Katerra Digs Too Deep Of A Hole: Anybody Want A New CLT Plant?
Rumors abound over which company will purchase the Katerra cross-laminated timber facility in Spokane, Wash. The new CLT plant is now part of Katerra’s Chapter 11 bankruptcy filing
A “Silicon Valley” startup company, Katerra intended to redefine the methods of operation of the conventional housing and building construction industry and become the ultimate turnkey provider—including the self-manufacture of CLT and building components such as windows and cabinets, architectural design and engineering services, in-house supply chain, off-site assembly of structural sections, and on-site modular assembly with company construction crews.
Instead it went through $3 billion in equity investments since its founding in 2015.
“They came out guns-a-blazing with CLT as its backbone,” comments an industry participant.
In the bankruptcy filing Katerra estimated liabilities of $1 billion to $10 billion and assets of $500 million to $1 billion. Katerra said that many of its U.S. projects will be demobilizing. It directly employed 500 at the time of the filing. Much of the equity investment had come through Tokyo-based holdings company Softbank and its venture capital fund.
Katerra stated upon the bankruptcy filing it was taking steps to conduct a “marketing and sale process,” while having secured $35 million in Debtor-in-Possession (DIP) financing to fund operations during the Chapter 11 process. Katerra filed for Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas on June 6.
A day later the court released a possible bidding or auction schedule commencing in late July for the U.S. assets of Katerra and its affiliates.
The $150 million, 270,000 sq. ft. CLT facility commissioned in May 2019 and includes the latest CLT manufacturing technology.
An industry participant has pointed to companies such as Weyerhaeuser and Stora Enso as possible buyers of the CLT plant. Weyerhaeuser has a long history of engineered wood products manufacturing experience. If it purchased the plant, it would most likely focus on mass production of CLT and let other companies handle the building design and construction end that may have been Katerra’s downfall, according to the observer.
Weyerhaeuser has also hosted strength and deformation testing of CLT at its test facility in Federal Way, Wash. for research groups such as American Wood Council.
Stora Enso has actual CLT manufacturing experience, currently operating two production facilities in Austria, one in Sweden and a new one under construction in Czech Republic at its Zdirec sawmill location. The company gained International Building Code approval for producing and delivering CLT panels to the U.S. late last year and has been aggressively pursuing the U.S. market.
Katerra’s new components manufacturing facility in Tracy, Calif. is also available. The 577,000 sq. ft., robotics-driven components facility was just starting up.
A source close to the situation says Katerra was too diverse for its own good. “They tried to self-perform too many specialties from the get-go—not only multi-unit construction and CLT, but also architecture, bathroom fixture design, HVAC design, window manufacturing, global projects such as Saudi Arabia and India, etc. As for CLT, the rapid escalation in lumber prices made the system cost-prohibitive for all but a few projects.”
Indeed the unprecedented launching of lumber prices (CLT is composed of 2 in. lumber) was a scenario few could have predicted to such degree; however, another industry participant speculated that Katerra should have built a sawmill to have better control over their raw material intake. Katerra bought its green lumber from sawmills in Canada.
The Katerra startup was led by a capital funding specialist named Michael Marks who had success leading electronics technology company Flextronics International, and Fritz Wolff, a third-generation executive chairman of a multi-billion dollar real estate and apartments development and investment business, The Wolff Co., which was founded and operated in Spokane until moving headquarters to Scottsdale, Ariz. (Katerra apparently built the plant in Spokane to create jobs for the community where Wolff was from.)
The new venture wasn’t shy about wanting to shake up—and speed up—the conventional construction industry. In addition to building manufacturing plants, it bought everything from architectural firms, to construction firms to dirt contractors. But many of the projects it entered into appeared to experience the same hiccups and cost overruns that conventional on-site construction projects sometimes encounter, and perhaps with less quality, as Katerra tacked on substantial costs related to re-work issues.
Katerra experienced nearly $2.8 billion in financial losses in 2018, 2019 and 2020. Unprofitable projects continued to mount right up until the bankruptcy.
Katerra replaced Marks as CEO in spring 2020, only a year after Marks hosted the first Katerra “TAKE OFF” product launch event, which included building platforms, Apollo software, CLT product line, energy and electrical platforms, HVAC, interior fixtures and even a bath kit.
In May three senior members of the Katerra management team resigned and the company formed a committee to seek alternative financing, market certain assets and basically restructure the company. But no investor was willing to provide the financing and the company faced a critical liquidity shortfall and negative cash balance.
On June 1 Katerra ceased a majority of its operations in the U.S., winding down dozens of projects and terminating 730 of its 1,300 employees in the U.S.
A stalking-horse bid could begin July 22, from which Katerra will choose a bid from a pool of bidders as the initial bid that sets the low-end bid. In the ensuing days other bidders may submit higher bids with the highest bidder winning the assets. The process could also involve an auction format, with the sale closing in mid-August.
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