Katerra, A Construction Company, Raises $865 Million

odc's picture
Rank: Baboon | banana points 141

I thought I would drop this article in here to see what some of you guys think about this construction company. After looking at their website, it looks like a tech based vertically integrated construction company. Do you think this is the future of construction? And, if so, do you think this can bring down building costs? Just some food for thought..


Comments (7)

Jan 24, 2018

I'm no expert on construction, but based on what I've heard from friends in the industry, the business has consistently been very inefficient, marred by a lack of technological innovation and a general desire to stay within the boundaries of old-fashioned practices. For example - the sheer amount of waste left over after construction is completed can add up to millions of dollars in spare parts, most of which is just thrown away.

Vertical integration makes sense. A tech- and data-driven supply chain, mass production of common parts (panels, windows, doors, etc.) for every new building (just put together in different configurations), and full ownership of the building process from design through completion. No more settling multi-day arguments between the drywall guy and the architect on whether or not the window should be 2 feet or 3 feet off the ground.

Curious to hear opinions from people who know the industry better though.

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Jan 24, 2018

Exactly! Great points..

Best Response
Jan 24, 2018

urrrrggghh...I have a few thoughts from looking at their site and that NYT article. First of all, I am in the Bay Area and I have never heard of these guys. Their founders seem to have zero construction experience as they come from PE/investment groups so IDK how the fuck they all just go start a GC or why even? Also, the article doesn't say what or how these guys are any different to any one else. The only differentiation I see is that the article hints that they will utilize pre fabricated or modular pieces. That's not new, pre fabrication has been around for a while and there are plenty of people who use it. Life science/Medical labs (e.g.Stanford) utilize this method a lot. The comment above about wasting millions of dollars of product, I am sorry but no one is wasting millions of dollars away on any project. Sub contractors bid very specific quantities based on detailed take off on the plans. Utilizing technology, pre fabrication techniques etc, will depend heavily on the user/owner. My example above - Stanford - they pay a premium because they can. Guess what though, multi family projects are the complete opposite. They are built out of wood the cheapest way possible with piece workers! In construction, its basically the nastiest way to build anything. Vertical integration is basically whats known as the Design Build method. All major stakeholders taking part in the development of drawings and construction collaborating in one set of base CAD files.
edit: read the last part of the article, its definitely a pre fab company, that is what the money is being used for

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Jan 25, 2018

I think design-build is still different in that traditional contractors in those cases will still use subcontractors, while Katerra removes all layers of friction and does ALL of the work, from architectural design to putting the windows in, by themselves.

Secondhand information on the waste, but large construction sites (my friend was quite emphatic about this point, and there's no reason why he would lie although honestly I was in disbelief as well) would often leave a large number of freight container-sized bins full of spare parts (drywall, pipes, hammers, ladders, etc.) that would not be consumed by the end of the project. I guess the GC figures it's easier to buy in bulk and then have some go to waste, rather than procure fewer than necessary and have to wait as a new shipment of supplies comes in.

With regards to pre-fab - it sounds like they only pre-fab modular components of each building instead of the entire building itself. Not sure if that's a conventional technique or widely utilized, that's outside of my wheelhouse. I'm sure it's more efficient than custom-building and shipping a hundred different kinds of doors for a hundred different kinds of buildings (which seems like what the traditional guys are doing, but I could be wrong).

Again - cost savings because all of the work done under one single entity. No issues with subcontractors, no friction in the supply chain. A fully integrated process married with technology to manage it could very much result in lower costs, and that could be passed on to customers. There has to be a reason they're able to secure such a robust pipeline of business.

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Jan 25, 2018

"hammers, ladders" - these are tools, not spare parts. Why on earth would a builder throw away tools?

Jan 25, 2018

Operating at a loss is a great way to get a lot of construction work, but I don't know how sustainable that really is in this industry.

Part of the reason for the GC/subcontractor divide is the flexibility in work it allows. If there are trades that are less busy in the specific projects these guys are doing, those workers aren't going to stick around unless the entire market for those trades is also less busy and I don't see this company positioning itself as an everything subcontractor in addition to its other roles.

As far as construction waste goes, no one wants to waste anything, but if waiting for another shipment is going to slow down something on the critical path, it would be a lot more expensive in terms of time to hold up the project for that instead of just ordering more materials.

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Jan 24, 2018

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