By Tasha Anderson and Rebekah Morris for AZBEX
On Tuesday, June 1st, 2021, The Information reported that Menlo Park-based construction company, Katerra Inc. planned to cease operations. This has since been confirmed by BEX staff with numerous employees and people involved in their current projects. Surprisingly, work has not stopped any projects.
All told, six major projects currently under construction are impacted, but the outcome may be much less severe than initially thought. New entities are expected to emerge from this dissolution, keeping some teams intact and enabling current projects to finish.
According to the initial media report, the SoftBank-backed company, “is expected to let go of thousands of employees and is likely to walk away from dozens of construction projects it had agreed to build.” The Phoenix office of Katerra employs an estimated 150+ people, all of whom are expected to be laid off effective Friday, June 4, 2021.
Katerra has several projects luxury high-rise tower projects in the Valley, those currently under construction include:
- Kenect Phoenix – 23-stories, 320 unit mixed-used development in Downtown Phoenix – Temporary Certificate of Occupancy was issued in early March, 2021. Only work items that remain are final punch list items. It is expected that a newly formed entity will finish this project out.
- One Camelback – an adaptive reuse of an existing parking structure into a 163-unit apartment complex, located in the heart of Phoenix at Central Ave and Camelback Rd. Construction has been delayed from its original completion date of Summer 2021. From recent social media posts exterior glass has begun and interiors construction is expected to follow. It is expected that a newly formed entity will finish this project out.
- Society Phoenix (formerly X Phoenix) – 616-bed, 22-story mixed-use development. Phase one, currently under construction, is planned as a 20-story, 253-unit residential tower with approximately 34KSF of commercial space. BEX research indicates this project was slated to complete construction in the Summer of 2021. It is expected that a newly formed entity will finish this project out.
- Skye on 6th – a 25-story, 309-unit multifamily residential tower with bottom floor retail. Sitework had just started in May. A groundbreaking ceremony was scheduled for Wednesday, June 3, 2021, but that was obviously canceled. The owner is exploring options on how to deliver this project and may select a new GC partner.
Other projects on Katerra’s list that are currently under construction include:
- Aiya – a 360-unit apartment community within 16 residential buildings in Gilbert. The project was anticipated to be complete by July 2021. According to our sources, the existing Katerra entity will complete this project.
- Revel Scottsdale – a 159-unit “minimal healthcare” senior living facility in Scottsdale. Construction is anticipated to wrap up the end of August. According to our sources, the existing Katerra entity will complete this project.
According to the article published by the Silicon Business Journal on June 1st, “A source with knowledge of Katerra’s plans, said the company is having ongoing conversations and cooperation with clients to make sure those projects that are under construction get completed.”
Across the board, subcontracts are not being terminated. Rather, they are being reassigned to Owners and when a new entity is formed, they will be reassigned to the General Contractor taking over the project. This is likely a welcome relief to the hundreds of trade partners in the market with long memories of firms abandoning projects, leaving subcontractors holding the bag.
Katerra Inc. is tied to additional big-name projects yet to break ground in Phoenix, including the 28-story, 352-unit Palm Court Tower at Arizona Center multifamily project and the 375-unit X Basecamp project located at 625 N 2nd Ave, Phoenix. BEX researchers reached out to Katerra in April and were told that construction was anticipated to begin in Q4 2021 on the Palm Court Tower. It is unclear what will happen to those projects.
New Firms Expected to Emerge
Katerra had been on an acquisition tear in recent years, buying up architecture and construction firms at a rapid pace: Michael Green Architecture, UEB Builders, Fortune Johnson, Britslecone, Lord Aeck Sargent. A succinct timeline of acquisitions can be found here. Easily the largest acquisition in the Phoenix market was of General Contractor UEB Builders in 2019.
Already the acquired firm Lord Aeck Sargent, an Architecture and Engineering firm based out of Atlanta, is returning to its original firm after being acquired by Katerra in Summer 2018.
While premature to speculate too far into this, our sources expect several entities to emerge from this in the Phoenix market. Several employees who spoke on the condition of anonymity cited the character of the individuals, saying they care deeply about their projects and clients and will finish them. That is not the case in all markets however; as operations cease in other locations, some projects will be abandoned no as safely as possible working with jurisdictions and owners.