Katerra signs $650M contract with Saudi Arabia to build 8,000 homes

The agreement follows turbulence in the construction startup’s U.S. business, including layoffs and executive departures

Jan.January 09, 2020 03:15 PM
Katerra CEO Michael Marks and one of the company's prefabrication homes in Saudi Arabia (Credit: YouTube, iStock) 

Katerra CEO Michael Marks and one of the company’s prefabrication homes in Saudi Arabia (Credit: YouTube, iStock)

A SoftBank-backed construction startup that has faced questions about its ability to deliver projects in the U.S., just secured a contract to build thousands of homes in Saudi Arabia.

The company, Katerra, confirmed to The Real Deal that it has entered a $650 million contract with the Saudi Arabia government to build 8,000 homes in the country. Katerra declined to comment further.

The Silicon Valley-based firm, said to be valued north of $4 billion, has a sprawling portfolio of construction projects across the United States, Saudi Arabia and India. Fueled by venture-capital funding, Katerra has grown at breakneck speed since launching in 2015. The company offers a vertically integrated model for construction, by providing design, software, pre-construction and construction services.

The Saudi Arabia contract, signed in recent weeks, is part of a larger, $40 billion non-binding agreement Katerra signed with the government in October 2018 to deliver hundreds of thousands of housing units in the country. As part of that broader agreement, Katerra signed its first contract in May 2019 to build 4,101 units in five regions of Saudi Arabia.

But back in the U.S., Katerra is grappling with a patchy track record of executing projects and maintaining clients. The company faced a turbulent end to 2019 after cutting 200 staff, closing a factory and a co-founder leaving the board.

Those events were the subject of an in-depth report by The Real Deal last month, which detailed how the company had walked from projects, faced massive cost overruns and struggled with logistical challenges with U.S. projects.

In December, Katerra told TRD that it had more than 300 projects in its pipeline, and was on track to complete more than two dozen by the end of 2019. However, the company could point to only one building it had delivered on time.

Its troubles echo issues at other SoftBank-backed firms, including co-working firm WeWork, hospitality startup OYO and robot food chain Zume Pizza, which seek to disrupt their respective industries by streamlining old-school business models with technology. Those firms have collectively laid off thousands of employees in recent months.

Despite Katerra’s setbacks, the company has doubled down on its international ventures. In addition to Saudi Arabia, the company merged with an India-based construction company to build projects there.

“Many people don’t realize Katerra is a diversified business with multiple revenue streams, of which international is a major component,” Travis Putnam, managing partner of Navitas Capital and Katerra investor, said in a statement. “We’re looking forward to continuing to support the business as it evolves and expands.”

Saudi Arabia has reason to ensure Katerra’s success: It is the largest backer of SoftBank’s $100 billion Vision Fund, which has poured almost $1 billion into the company. Last month, SoftBank acknowledged the connection and told TRD that it helps its “portfolio companies navigate entrance to new and promising markets, such as Katerra’s work for Saudi Arabia.”

Katerra previously told TRD that it plans to build two large factories in Saudi Arabia. As of last month, the company had two small, mobile factories up and running, with a third under construction. Katerra representatives indicated that it’s broken ground on one of the larger facilities.

In a December 2019 blog post, CEO Michael Marks said the company has “already delivered the first units” in Saudi Arabia, and by the second quarter of 2020 expects to deliver 10 to 15 homes per day.

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