Life in a shipping container

November 10, 2011: 3:28 PM ET

It may be the ultimate recycling project: taking retired shipping containers and repurposing them as buildings. SG Blocks thinks it can make the proposition into big business.

By Beth Kowitt, writer-reporter

SG BlocksFORTUNE -- It may be the ultimate recycling project: taking retired shipping containers and repurposing them as buildings. It's not uncommon to see these makeshift structures informally in use around ports or construction sites, but now Paul Galvin is trying to bring them into the mainstream with his company SG Blocks.

It's a you-have-to-see-it-to-believe-it endeavor that's getting a boost from the confluence of two trends: a growing acceptance of prefabricated construction and the greening of the economy. "Everyone is going green in construction, as am I," says Peter Sudler, a real estate developer and investor in the company.

It doesn't hurt that Galvin, the company's founder and CEO, says his projects, depending on the location, are typically 10% to 12% cheaper than traditional construction, cut 40% off construction time and are more resistant to extreme weather like hurricanes. Each container weighs 8,000 pounds, is 40 feet long and can hold some 50,000 pounds. The containers can be stacked depending on a customer's needs, a quality Galvin says likens the finished project to a giant steel honeycomb.

Here's how it works: port operator Conglobal Industries sources the retired containers for SG Blocks (SGBX) and modifies them right at the ports, cutting in windows and doors. Galvin's operation then either coordinates the finish work at the job site or an interim location. Any exterior finish like brick or wood can be added, but Galvin says most clients want to highlight the fact that they're going green. "They'll leave it very rectangular and some of the container exposed," he adds. (See sample photos at right.)

SG BlocksThat's not to say that Galvin expects us all to live in corrugated steel boxes. Howard Lorber, president and CEO of SG Blocks investor Vector Group, says that the initial reaction often is, "Wow, who wants to be in a house that looks like a container?" But he adds that people who see the structures often have no idea they were built out of material once used to ship cargo. At a recent trade show, Galvin had his crew cut a hole in the side of their model house to expose the structural system because no one realized it was made from containers.

While Galvin may have been the one to turn the concept into a business, he got the idea from a merchant mariner and Naval engineer who had built and permitted a container-based house in Charleston, SC, in the early 2000s. He immediately saw these containers as what he calls a "green building block" -- hence the name.

In July, SG Blocks announced its intention to merge with CDSI Holdings, a holding company primarily created for investments and acquisitions. The deal was finalized last week, which makes SG Blocks a public company. Its SEC filings show that SG Blocks generated $2.6 million in revenue for the six months ending June 30, but had a net loss of more than half a million dollars. The company said that was in large part due to the costs associated with an emerging operation going public.

Galvin, who had previously been running not-for-profit groups focusing on affordable and special needs housing, was the original seed investor. Rather than chase a lot of projects, he decided early on to focus on military contracts and work for large corporations to help build credibility.

His first client was the U.S. Army, which tapped him to build an administrative headquarters at Fort Bragg. SG Blocks recently finished up two large buildings made up of 32 containers at the Port of Houston, and a large office and training structure on the deck of a U.S. Navy nuclear aircraft carrier made up of 47 40-foot containers.

SG BlocksFor the Jacksonville Port Authority, Director of Seaport Security and Emergency Preparedness Charles White says going with a container-based building for a new operations center was a natural fit. "We know how durable these things are," says White, noting that shipping companies even operate out of them informally at the port. He wanted something that could stand up to hurricanes and be built quickly. (SG Blocks can set a container every 20 minutes with a crane once it's modified.) Traditional construction would have forced him to cut back on the facility's electronic capabilities to come in at budget.

The company is starting to move beyond just military construction into mi-rise buildings, such as the 30,000 square foot rental building in New Jersey currently in contract. Mobile retail is also a growing focus. SG Blocks erected a PUMA store in Charleston, which was taken to the South Street Seaport for the World Cup, back to Charleston, and then to Minnesota for a youth soccer event. Galvin has also dipped into the high-end market. While shipping containers don't usually scream beach house, a few weeks ago SG Blocks delivered a residential house in Amagansett in the Hamptons.

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