factory
Aaron Kotowski for Forbes
The U.S. needs to build much faster and much cheaper. Steel magnate Barry Zekelman is gambling $1 billion of his family’s money that he can churn out prefab apartment complexes to meet that demand.
By Amy Feldman, Forbes Staff
It’s 108 degrees in mid-afternoon in the Phoenix suburb of Chandler, and steel billionaire Barry Zekelman is showing off his housing factory. At one end of the factory, hollow structural steel from one of Zekelman’s steel plants comes in, at the other the “modules” that will be stacked into apartment complexes go out. Zekelman points to an area where the steel is lined up, already cut into pieces of the right size so that workers can simply grab the one they need.
“It’s a puzzle,” he says. “You’ve seen construction sites where you had to measure it and cut it again. We cut it like a puzzle. No one’s got to measure.”
Snapping together apartments inside an air-conditioned factory seems more efficient than traditional construction, especially given the broiling heat. The modules will eventually be combined into three- and five-story apartment complexes, mostly in the southwest. The idea is an old-one. Sears offered prefabricated homes in its catalog more than a century ago. There have been some modest successes, but there have been more spectacular failures, most recently SoftBank-backed Katerra, which burned through $2 billion before filing for bankruptcy in 2021.
Aaron Kotowski for Forbes
One big problem: Factories require huge capital costs, but construction is cyclical, an inherent mismatch. Plus, real estate is the most local of industries, nearly every town has its own preferences, cost structure and regulations, making standardization difficult. “I’m sure you’ve heard the joke that modular has been 10-to-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 giant real estate developers like Greystar are getting into modular.
Zekelman, who is 57 and worth $3.4 billion by Forbes estimates, has been tinkering with his 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 an enormous leap from steel manufacturing, the commodity business where he made his fortune. But Zekelman figures that a housing factory isn’t that different from a steel tubing factory, and factory-made homes can be produced cheaper and faster than traditional construction. An added plus is labor: By hiring employees to work in the factories, Z Modular is less reliant on construction contractors who have been in short supply, causing delays on housing projects across the country.
With climate change spurring hurricanes and extreme heat, Z Modular’s steel-based construction may have an additional advantage. Zekelman says that its Arizona apartment complexes have more efficient heating and cooling – important when temperatures soar above 100 degrees – because of their materials than traditional constructions. They also may withstand storms and, especially, fires better than wood construction, giving Zekelman an advantage on durability and, potentially, on insurance costs.
Since launching Z Modular as a subsidiary of his family’s $4 billion (revenue) steel company, Zekelman Industries, in 2016, Zekelman has invested some $1.2 billion on the effort. “I love it when people tell me what I can’t do, or that’s not how it’s done,” he says. “I’m a contrarian. I’m like, ‘Well, why not?’”
To date, he’s built three factories, in Killeen, Texas, and Birmingham, Alabama, as well as Chandler – places with low regulation and high demand for housing – and started churning out apartment complexes. Z Modular has built nine apartment complexes (with 2,245 units) and expects to finish a total of 15 complexes (with 3,858 units) by the end of 2025. Zekelman figures that Z Modular (which has been losing money since inception) brought in between $3 million and $4 million total last year, as its apartment complexes opened for tenants. He expects rental income closer to $20 million this year and $50 million next year as it rents out increasing numbers of modestly priced apartments.
Z Modular’s apartment complexes start as boxes in the factory, then get stacked into place to form three- and five-story buildings.
Aaron Kotowski for Forbes
This is an extraordinarily capital-intensive business and even Zekelman’s wealth won’t be enough to support his dreams of expansion. He’s already pondering whether he might take Z Modular public or partner with a REIT or a private-equity firm to get the cash 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 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 tubing business ever could be.”
Zekelman’s steel business dates back to his father, Harry, a Jewish immigrant from Poland who arrived in Windsor, Ontario, by way of a displaced person’s camp in Italy. The elder Zekelman became an entrepreneur with businesses including electrical-box manufacturing and industrial real estate.
His dad had health problems, and, in 1986, died suddenly. The steel tubing business was losing money on revenue of just $1.5 million. It would have been easy to shut it down and take a tax loss. Instead, Zekelman, who was 19 and a freshman at York University, dropped out of college to run it with his older brother. (His younger brother, then in high school, joined later.)
“I needed the challenge,” he says. “I had a tendency to like a crisis because I get gratification from solving it. Sometimes I create my own problems so I have something to do. If everything is running in a steady state and perfect, I’ll throw a wrench in it. I can’t sit there.”
By giving factory workers financial incentives to work faster and more efficiently and pushing salespeople to crank up the volume of products sold, the younger generation turned the business around. In 1992, they scraped together $16 million to buy a state-of-the-art piece of equipment. That risky bet paid off when the new equipment allowed the business to operate much faster and at lower cost, without holding much inventory.
High risk is second nature for Zekelman, an adrenaline junkie who likes to race boats and cars, scuba dive and heli-sled and who has named all of his yachts Man of Steel. He purchased his most recent superyacht, a 282-foot vessel with a dance floor and two swimming pools, from Steven Spielberg for $150 million. “You don’t get to be great unless you can fly really 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 some 2.5 million tons of steel from 17 factories. Neither of his brothers have an operating role. “I would say I kind of became a bully if you will,” he says. “I had to move faster than they were. I have some regrets about that….On the other hand, you can’t love me for what I do and then chastise me for what I do.”
The business makes all of its steel pipes and tubing in North America, and Zekelman rails against steel imports. In 2022, he agreed to pay a $975,000 fine – one of the largest fines ever levied by the Federal Election Commission – for illegally helping steer $1.75 million in donations from one of his companies to a super PAC supporting Trump, whose steel tariffs he supported. (Foreign nationals are prohibited from contributing to U.S. political campaigns.) This October, Zekelman filed suit against Mexico for violating trade agreements and dumping steel on the U.S. market, alleging that these violations forced the closure of its Long Beach, Calif., factory and the planned shuttering of a Chicago location.
Zekelman hadn’t intended to become a modular housing developer. Instead, he got into the business by chance after he met Julian Bowron, who had invented a corner connecting block that could be used to join steel tubing into modular construction. The skeletons of rooms created this way were very strong, and Zekelman figured it would help him sell more hollow structural steel into the construction industry. He invested in Bowron’s business, VectorBloc, and says he ultimately paid $2 million for the company.
Early modular projects were a financial sinkhole. A 2016 project as subcontractor on short-term family housing units in Washington, D.C. ended in litigation between Z Modular and general contractor MCN, with claims and counterclaims of breach of contract. Zekelman’s efforts to build hotels subsequently fell apart during the pandemic when Americans stopped traveling. “I had $300 million of hotels sold. It honestly would have killed the business,” says Z Modular president Mickey McNamara, a lawyer 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 near impossible. “I knew in my gut, and Barry knew in his gut, that wasn’t the way to run the business,” McNamara says. “You need to have control over it.”
So Zekelman took control, buying land to build his own apartment complexes. He figures that wringing costs out of a housing factory is just like doing so in a steel-tubing plant. He says he took 30% of costs out between the first and second generation of the apartment complexes, with additional, smaller cuts with the third version and the fourth, which is 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 as high as 10. “Anytime someone touches something, I think there’s an opportunity to save money and time,” he says. “I am not looking for grand slams. I am picking up pennies, nickels and dimes.”
The big question is capital: As a real-estate developer, Z Modular will need to buy the land, build the factories, develop the buildings and hold them as rental properties. “Until you figure out how to scale this new way of building without gobs of cash, it’s going to have a lot of constraints,” says Andrew Staniforth, a former VP at Forest City Ratner who’s now CEO of venture-backed modular construction startup Assembly OSM.
That’s why Zekelman is thinking about potential private-equity partners or perhaps an IPO. He has big dreams for expansion to other states, or even countries, a grand contrarian bet even for a billionaire. “I would like to solve the housing problem for 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?”