Warnings for UK after disruptor Katerra pulls plug on US operations
News, views and more from the modular construction space
The dangers inherent in being a disruptor are manifold.
While the rewards can be great - just look at Uber or Airbnb - the path to success can be treacherous.
And so it appears to have proven for US offsite firm Katerra, which has reportedly shut down after six years in business.
It appears a tangled web as Katerra’s majority backer was Japan’s SoftBank, which was also an investor in the infamous Greensill Capital.
But as we report this week, there are some warning signals that those hoping to disrupt the UK offsite sector would do well to heed.
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*NEWS*
Tech disruptor Katerra pulls plug on US operations
Katerra, a US offsite homes start-up which had raised around $2bn from investors, has reportedly shut down - leading to a warning for disruptors in the UK market.
The California-based firm, whose backers included Japanese multinational SoftBank, was established in 2015 and experienced rapid growth after acquiring a number of other companies. It branded itself as “a technology company redefining the construction industry”.
In February last year, the company claimed to have 8,000 staff globally, with projects in Saudi Arabia and India. Around 2,400 staff are currently tied to the firm on Linked-In.
In an email to employees this week, published by US website The Information, Katerra said:
“Following a thorough review of strategic business alternatives, Katerra has determined that it must wind down the majority of its US business operations, effective immediately.”
Katerra’s facilities include a 270,000 sq ft factory in Washington state which boasts of having “one of the largest cross-laminated timber (CLT) presses currently in operation globally”.
It is unclear at this stage what will happen to its global operations.
The firm’s demise is not entirely unexpected after it emerged late last year that SoftBank was ploughing an extra $200m into Katerra as a bail out.
SoftBank was also an investor in collapsed fintech firm Greensill Capital.
But the apparent collapse of Kattera has sent shockwaves through the sector and across the Atlantic.
Speaking in a personal capacity, Mark Farmer, the boss of Cast Consultancy and the government’s MMC champion, told Modular Monitor:
“This was a ‘build it and they will come’ play where big money was thrown at something on the premise that they could just unilaterally change the US housing market model by talking about being a ‘platform business’ and then buying up incumbent parts of the supply chain and trying to fuse them together.”
He added: “I have been told by insiders that it was a flawed model in terms of not just pipeline deficiency but on the ground execution.
“Some of the reality was not technology-led advanced manufacturing as was claimed and there were problems with quality and site completion. To amplify the problems, the US also had some very specific issues around union labour problems and state building codes being different across the country.”
Turning to the UK, Farmer said the Katerra saga stood as a warning to those who think they can “just spend big money to disrupt and enter the construction and homebuilding market”.
He added: “You need to think things through very carefully and have either a fully integrated land-led business model or you need to have tested, or co-created, your product with an aggregation of clients who you know will want it at a price point that works for them and to a quality that has been demonstrated.
“This takes time and more importantly a gradual approach to R&D, proto-typing, marketing & scale up.
“I don’t see any businesses in the UK modular sector that are setting up in such a high cost and risk laden ‘bubble’ this way, albeit it is clear that there are still maturity challenges in connecting UK modular supply and demand at scale.”
Katerra did not respond to a request for comment.
*OFFCUTS*
PEOPLE: TopHat’s chief financial officer has left after less than two years with the Goldman Sachs-backed firm. Gerald Reichmann, who joined TopHat in September 2019, has taken up a new role at metal packaging firm Trivium. In comments on Linked-In, Reichmann said: “As with every start up it was [a] challenging road ahead of us, but I think the whole team made great efforts and the company significantly matured.” He also claimed that TopHat’s board had “just further reinforced their commitment in the business by signing off the updated five-year plan”. TopHat declined to comment.
COMPANIES: Berkeley’s MMC factory in Kent finally appears close to completion. Simon Dudley, the former interim chair of Homes England and current chair of Ebbsfleet Development Corporation, tweeted that he had visited the site which is expected to open “later this year”. Berkeley said in 2018 that it expected the site to be operational in 2020.
SOCIAL HOUSING: Housing association Vivid is looking to find an extra modular firm to help it deliver up to 500 offsite homes a year. The 32,000-home landlord already has a JV with Ikea and Skanska-owned producer BoKlok. But in an interview with Inside Housing, Vivid’s boss Mike Shepherd said it is looking for “an additional modular partner” for another site beyond the two it is working on with BoKlok.
GLOBAL: MiTek, a tech firm owned by Warren Buffett’s Berkshire Hathaway, has struck a deal with New York architecture practice Danny Forster & Architecture to launch a new initiative aimed at boosting the uptake of modular. As part of the the ‘Modular Initiative’, the firms will look to develop a so-called Modular Activation Platform (MAP) which will offer developers, contractors and architects specialised design software and “hands-on” guidance when approaching projects. “Modular has such clear advantages, but for your average commercial builder, the risks are too high and the learning curve is too steep. Our activation platform will change that,” said Danny Forster, DF&A’s principal. DF&A has featured on the pages of Modular Monitor before, as the firm has worked on what is claimed to be the tallest modular hotel in the world - Marriott’s AC Hotel NoMad in Manhattan.
*NUMBER CRUNCH: 3,000*
The number of “smart” offsite build-to-rent homes that are proposed will be delivered by a newly-launched subsidiary of investment firm Apache Capital.
Present Made is claiming to be the first in the UK to design, build and operate family homes for rent. As part of the firm’s first phase, suburban locations across southern England are being targeted. Four sites have been secured in the Oxford-Cambridge Arc, according to Present Made’s website, while plans are in place for another six schemes as part of a £1.6bn pipeline. The homes will be precision engineered in a factory, Apache said.
*INSIGHT*
Former Homes England boss Nick Walkley, who describes himself as “recovering from an acute case of multiple CEO”, this week shared his thoughts on Twitter around the thorny issue of planning and housing need…
*AND FINALLY…*
I’ve had a dig around the idea of hydrogen-powered homes in a feature for Inside Housing. The general consensus, among experts, is that hydrogen boilers can be one part of the solution but ready-to-go options such as heat pumps should also be a large part of the mix.
I’m James Wilmore, a freelance journalist and editor. I cover the built environment and occasionally cycling. This is me here and here
For all enquiries, story ideas and tips, please email: james@modularmonitor.co.uk