Katerra Vets Set 3-Year-Old Onx On Course To Redemption

Housing affordability, sustainability, and resiliency innovation – and the "10,000 ways that will not work" to get there – is unsparing with its young offspring.

For instance, how do you react when you get word of the opening of a brand new 150,000 square foot, $50 million dollar factory by a three-year-old start-up enterprise answering a call that "the world demands that we build different and build better?"

What does your gut tell you when you hear that three of the co-founders and one of the operating leaders were at the reins of Katerra, a residential construction moonshot that fairly equally divided a generation of time-tested homebuilding, residential development, and manufacturing partners among those who felt the strategy could and would never work and those who pointed to systemic failures in execution?

If you're among the exceptional few, you might say, "Interesting, let's wait and see how they do. Maybe they learned their lessons."

Far likelier, you'll shrug, with indifference, or low-level pity, or a smidge of disdain, wondering why they keep doing that sort of thing.

Discovery of more "ways that will not work" may very likely be part of housing's solutions seeking – for affordability, sustainability, resiliency, and for drawing in a next generation of brilliant, bold, driven, and disciplined business front-liners, managers, and leaders – for as long as any of us are alive.

But it would be a grave mistake to dismiss Onx as a resurrected Katerra, or a tweaked Entekra, or a re-constituted, re-packaged iteration of any number of other fledglings attempting the modernization of home construction in the U.S, who may be on shaky ground or not.

Yes, a co-founder and Chairman of three-year-old Onx is Michael Marks, a co-founder, CEO and Chairman of Katerra from 2015 to 2020. And yes, Onx' President is Trevor Schick, who served under Marks as Katerra president of materials and renovations, heading up global supply chains for the Silicon Valley-style construction company that aimed to optimize building design, construction and development. A look further into Onx's strategic pedigree reveals that Co-founder and CEO Ash Bhardwaj was president of Katerra International, and worked with Marks on past investment and operational ventures including Flextronics. Further, Onx co-founder Nicholas Brathwait is, like Marks, a founding managing partner of venture capital firm Celesta Capital, and was chief technology officer for Katerra.

But believe it or not, that's about where any similarities or overlap between Katerra and Onx end. Whereas Katerra may have been regarded by residential construction and development leaders in the U.S. – deservedly – as a $3 billion loan in search of an operations and strategic focus, Onx – while it's currently backed by more than $200 million in investment capital and is seeking more – is entirely first principle, operations, and strategy.

How are we different from Katerra?" says Onx co-founder and CEO Ash Bhardwaj, taking the elephant-in-the-room question head-on. "Three essential ways. One, Katerra was targeting the multifamily construction business, primarily, and we are exclusively focusing on single-family homebuilding. Two, land. Katerra was selling its construction-as-a-service solutions to developers as a full-stack vertical construction platform where margins unfortunately range in the low single digits. Onx is a land buyer and developer, and our business model for value generation comes from both the land residual value and our scaled construction and assembly model. Three, our customers are homebuyers. In each of our three years of operations, we've doubled deliveries to our homebuyer customers, and in 2023, we sold and delivered 500 homes. We're a consumer brand, and we stand for affordability, resiliency, lowered home operational and maintenance costs, and beauty. That's how we're different from Katerra."

It would also be a grave mistake to take stock of homebuilding's recent losing-streak of vaunted building technology platforms – artificially pumped as they may have been full of easy-money venture capital or its like – and dismiss it with pablum.

Katerra’s failure is the latest sign that the hypergrowth strategy employed by social media and software companies faces challenges in complicated, slower-moving industries like real estate."

Onx is nothing if it's not about speed, and it's also not timid when it comes to breaking many of homebuilding's "how we've always done it" rules in pursuit of a design-for-manufacturing-and-assembly system to deliver 700 homes into its evenflow system in 2024.

Per a statement from Onx:

With the ability to deliver up to four homes daily, the X+ factory allows us to redefine homebuilding and make a real impact on housing shortages,” said Ravi Bhat, chief operating officer of Onx Homes. “Our building approach, of which the factory is a critical component, is responsive to climate needs, improves quality control, reduces waste, and sharply cuts the construction timeline to where we can provide 700 new homes this year... Building homes that can withstand the impact of natural disasters, including hurricanes and wildfires, has also become an Onx focus. "We need homes that are not only environmentally sustainable but also capable of withstanding natural disasters,” said Bhat. “Concrete homes are the best way forward and with advancements in green and carbon-neutral materials we’ll join the next generation of builders making homes that are both sustainable and can withstand climate change."

As CEO Ash Bhardwaj notes above, a key distinction between Onx and most of its offsite and onsite automation, robotics, and 3D printing manufacturing peers is – like Clayton Homes – taking part in the residential development and property value creation lifecycle, where an internal rate of return on lot inventory turns generates far greater margin opportunity than building-as-a-service operational models.

Supporting Onx's land acquisition strategy – which Bhardwaj noted has amassed 7,000 owned and controlled lots currently – is a proprietary predictive real estate A.I. system. From a Trevor Schick-led technology partner firm called Slate.ai, the Slate X On X Real Estate Intelligence platform allows the team to ingest "terabytes" of macroeconomic indicators, data analytics, zip codes, regions, housing metrics, etc. and scout out both community development and factory siting coordinates.

We start looking at those specific zip codes, how those markets will look at what's the price going to be what's the price increase going to be over the next five years," says Schick. "We know how many homes sell in that specific zip code are going to sell per month over the next five years, as well as how to sell the market in terabytes of data takes for us to understand this. It's just as you can't do it as a human you needed to do it. So now we can start looking at where we put factories so it's most efficient to service that area. All this data, again is updated on a weekly basis or as soon as information comes in."

Homebuilders will say it takes years of relationships-building to develop the kind of land strategy intelligence and inroads to off- and on-market land deals. Schick is betting that the Slate x/Onx system can take an accelerated learning curve out of the gate as the team begins to establish those trusted relationships on the ground.

A lot of the value in those relationships relates to what's been happening in the past," Schick says. "With these data tools, we may get a better glimpse of what's going to be trending in the future to drive our land buys."