Katerra - Updates?
With all of the WeWork news buzzing in the headlines, I was revisiting Katerra and the hyper-integrated project delivery methods that they've been talking about pushing. Does anyone have any news or updates on this? My gut instinct tells me that there's too much risk and too many issues between pre-fab/modular construction with an in-house supplier/designer for everything. Risk is immense by keeping everything under the same roof.
Any idea where they're going here? How's the super-integration of industries going? Are they actually getting volume work and are they hitting deadlines?
Katerra is sucking wind big time. They have not sourced a lot of business under their original business model, whereby Katerra is hired as a single vertically integrated design-build shop that handles all of the A/E and construction in-house. Katerra is trying to stay afloat by strategic acquisitions--for example, they just bought a big GC called UEB--to try and modify their model to allow for more flexibility for owners who want to pursue a more traditional GMP-style approach. Not sure if that is working, and how they are particularly unique if they go down that road.
Sounds like they went from hyper-integrated project delivery into a shittier Jacobs/AECOM.
I've read some news that they've got 4 billion in backlog, I'm assuming none of that is inked and it's all in precon/handshake? I couldn't imagine doing any sort of modular pre-fab that's more than just a single-family or a cookie-cutter garden style, much less 4 billion worth.
A very good friend of mine was a Project Manager for UEB - worked for them for 5+ years. Once Katerra acquired them he said they changed all of the processes from pre-construction and bidding to the actual work on sites. Within 6 months of the acquisitions all the talented UEB employees resigned in our market from PM's to director level. None of their jobs are in my market are getting done on time or on budget. Can't speak for the state of Katerra nationwide, but in my market I have yet to hear anything positive.
I saw their pitchdeck before it even launched and knew right off the bat it was a dumpster fire. The head dude is a retired PE guy who thinks his "tech" experience will lever into the world of real estate. Specifically, their thesis was the the bottleneck in real estate supply was construction/labor and didn't even mention entitlement hurdles which as we all know, is the largest barrier here in CA to supply. As the old Sun Tzu saying goes,
"If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
In the case of real estate, they clearly do not know themselves or even who the enemy is so they're fucked.
Agreed. Not long ago I had a conversation with a construction tech startup founder who got tens of millions in VC funding. They're putting up an optimistic face publicly, but in reality they're struggling, and they've abandoned some of their original goals around construction automation. This guy was a smart, successful entrepreneur who had repeatedly built large businesses, but he was an outsider to the construction industry.
It was interesting to hear him describe the struggles they were having. Their problems were technical in nature, and predictable for people who knew the industry well. Before he launched the business, he was similar to other outsiders in that he thought the problem with construction was that everyone in the industry was dumb. He thought he could raise a bunch of VC money and come in to "disrupt" things, but reality is more complicated.
Does anyone think that a modular business model is sound with good leadership? I think the idea’s compelling but it never seems to get off the ground and I’m not sure why.
https://www.wallstreetoasis.com/forums/modular-construction-potential
It's not sustainable because new home sales are boom or bust. When times are good you will have a steady stream of demand, but during a downturn you will struggle to keep the lights on in your factory. It ends up being easier (albeit, more expensive) to hire labor and project managers on a project by project basis.
Pre-fab is going to be the way of the future, whether its Katerra who is the ultimate beneficiary or someone else is yet to be seen. Today almost every sub is pre-fabing more work than ever.
I would be lying if I said I understood their entire business and how it all fits in with each other but I will say that my company has used Fields (who was purchased by Katerra) and then Katerra on about 1,200 units (~450MM of class A urban mid/high rise construction) and the experience has been very favorable. If someone is looking for a CM and Katerra is in your market its worth talking to them.
I'm not sure i agree here. Many companies who have tried to pre-fab have failed or are failing in the long run.
A good comparison is a car factory. Demand for cars is typically steady and efficient (relatively speaking). It's easy to keep factories supplied, staffed, etc. Materials for cars do not fluctuate at the levels that materials for housing can fluctuate. Demand for new housing supply is boom and bust. It is dominated by varying local idiosyncrasies and layers of economic and political forces that make is an inefficient business (on the construction side). An efficient housing factory can easily become a sinkhole of costs that has to wait until the next stream of sales. It ends up being better to throw in the towel and just hire labor/subs project-by-project. Prefab is nothing new; Zeta, Pulte Homes are just a couple of examples who were going to change the world when they dipped their toes into prefab, but failed.
Pre-fab is a great idea on paper, it's easy to sell to investors. It makes sense theoretically. But in practice, it is too inefficient to be sustainable long term.
I dont know what to say other than you're wrong. Pre-fab in the construction industry is exploding. I dont really know or care much about modular homes but in commercial construction across the country subs are pre-fabing a huge chunk of their projects. Most are sending out to third parties to do but many are doing so in house. With how advanced these roll up BIM models are its making it very easy for subs to do this type of work. The push in the industry is to pre-fab as much as you can.
Again this is regarding construction as a whole not an emphasis on home building which I suspect has the least pre-fabing going on as its price point is so low.
Jersey city? Which project?
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