Is a technological/business model revolution about to overtake Indiana’s construction industry – yet we hardly see it coming?
If building materials consultant Mark Mitchell’s perception is correct, Katerra, a new high-tech start-up combining technology, design, distribution and modular (factory) construction will soon reshape the industry in manners similar to the way Uber tore apart the local taxi industry and Craigslist decimated local newspapers.
“In its own way, I predict this will have as much effect on residential and commercial new construction,” writes Mitchell, based in Boulder, CO. “Lack of efficiency will make the way (building products) manufacturers do business now irrelevant in new construction. They may be relegated to competing with each other in the repair/remodel, big box and smaller high-end custom construction.”
Of course modular building has been around for decades, serving several niche markets in North Carolina and elsewhere. The difference this time is the integration on a multinational level between technology, design, manufacturing and delivery – and massive capital funding for the new enterprises.
Currently leading the pack, Katerra’s company headquarters are the Sand Hill Rd. tech venture capitalist epicenter in Menlo Park, CA, with a construction office in Scottsdale, AZ and design office in Seattle. It also is building a Cross Laminated Timber (CLT) factory in Spokane, WA.
The start-up purportedly has a valuation of about $2.5 billion, according to PitchBook Data. Early investors have raised as much as $244 million – and published reports indicate the company is preparing to raise another $200 million this year, at least.
Currently the organization, founded in 2015, has projects underway in California, Oregon, Washington, Idaho and Nevada, but there is little stopping it from expanding its scope and geographical range. Katerra says it has about 1,000 employees in four countries and already is among the top 25 general contractors in the U.S.
“Katerra is bringing fresh minds and tools to the world of architecture and construction,” the company says in its corporate outline. “We are applying systems approaches to remove unnecessary time and costs from building development, design, and construction.”
“With the latest technology at our fingertips, efficiency no longer has to come at the expense of quality or sustainability. Led by a team that combines expertise from the most groundbreaking technology, design, manufacturing, and construction companies, we are transforming how buildings and spaces come to life.”
“The way we think about a construction site is to turn it into an assembly site and make it a factory like we used to do at Flextronics,” CEO Michael Marks said in a published report. (Marks led Flextronics in the 1990s and early 2000s.) “The thing that is so messed up in the real estate business is how many different parties are involved in getting anything done.”
In his weekly newsletter, Mitchell – who provides marketing consultancy services to a diversity of building product manufacturers – says the coming construction technology/manufacturing revolution envisaged by Katerra will take place when the company approaches “builders and developers with an offer they can’t refuse – to design and build for them at a lower cost with higher quality, and to do it faster.”
“What if the builder could eliminate the need for designers, estimators, installation labor, and materials sourcing,” he writes. “Just like Nike or Apple, builders will become brands who don’t need to actually make anything themselves.”
Mitchell suggests the integrated, technology-based modular construction process will uproot the traditional new construction market with these changes:
- The builder, Katerra, will be ordering truckloads of products to be delivered to their factories. No more need for distributors, dealers or contractors;
- Labor shortages and installation errors will be a thing of the past;
- The builder will be taken out of the equation when it comes to product sourcing. There will be no more rebates. Katerra will want the best bottom line price, period; and
- Katerra will be able to look at making really big changes in how homes and buildings are built. Because of their scale and process, it will be easy for Katerra to consider big changes like changing to metal framing in residential construction.
Mitchell predicts Katerra’s industry changes will happen fast. “And just like the taxi industry, the National Association of Home Builders (NAHB) and some builders may try to push back with legislation that may slow but won’t stop this change,” he writes.
Writing to building products manufactures, Mitchell says: “In two to three years, or sooner, you will feel the effects of this change as your larger builders will no longer be buying from you. It will also happen to you in the commercial area.”
Mitchell also predicts there will be some high level competition to Katerra, just as Lyft competes with Uber. “Look for people like Elon Musk or others to create new companies designed to compete with Katerra.”
Katerra and other high-level integrated technology/modular builders will gain traction in part because of an increasing number of successful completed projects, coupled with pressures on labor supply caused in part by increasing immigration restrictions in the U.S., says another consultant.
“In 2018, I believe we will see a perfect storm of factors – an aging global workforce, a lack of new entrants and growing restrictions on free movement of labor – begin to decisively accelerate the uptake of construction integrated manufacturing,” writes Kenny Ingram, global industry director at IFS, a software developer.
“Government, regulatory bodies and the industry alike will start to realize that, while getting more people into the industry is important, as well as trying to increase the number of people onsite, the most strategic solution would be to fundamentally change the way we build in the first place.”
“New technology is making it easier to work profitably on a global level as well,” he writes. “With 3D printing, for example, costs for both material and long transports are decreasing substantially. Using technologies such as these, the partnerships will focus more on global competence exchange rather than long-haul transports.”
“All three of these trends are woven tight together. Contractors need to work hard to ensure that the right competences are secured while considering how to implement new business models for modular buildings and construction integrated manufacturing — all this in a construction industry that is becoming more global and offers new forms of partnerships. The players who master this balancing act will be the winners in 2018.”
