What Katerra’s shutdown means for clients, subsidiaries

Katerra’s abrupt closure has left clients and subsidiaries in the lurch. (Getty)
Katerra’s abrupt closure has left clients and subsidiaries in the lurch. (Getty)

Last week, “rumblings” from Katerra workers on a project site in Jersey City reached developer Paul Silverman. He then learned the ominous chatter was true: Katerra was shutting down.

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

Silverman, whose eponymous firm hired Fields Construction, one of many companies acquired by Katerra over the last few years, said his own company has already taken over construction on the project. On Thursday, a crane at 170 Erie Street could be seen loading drywall onto 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 are going to be a lot of developers who are delayed dramatically,” he said.

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

Since its founding in 2015, Katerra sought to be a one-stop shop, handling various aspects of the construction process and employing building technologies that would cut down on costs and project timelines. With venture backing, it grew rapidly, acquiring more than 20 companies. But its meteoric rise was marred by a rotating cast of CEOs, a series of layoffs, factory closures and a controversial track record on delivering projects. And as with other SoftBank-backed companies, it did not have a clear path to profitability.

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The Information reported this week that the firm abruptly told employees that it would shut down, potentially without paying out severance packages or unused time off. The company has not yet officially announced its closure, nor have its representatives answered calls and emails seeking comment.

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

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

“We wish all Katerra staff our best and are sad to see the impact on so many by this news, but trust that all these very talented people will find exciting new challenges,” he said in an email.

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

Though he said he was not surprised by Katerra’s closure, he was disappointed. He had hoped the startup could provide a path for smaller firms to collaborate and work toward changes to the industry, such as reducing building costs, prioritizing environmentally responsible design and speeding up the building process.

“I am disappointed that ultimately that did not happen but I also saw misalignment of leadership’s values that shifted from real impact to financial return and I saw lack of clear direction,” Green said in an email of the closure. “That is not new in this day of corporations but it is also not necessary or wise.”