Katerra, a California company that applied cutting-edge technology to construction, is winding down its operations, which could complicate the completion of at least two apartment projects and a hotel in Denver.
The company informed the Colorado Department of Labor and Employment via a letter sent on Tuesday that it would let go of 102 workers at its Centennial office, including carpenters, HVAC workers, estimators and project managers. The layoffs are expected to start Friday.
The pandemic threw the company for a loop, but the last straw came when Katerra’s lender unexpectedly filed for bankruptcy protection, preventing it from obtaining the construction bonds it needed, Marc Liebman, the company’s chief transformational officer, told the state in a letter submitted under the Worker Adjustment and Retraining Notification Act.
That, in turn, resulted “in the recent and rapid deterioration of the company’s financial condition,” he said.
Although the company’s website lists a half dozen projects still under construction in Denver and one in Fort Collins, it appears only two apartment buildings and a hotel in Denver remain unfinished.
The largest project is X Denver 2 or XD2, a 22-story building near the Five Points neighborhood with 412 apartments, including co-living units, 15,700 square feet of co-working space and retail. It is targeting an April 2022 opening.
Katerra also said it was managing the construction of Cirrus, a 292-unit affordable apartment project just west of Empower Field, on behalf of UDR, a multi-family real estate investment trust based in Highlands Ranch. The project’s website said it was set to open later this year.
A third Katerra project underway is the Catbird Hotel in the River North neighborhood at 3770 Walnut St. Catbird combines daily hotel stays, weekly extended stays and monthly apartment-like rentals that “blurs the line between hotel and home.” Sage Hospitality Group, Walnut Development Partners and EXDO Development are the developers.
Katerra promoted a technological transformation of “every process and every product” to lower costs and speed up building completion times, a holy grail for an industry that has remained largely stuck with 1950-era production methods.
Founded in 2015, the Silicon Valley company integrated design, prefabricated component manufacturing and construction management services into one package. It attracted $2 billion in investment, including $1 billion from SoftBank, which was stung last year by heavy losses in its WeWork investment.
Katerra quickly created a global presence and grew to 8,000 employees. By 2019 was the country’s fifth-largest builder of apartments, according to the National Multifamily Housing Council. But last year it had slipped back to the 13th spot and the U.S. Securities and Exchange Commission launched an investigation into its accounting practices.
“Katerra certainly pushed the envelope on construction innovation. That said, while Katerra stood out to a degree as a startup with significant funding, there are many multifamily development firms that are always innovating and trying out new processes, platforms and techniques,” said Caitlin Walter, NMHC’s vice president for research.
Projects in the middle of the construction process likely face the greatest complications, while those near completion can push through and those in the design phase will start over, said Cary Bruteig with Apartment Insights in Denver.
Among the projects Katerra recently saw to the finish line were Jeff Park Flats, a 25-unit condo project in Denver, Edge LoHi, a 44-unit condo project near downtown, and Arts District Flats, a 126-unit apartment building in the Santa Fe District. It didn’t have any listed in the design phase locally.
“It is usually a bit of a nuisance to tell you the truth,” Bruteig said when developers have to replace a general contractor or construction manager. It happens rarely and projects usually get back on track within six months.
Katerra’s business model could complicate things because it didn’t just provide management services, but also components and materials out of its factories, like cross-laminated timber and prefabricated floor and wall panels.
The company’s business development manager didn’t return calls seeking an update on the status of the company’s projects in Denver.