Perfect or Not, Katerra is the future

Ever notice how people like to poke the lion and bear cages at the zoo?

There is something about seeing something big, impressive, and dangerous that makes us want to jab or prod and see what happens.

How big and bad is it really? How dangerous is it really? What happens when we compare ourselves to the biggest and baddest?

I suppose it’s part of our nature. Trying to measure ourselves and our place in the pecking order.

In a similar vein, I think we also distrust the exceptional. I think there is something that has been beaten into all of us to expect the extraordinary to fall.

Doesn’t matter how fun it is to watch Charles Barkley. He told you he’s no hero.

Lance doped. Tom deflated. And on and on.

Don’t trust the audacious. Don’t believe in the exceptional.

No one cheers for Goliath.

Apple is crumbling under Cook. Google and Facebook are doing nefarious thing with our personal data. Right?

There are no heroes. No one is exceptional. Right?

I know I’m exaggerating a little, but be honest with yourself and tell me this sentiment is way off.

(Be honest)

So, does it really surprise anyone that people are (subtly) cheering against Softbank’s Vision Fund?

What Masa Son has done is go out and raise the largest “venture” fund ever created (by several orders of magnitude) and make bets on companies that he and the investment team consider to be defining the future of human life on this planet.

That’s pretty ambitious.

And, if you’ll forgive my gender-specific metaphor, ballsy.

But there are no heroes, right? No one can be that ambitious and be above-board, right? Must be all smoke and mirrors . . .

So how perfect is it that WeWork’s planned IPO fell apart? How great was it for all of those who scoffed for years at the valuation that Softbank was giving to WeWork?

Yep, you called it. Smoke and Mirrors.

Setting aside my opinion on WeWork, I think something has been lost in the transitive shuffle here.

The logic goes: if one of Softbank’s portfolio companies is not quite killing it in the eyes of the public equity market, then all of the portfolio must be suspect. Probably even fraudulent.

The problem with that is there is a company that SoftBank invested in that actually has a truly transformative model. But in the post-WeWork-non-IPO world, we need some more “gotchas” in our journalism to confirm it’s all a sham.

Now any time there is a hiccup or less-than-optimal outcome for this company, the sky is falling and we all knew it was a house of cards built by the Japanese giant!

You think I’m exaggerating.

Google “Katerra” and click on News.

See what I’m saying?

WeWork was a sham, so Katerra is a sham. The giant Japanese financial monster was just a wizard behind a curtain after all.

(WeWork is NOT a sham, by the way. Slow the bandwagon a little, brother.)

Before you go burying Katerra, allow me to offer a counter point.

Whether Katerra is a perfect company or not is irrelevant. Quick — name a perfect company?

That’s what I thought.

There aren’t any. Perfect isn’t possible. Great is.

And I’m not even sure Katerra is great yet. What I think they are is revolutionary . . . and the future of the commercial real estate industry.

They will have problems. They will miss deadlines. They will lose executives.

But they might also change the industry forever.

And not for the reason you might think.

Yes, building apartments with robots in a factory is remarkable.

But my theory is that Katerra’s robots are just a gateway to what changes the industry — obsessive technological efficiency.

I have been told how much better-than-market Katerra can operate, but it wouldn’t be appropriate to share it here and it was a couple years ago anyway.

But for illustration purposes, let’s assume that through their processes and automation Katerra can build an apartment complex for 2.5% cheaper than any other developer or GC. (They can do MUCH better than that, but I think 2.5% is enough to illustrate my point.)

Even if that’s where they stay, that means they can outperform the market on any property they build by 250 bps.

In terms of real dollars, that means they can build a $10M project for $9.75M. And if you think about open-market bids for land, contracts, or value-add/opportunistic properties, who do you think will have the most-compelling bid?

Probably the guy who can outperform the market on cost.

So, yes, I know that robotics and factories play a role in those savings. But take my word for it — Katerra’s cost efficiency goes well beyond that.

And that’s where WE change as an industry.

Best-in-market developers keep losing land bids to Katerra. Contractors keep losing contracts to Katerra.

Sooner or later they look in the mirror. Sooner or later they ask how they can get the edge back.

There is only one way — a hyper-focus on cost efficiency via technology.

Either you play the game their way or you are not in the game. It’s just capitalism. Adapt or die. Ask Andy Grove.

It’s our choice as an industry. And I’ve had enough conversations with CRE investors, developers, and PE pros to know that they are paying attention. They are vertically-integrating. They are piloting emerging technologies. They are investing in PropTech VC funds.

Do you think it was just a coincidence that there were 2,000 people at this year’s CRETech in New York? Nothing better to do? No urgent deals?

Nope.

They need to catch up and they know it. They need the type of efficiency that only technology can provide.

They need it and Katerra is way out in front.

Katerra might fail. They will certainly have stumbles.

But that’s what trailblazers do. There are no paths in the wild. Katerra is cutting their own and you would be wise to pay attention.

So go ahead and write them off as “another WeWork” if you want. Discount their model because of some valuation that SoftBank gave them.

But don’t miss what they are really doing here. It’s remarkable and if they catch some of the debris coming off the WeWork explosion, try not to write them off for dead just yet.

And please try to keep your pokes at Softbank’s cage limited to actual, realized financial losers. I know it’s tempting, but please try to wait until Goliath actually falls before pronouncing him dead.