What the closure of Katerra means for customers and subsidiaries

Katerra’s abrupt closure has left clients and subsidiaries high and dry. (Getty)

Last week, “rumors” of Katerra workers at a project site in Jersey City reached developer Paul Silverman. Then she learned that the sinister talk was true: Katerra was shutting down.

Many developers are now in a similar position to Silverman, figuring out how to move forward on projects that suddenly no longer have a construction manager.

Silverman, whose namesake firm hired Fields Construction, one of many companies Katerra has acquired in recent years, said his own company has already taken over construction of the project. On Thursday, a crane at 170 Erie Street could be seen loading drywall on the upper floors of the future apartment building.

But he said companies that don’t have construction management experience likely won’t be as agile.

“There will be a lot of developers who will be drastically delayed,” he said.

There were many warning signs which led to the collapse of Katerra. Most recently, SoftBank Group provided a rescue of more than $ 200 million to Katerra, in addition to the $ 2 billion it had already invested. The move kept the construction tech startup out of bankruptcy and also gave SoftBank a majority stake in the company. The deal also canceled $ 435 million in debt Katerra had with SoftBank-backed financial services firm Greensill Capital, the Wall Street Journal reported at the time. That arrangement is reportedly at the center of a planned lawsuit by Credit Suisse.

Since its founding in 2015, Katerra has sought to be a one-stop shop, managing various aspects of the construction process and employing construction technologies that would reduce project costs and timelines. Backed by risk, it grew rapidly, acquiring more than 20 companies. But his meteoric rise was marred by a rotating cast of CEOs, a series of layoffs, factory closures and a controversial track record in project execution. And as with others Companies backed by SoftBank, did not have a clear path to profitability.

Information reported this week that the company abruptly told employees it would close, potentially without paying severance pay or unused time off. The company has yet to officially announce its closure, nor have its representatives returned calls and emails seeking comment.

It is not yet clear what will happen to all of Katerra’s projects or the companies it has acquired.

Eric Karsh, founding director of Equilibrium Consulting, a structural consulting firm acquired by Katerra in 2018, said he is “finalizing the details to take full control of the company, given the sad news from Katerra.”

“We wish all the Katerra staff the best and are sad to see the impact on so many by this news, but we are confident that all of these talented individuals will encounter new and exciting challenges,” he said in an email.

Michael Green, whose eponymous architecture firm MGA was bought by Katerra in 2018, said he has been concerned about Katerra’s finances since the SoftBank bailout. He said the firm has been working to become independent from Katerra for months and is close to finalizing an agreement to do so. According to Green, his firm always operated “arm’s length” with Katerra when collaborating on projects, and most of its work comes from other clients.

Although he said he wasn’t surprised by Katerra’s closure, he was disappointed. I was hopeful that the startup could provide a path for smaller companies to collaborate and work toward changes in the industry, such as reducing construction costs, prioritizing environmentally responsible design, and speeding up the construction process.

“I’m disappointed that ultimately that didn’t happen, but I also saw a misalignment of leadership values ‚Äč‚Äčthat shifted from actual impact to financial performance and I saw a lack of clear direction,” Green said in an email about the closing. “This is not new for corporations today, but neither is it necessary or prudent.”

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