Tuesday, September 30, 2014

On-site environmental monitor due Sept. 15 delayed one month, leaving gap as construction activities accelerate; more transparency needed

So, how about the new monitor promised to help ensure that Atlantic Yards/Pacific Park construction--which is ramping up now--meets state requirements? It will arrive later than planned, and later than promised earlier this month.

The Second Amended Memorandum of Environmental Commitments for Atlantic Yards (p.15), issued in June, has the following clause:
2. FCRC [Forest City Ratner Companies] shall promptly seek to retain the services of a qualified engineering firm to serve as the on-site environmental monitor (“OEM”) pursuant to a scope to be reviewed by ESD [Empire State Development, the state agency overseeing/shepherding Atlantic Yards], and shall use commercially reasonable efforts to retain the engineering firm to serve as the OEM on or before September 15, 2014.
At the 9/4/14 Quality of Life meeting, Forest City acknowledged that timetable would not be met, but  executive Ashley Cotton said that the delay would be "very short."

I'd say "very short" means a week, but I gave them one more week before following up. Yesterday, I queried ESD and got the following response:
The firm will be retained by mid-October – ESD has been working with FCRC to ensure that the best firm possible is retained for the work. 
So "very short" apparently means one month.

What happens in the interim? Update from ESDC: "FCRC continues its role as OEM and ESD (with HDR) is monitoring its performance – the current OEM staffing is appropriate for the level of activity currently on the site and the new OEM will be in place in time for the anticipated increased activities."

How much might it help?

I asked Dean Street resident Peter Krashes, who at the earlier meeting had asked about the timetable, for his take. 

He suggested that, while the delay was dismaying, it was part of an unfortunate pattern, and we shouldn't expect too much from the OEM unless more transparency is applied:
Delays in filling oversight positions are part of a long-time pattern with Atlantic Yards. Right now the State’s community liaison position is only filled part time, and the current OEM is presumably still a FCRC employee, a condition the State apparently acknowledges is unsatisfactory or a change wouldn’t be made. It is important to keep in mind the new engineering firm will still be paid by and report directly to FCRC. It is reasonable to be concerned they will know who butters their bread.
In the past a lot of the OEM’s work has actually been executed by employees of the contractors doing the work, including the placing the air monitors. Since the ESDC is to review the scope of work of the OEM, they ought to make that scope public. And why can’t the engineering firm functioning as OEM be made available to the community for questions on a regular basis?
At the end of the day, what the community impacted by construction deserves is transparency in real-time, meaningful recourse like penalties when things go wrong, and oversight during work that is impartial and motivated.

From the latest Atlantic Yards/Pacific Park Construction Alert: street closures coming Oct. 10, overnight work

Notice issued this morning (click to enlarge)
According to the latest Atlantic Yards/Pacific Park Construction Alert, distributed yesterday by Empire State Development (ESD) after preparation by Forest City Ratner, significant work on the project site is starting this week, with street closures and overnight coming up the weekend beginning October 10.

Notably, assembly of the two cranes--one on Atlantic Avenue and the other on the B3 site at Dean Street and Sixth Avenue--needed for the green roof construction will begin on the night of Friday, October 10. The work will take place all weekend, including overnight work.

While Sixth Ave between Atlantic Avenue and Dean Street will maintain at least one lane of traffic for local traffic for most of the weekend--with intermittent closures as the crane is assembled and raised--Sixth Avenue between Dean Street and Bergen Street will remain closed, as will Dean Street between Flatbush Avenue and Sixth Avenue.

Sidewalks within the work zone will remain open only to residents and visitors of affected blocks. A Community Notice with additional detail on street closures and detours will be distributed this week.

Also, beginning yesterday, trailers with crane parts and associated materials were to begin mobilizing to facilitate crane assembly, with trailers will be pulled into the Maintenance & Protection of Traffic (MPT) area on Atlantic Avenue and within the fenced area of the B3 site.

Also note "intermittent night work" exploring the Long Island Rail Road tunnel wall in the intersection of Sixth and Atlantic avenues, between 10 pm and 6 am. This will occur between the hours of 10:00 PM and 6:00 AM.

The last remaining building on the southeast block of the project site, which mainly contains a surface parking lot, will be demolished.

B3 Residential Tower

According to the document:
• Soil characterization borings are being conducted to facilitate soil disposal related to future B3 building construction. This work is expected to be completed during this reporting period.
LIRR Yard Activities - Block 1120 & 1121

Excerpts from the document:
• Pile drilling along the north side of Pacific Street has been completed. Support of Excavation (SOE) work including the installation of lagging and tiebacks will continue in this area during this reporting period.
• Drilling of SOE minipiles under the east side of the 6th Avenue Bridge will continue during this reporting period.
• During this reporting period, the Contractor will continue excavation and hauling of soil from Blocks 1120 and 1121. Soil that has been classified as clean, contaminated or hazardous will be removed from the site as part of the excavation activities and brought to appropriate disposal locations. While this work is underway, protocols for the trucks entering and exiting the site have been put into place. These protocols provide instruction on roadway routing to and from the project site, queuing of trucks while on site and vehicle idling.
LIRR Yard Activities – Atlantic Avenue

Excerpts from the document:
• Excavation and exploratory work will take place along Atlantic Avenue This exploratory work is to investigate the construction of the existing LIRR tunnel roof for future structural tie-ins for the west portal.
• Intermittent night time work will be required during this reporting period in order for the contractor to continue work to complete their exploratory work at the LIRR tunnel wall in the intersection of 6th Avenue and Atlantic Avenue. This will occur between the hours of 10:00 PM and 6:00 AM, pursuant to approved DOT permits, and will be coordinated around Barclays Center events.
• Test pit work for NYCDEP water main will take place during this reporting period. This work will take place during daytime hours east of the MPT zone on Atlantic Avenue.
• Cutting and capping of NYCDEP water main inside the MPT area is scheduled to take place during this reporting period.
Block 1129, southeast block

Excerpts from the document:
• Soil characterization borings required to facilitate soil disposal related to future building construction within Block 1129 has been completed. Geotechnical borings will continue during this reporting period.
• Subject to receipt of permit, Demolition of 752 Pacific Street is expected to commence during this reporting period.
Pacific Park Brooklyn Community Liaison Office (CLO)
The Community Liaison Office has been relocated to Atlantic Center, 625 Atlantic Avenue. Located on the 3rd floor, visitors seeking the office should enter through the mall entrance located at the corner of Atlantic Avenue and So. Portland Avenue. The CLO’s hours are M-F from 9am – 4pm and the phone number, 866-923-5315 and email, communityliaison@pacificparkbrooklyn.com remains the same.
Nomenclature note

Note a continuing change in nomenclature. Not only is the document called a Pacific Park Brooklyn Construction Update, the note from ESD indicates "an effort to keep the Pacific Park Brooklyn Community aware of upcoming construction activities." In the previous alert, the "Atlantic Yards Community" was addressed.

Similarly, those with questions are encouraged to contact Nicole Jordan ESD’s Manager, Pacific Park Brooklyn Project Community/Government Relations, while last time the person to contact was "ESD’s Manager, Atlantic Yards Project Community/Government Relations."

Both the phone number and email address are the same, which means there's still a vestige of Atlantic Yards: 212-803-3736 or AtlanticYards@esd.ny.gov.
4

Monday, September 29, 2014

A tale of regulatory capture involving the New York Fed and Goldman; what about regulatory capture regarding Atlantic Yards?

Since Friday, a huge story has emerged, thanks to a ProPublica article and the radio show This American Life, about "regulatory capture" of the Federal Reserve, which means letting the purportedly regulated business either lead the way and/or have its goals internalized by staff charged with regulating it.

It's an important concept regarding Atlantic Yards/Pacific Park, since evidence of regulatory capture has emerged several times, as I explain below.

The Fed vs. Goldman Sachs

As summarized by Bloomberg View columnist Michael Lewis, in his 9/26/14 column The Secret Goldman Sachs Tapes:
Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.
That may very well change today, for today -- Friday, Sept. 26 --- the radio program "This American Life" will air a jaw-dropping storyabout Wall Street regulation, and the public will have no trouble at all understanding it.
The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.
After an internal study noted failures in regulation, the Fed hired new regulators, including "a strong-willed, independent-minded woman named Carmen Segarra," who was assigned to regulate Goldman Sachs and stationed at that office. But Segarra was surprised how much Fed employees deferred to Goldman, and alarmed by the internal pushback to her questions that she began to record her meetings, until she was fired.

More from the ProPublica article, Inside the New York Fed: Secret Recordings and a Culture Clash
In a tense, 40-minute meeting recorded the week before she was fired, Segarra's boss repeatedly tries to persuade her to change her conclusion that Goldman was missing a policy to handle conflicts of interest. Segarra offered to review her evidence with higher-ups and told her boss she would accept being overruled once her findings were submitted. It wasn't enough.
"Why do you have to say there's no policy?" her boss said near the end of the grueling session.
"Professionally," Segarra responded, "I cannot agree."
The New York Fed disputes Segarra's claim that she was fired in retaliation.
Note that, as the Fed defended itself, Massachusetts Senator Elizabeth Warren called for congressional hearings on the issue of deference. (There's been no coverage in the Times, and brief mentions in the New York Post, New York Daily News, and Wall Street Journal.)

Regulatory capture in New York State: EB-5

Empire State Development, the state agency overseeing/shepherding Atlantic Yards, has certainly demonstrated periodic if not total evidence of regulatory capture.

It has deferred to Forest City, in small ways, such as forwarding Construction Alerts prepared by the developer without vetting, and sometimes in much larger ways.
Davidson presents an ESD  proclamation to a migration firm

Consider the decision, approved by then-Governor David Paterson, to send ESD official Peter Davidson to China in 2010, helping Forest City Ratner get a low-interest loan under the EB-5 program for immigrant investors.

Davidson, at the request of the private firm packaging the EB-5 investment, prepared vaguely worded proclamations saluting the Chinese immigration brokers--private, profit-making firms--key to the process.

The low-interest loan saved perhaps more than $100 million on conventional financing. The state asked for nothing in return.

Meanwhile, however legal, the fundraising didn't create new jobs--the purported justification for giving investors green cards--and thus subverted the mission of the EB-5 program.

As EB-5 analyst Michael Gibson told Business Week, when a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity, that isn’t really creating new economic activity. It’s margin for the developer.”

The cover-up of a falsification

As I wrote 7/25/12, documents suggest the agency and its environmental monitor, Henningson, Durham & Richardson (HDR), condoned a cover-up of a Forest City contractor's falsification.

Forest City was supposed to hire its own On-Site Environmental Monitor, meeting daily with contractors and observing site conditions. But the developer dragged its feet.

"During the second quarter of 2010, HDR expressed concerns with lack of oversight," a report stated. "Chuck Baldwin of Turner Construction was hired to handle the position until mid-July and HDR noted an improvement in on-site compliance."

However, that compliance relied on a wink and a nod, according to documents I discovered.

Each week, HDR compiles an "Atlantic Yards Field Inspection Report" for ESD. According to the non-public draft of the 5/20/10 report, monitor Baldwin passed on to HDR sobering information: five pieces of heavy equipment lacked the required diesel particulate filter, aimed to reduce asthma-causing exhaust.
Draft report
HDR "asked Chuck if FCRC has been keeping daily inspection reports for each piece of heavy machinery," according to the draft report. "He stated that while they have been maintaining this documentation, it had been falsified by the contractor."

Baldwin told HDR a corrective action plan was requested from Hunt Construction, though no penalties were mentioned; in turn, HDR planned to talk with Forest City.

That damaging admission vanished from the final Field Inspection Report made available to the public.
Final report, edited
Someone working at or for ESD apparently condoned that.

Who's "we"?

Barclays Center transportation consultant Sam Schwartz, shortly after the arena opened, told Transportation Nation:
“As the herd of pedestrians comes out, we shut down Atlantic Avenue for cars and get the people across the street for about ten minutes and then we let the cars flow,” Schwartz said. “It hasn’t backed up traffic much.”
His use of "we" seemed a bit off. Schwartz was a consultant, no longer a city official. The Department of Transportation and/or New York Police Department were in charge.

Paying for police

At a June 2012 community meeting, Community Board 2 Chairman John Dew, noting announced plans to bolster security both with off-duty law enforcement officers (aka “paid duty”) as well as an increased police presence, asked who’d pay for the latter.

A Forest City staffer, a former cop, noted that, as with any large-scale event, police officers would be moved.

“I think we all know that, but this takes from resources,” Dew pressed on. “In this particular instance, is there an opportunity to bill back to Forest City Ratner?”

“The answer is no,” replied Forest City Ratner's Ashley Cotton, taking the question, though there were city police and special projects officials in the room. Just as with new housing being built on Flatbush Avenue, said Cotton, a former city official, “the city has to adjust... The arena is not alone in adding new work to the city.”

Bass escaping from the arena

I reported 10/17/12 on a community meeting regarding operations of the arena, which had been open for some three weeks.

Responding to reports of arena neighbors feeling bass from the Jay-Z concert on their apartments and in the streets, Geraldine Kelpin of the Department of Environmental Protection said, “we did hear, on the street, sound from the concert... we're somewhat perplexed.”

She said DEP “staff did go to someone's apartment... we heard it, but it wasn't a violation.”

Resident Wayne Bailey, who said he was present when the noise was measured at Newswalk, offered a contrary account: “they didn't measure when the concert was playing.”

Jim Vogel, a resident of Pacific Street east of Fourth Avenue, said, “I live a block away... my windows were throbbing.” He went on to question whether the arena was sufficiently soundproofed.

“Thank you, Geri,” concluded Arana Hankin, then Director, Atlantic Yards Project, for ESD. “I’m confident that the work they’ve done was sufficient to date."

Except it wasn't. Now Greenland Forest City Partners are planning a green roof that will, in part, tamp down escaping noise.

Sunday, September 28, 2014

Department of City Planning promotes Von Engel to Brooklyn director; an Atlantic Yards cameo

The Real Deal reported on 9/19/14, City Planning appoints new Brooklyn director: Winston Von Engel's appointment comes amidst borough's development boom:
New York City’s Department of City Planning just appointed a new director for its Brooklyn office, The Real Deal has learned. Winston Von Engel, a 25-year veteran of the planning department, will direct the borough’s urban design and land use policy, guide housing and economic development initiatives, and advise the City Planning Commission on zoning issues...
“Today, Brooklyn is growing and thriving and I am particularly excited by this administration’s historic challenge to plan for, and especially the charge to plan with, communities for affordable housing and resiliency to make this a better and more equitable city for all,” Von Engel told TRD by email. He will replace Purnima Kapur, who became the department’s executive director in June.
Von Engel, a graduate of the Pratt Institute, started at City Planning as an intern in the Brooklyn office, and was most recently the deputy director of that office. He has worked on initiatives such as the Downtown Brooklyn Plan, which aims to stimulate business in that neighborhood, as well as on Atlantic Yards (now Pacific Park Brooklyn), and on a study to examine the growth potential of East New York, which will be the site of the de Blasio administration’s first major rezoning.
Um, the Downtown Brooklyn rezoning was approved in order to stimulate office development, but turned out to spur much new residential development.

About Atlantic Yards

As to Von Engel's work on Atlantic Yards/Pacific Park, well, remember that it's a state project, and the Department of City Planning had only an advisory role.

Von Engel's most public moment regarding Atlantic Yards, at least in my memory, concerns DCP's lack of work. The passage below is from a 3/17/06 post on the history of the Atlantic Terminal Urban Renewal Area, which includes the Metropolitan Transportation Authority's Vanderbilt Yard but not other property (except Site 5) that was part of the Atlantic Yards map.

---

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday [3/16/06] of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisman, aide to Council Member Letitia James, honed in on the question. The topic was land use, and Winston Von Engel, Deputy Director of the Department of City Planning's Brooklyn office, was on the hot seat in the Borough Hall courtroom. 

"Just to be clear, this was a project that was initiated by the developer--is that right?" asked Suisman, whose boss is the leading public official opposed to Forest City Ratner's project.

"That's our understanding," Von Engel replied. (Well, Borough President Marty Markowitz approached developer Bruce Ratner with the idea of bringing a basketball team to Brooklyn, and the developer recognized that a standalone arena wouldn't make economic sense.)

"Had the city been looking at making use of the land?" Suisman pressed on politely.

"Not that I can recall," Von Engel said. He noted that there were once plans decades ago for a campus for Baruch College of the City University of New York, as part of the Atlantic Terminal Urban Renewal Area (ATURA). "This area was looked at in a very large context. What survived was the Atlantic Center mall, the Atlantic Terminal mall, the housing. So, in that sense there were plans at one point, but some of them were not realized."

He cited a recent rezoning for the Newswalk building--condos built out of an old Daily News manufacturing plant that sits on a piece of land sliced out of the Atlantic Yards footprint--and noted that other property owners in Prospect Heights had begun to convert industrial buildings to residential ones.

Suisman continued: Was there a reason the city didn't take a look at the area?

"We didn't decide to take a look at the yards," Von Engel replied. "They belong to the Long Island Rail Road. They use them heavily. They're critical to their operations. You do things in a step-by-step process. We concentrated on the Downtown Brooklyn development plan for Downtown Brooklyn. Forest City Ratner owns property across the way. And they saw the yards, and looked at those. We had not been considering the yards directly."

At the head of the table, Markowitz looked a bit pained, as a woman young enough to be his daughter educed the city's diffidence in developing the site. There were fewer than ten people in the audience, and maybe a dozen public officials, aides, and community board representatives around the table. It was another episode in the Atlantic Yards Committee's curious mix of impotence and importance.

Saturday, September 27, 2014

Second arena hockey game draws 11,823 (far less than last year); more obstructed seats than acknowledged?

Well, last September the first hockey game at the Barclays Center sold more tickets than anticipated--14,689 (of 15,813 capacity) vs. an originally expected 11,000 and got mixed reviews from fans.

This year, with less hype, and an expected 12,000 in attendance, the game between the new York Islanders and the New Jersey Devils drew 11,823.

That meant that many of the fans surprised by obstructed views--despite significant publicity that the arena was not designed for hockey--were able to move to better seats.

How many obstructed seats, really?

Two New York Times writers, however, managed to catch the Barclays Center impresario in a bit of misdirection, in Fans Come to See Isles in Future Home. Not All Succeed.:
The Conlons were not alone in their plight while attending the Islanders’ only visit this season to Barclays Center, their future home.The view from several hundred other seats at one end of the rink was also obstructed, though arena officials said many of those would not be offered for sale when the team starts play there next year.
“The seats with horrible views, they are off the manifest,” said Brett Yormark, the chief executive officer of Barclays Center, which is also home to the Nets.
Yormark said that about 400 of the 15,795 seats that will be sold next season for hockey would have some obstruction. Those tickets will be clearly marked.
...But Yormark did not share many specifics on which seats would be excluded when the Islanders arrive. A pregame walk at one end of the arena found far more than 400 seats with obstructed views.
Seven sections had no view of the goal at one end of the building. Most seats in nine other sections had a view of the net, but not of the near corner of the rink.
Note that 15,795 was the announced capacity for last night.

So, if some of the obstructed seats last night will not be sold, then capacity should be lower than 15,795, unless they add seats somewhere.

And it appears that, whatever the capacity, the Barclays Center is not telling the truth about the amount of obstructed seats.

Update: from Islanders Point Blank:
But for two-thirds of fans, the view will be great. Islanders Point Blank explored the arena on Friday night and found the view was equal to that of Nassau Coliseum from most sections outside of the obstructed view sections. There was a clear view of the ice, albeit a steep incline in the 200s.
..One noticeable change on Friday was the addition of seats behind the net the Islanders shoot on once. During last season’s preseason game in Brooklyn there had been high-top tables placed there, but this year they had been replaced by seats that can be rolled out for hockey games.
...The Barclays Center is not ideal for hockey. It has its’ quirks, but ultimately it is not as bad as some fans would like to make it out to be either. there will be an adjustment period as the team and the fans adjust to the new building.
Brooklyn’s Barclay’s Center is not perfect, but it can work for hockey.
Update: from the New York Post:
The game drew 11,823 fans, short of its hockey capacity of 15,795, still making it the second-smallest building in the league, next to Winnipeg’s. There is some work yet to be done before next season — including making the ice somewhat usable for a NHL game, which it has now failed at twice — but in place were the new 270 seats behind the west goal, the highest-end seats, to be known as the “West End Club.” The construction of the Islanders’ new locker room is set to start this spring, and the 445 partially-obstructed-view seats are to be branded into something less off-putting, “something like ‘The Fun Zone’,” said Barclays Center CEO Brett Yormark.
There were also a couple hundred potential seat buyers doing a “pick a seat” promotion on Friday, and premium seats went on sale to the public at the same time. That didn’t include the upper-bowl seats, which are set on an extreme upwards angle, making for some great sightlines but some dangerous situations when hockey fans and inebriation mix.

Friday, September 26, 2014

Tonight's Islanders game another test for Long Island fan base (and neighborhood); team getting paid by arena, which gets potential upside

There's the second pre-season NHL game ever tonight for the New York Islanders at the Barclays Center, their home come fall 2015, and it's another test for managing a Long Island-based fan base.

It's also a test for the neighborhood, since, despite the promotion of the Long Island Rail Road, some fans may drive, seeking free on-street parking (though that was not publicized as a problem last year), and others may get rowdy, as some reported last year.

Taking the train

The Barclays Center web site and other publicity stress the extra Long Island Rail Road service.

As Newsday reported 9/20/14, LIRR, Barclays Center work to get Islanders fans to come to Brooklyn:
The enhanced LIRR service to and from Atlantic Terminal for Friday's game includes an extra westbound Babylon train before the game and two additional eastbound trains after the game going directly to Babylon and Hicksville. Brooklyn customers traveling to those stations typically have to change at Jamaica.
In between scheduled departures, the LIRR will also run shuttle trains between Atlantic Terminal and Jamaica at regular intervals after the game, and as late as necessary. The LIRR will also have extra personnel available at Atlantic Terminal to assist customers.
Last year, the LIRR was "crushed" by 6,000 fans using the service after the game. (Here's a photo gallery of the game.) At the arena, managers will promote train usage.

However, as Newsday and commenters reported, the distance for travel (and cost of the railroad, versus cheap parking at the Nassau Coliseum) means some fans won't make the trip.

Then again, as with the move of the New Jersey Nets to Brooklyn, team and arena operators are expecting some Brooklyn fan base to pick up the slack

Working on the fans

On 6/23/14, Newsday published Barclays Center to entice Islanders' season-ticket holders, noting that current Islanders season-ticket holders were sent a video along with a new marketing campaign slogan, "Tradition Has a New Home."

So the Islanders will keep their familiar orange, blue and white Islanders jerseys but add a third jersey that is cousin to the black-and-white Brooklyn Nets jerseys.

One commenter groused:
The days of the Isles being "family-friendly" will be long gone. Including tickets, concessions, and travel, a family of 4 won't spend $400 for a hockey game.
Sports Business Daily, on 3/31/14, published, Islanders hire Gameplan Creative for transition to Barclays, which also dealt with the jersey change. It noted that the Islanders had only 8,000 season-ticket holders, half the seats in the 16,000-seat Nassau Coliseum.

As the Bergen Record's John Brennan noted 4/22/14, the capacity for last season's game was 15,813, including a number of sub-optimal seats with limited views, while the capacity announced for this year's game is 15,795, just 18 seats fewer.
The contours of the Islanders/Barclays deal

The web site Islanders Point Blank on 10/23/13 reported Source: Barclays Center Takes on Arena Deal Risk, Isles Get Financial Certainty:
Last week, the Wall Street Journal reported that the Islanders would receive an annual payment from the Barclays Center when the team relocates there for the 2015-16 season and each year thereafter. The Journal reported that this payment was believed to be in the tens of millions of dollars per year.

A Point Blank source has seconded the WSJ’s report that the team would receive a large annual payment from the Barclays Center and has provided further details.

The source added that the payment to the Islanders would increase at a single-digit percentage annually. There are also stipulations in the agreement that could cause the payment to be reduced but the exact details of such stipulations were not known.

In exchange for the large lump sum payment each season, the source tells Point Blank that the Barclays Center will receive the majority of team revenues. Those revenue streams include ticketing, merchandising, suite sales and other revenue sources that Islander games at the Barclays Center will produce.
That gives the Islanders some financial stability and predictability, while it puts pressure on the Barclays Center to manage the variables, and to try to wring as much revenue as possible.

That same day, the blog quoted arena CEO Brett Yormark as saying there might be small changes to the Barclays Center, such as more premium seating and a “locker room campus” for the Islanders

The Nassau Coliseum, Yormark told a radio interviewer, could not have worked, because "There's very little suite revenue coming out of that building."

Thursday, September 25, 2014

LIU magazine salutes Ratner as a "mensch and master builder." Which is probably not what Skanska would call him.

Renaissance Developer, declares the Long Island University magazine, subtitled "As Bruce Ratner (H’13) rebuilds the city he loves, the revitalization radiates to LIU Brooklyn, our students, and the communities we serve."

It begins with a notable, and wrongheaded cliche:
The beloved Beatles song “Hey, Jude” implores the title character to take a sad song and make it better. Imagine Brooklyn as the sad song; the one-time hive of opportunity for new immigrants and lifeblood of the city’s family-run business and retailing prowess nosedived into deterioration and disrepute in the shadow of the mighty metropolis across the river. But over the last decade the tune has been rewritten and given a modern beat, making it a sad song no longer. The maestro is Bruce C. Ratner, a visionary force behind the skyline-changing, landscape-shifting renaissance in Downtown Brooklyn.
Somehow the decades of residential revitalization, including a series of historic districts. escaped notice.

The article continues:
For those outside of the Brooklyn purview, Ratner is executive chairman of Forest City Ratner Companies, one of the foremost urban real estate development companies in the country and the force behind several major Brooklyn projects, including MetroTech Center and the Atlantic Yards redevelopment. Ratner is also majority owner and developer of Barclays Center and was integral to bringing the Nets to Brooklyn. They are the first major league sports team to call Brooklyn home in over half a century and help draw millions of fans to the distinctive entertainment mecca and surrounding businesses. In 2013, Barclays was the top-grossing venue in the United States. The arena employs more than 2,000 people, 80 percent of whom are Brooklyn residents. Big brands, hip boutique restaurants, and high-end retailers have popped up in the arena’s radius, spawning thousands more jobs and billions in tax revenue for the city.
Billions in tax revenue? Puh-leese. And not from those part-time arena jobs, either.

The article continues:
From the perspective of LIU Brooklyn—in the heart of the borough’s cultural district, just a few blocks north of Barclays Center, across from Brooklyn landmark Junior’s Cheesecake and the newly revamped retail thoroughfare, the Fulton Mall—Ratner’s influence as the lead instrument advancing the bold development of Downtown Brooklyn is evident in the myriad of institutions and industries that have cropped up and become invigorated by the influx of people, businesses, art, initiatives, and housing taking hold in the revitalized neighborhood. Recently, the New York State Comptroller’s office reported that the number of jobs in Brooklyn is growing at twice the rate of the rest of the boroughs, with Downtown Brooklyn as the hotbed, hosting 17 percent of new jobs.
And that's attributable mainly to Ratner?

The article continues:
Former Brooklyn Borough President Marty Markowitz credits Ratner with creating the most exciting chapter in Brooklyn’s history. “One could argue that midtown is the center of the city, but Bruce has created another center with Barclays and Atlantic Yards. Bruce Ratner recognized in Brooklyn’s future what others who were born and bred there overlooked.”
We wouldn't expect anything less from Markowitz, would we?

The article continues:
In June 2013, LIU conferred an honorary degree on Ratner, acknowledging the significant role he played in breathing new life into the Brooklyn campus. At the 2014 LIU Gala, LIU President Dr. Kimberly R. Cline, the Board of Trustees, and the entire LIU community honored Ratner for his ongoing contributions to the university. Beginning with the development of MetroTech Center, an 11-building “urban office campus” that sits on a three acres of prime Downtown Brooklyn real estate just a few minutes from LIU Brooklyn, Ratner has enabled an economic boom, creating countless opportunities near the campus for student internships, experiential learning opportunities, and ultimately full-time employment.
The rest of the article is below. No mention of tax breaks, or the cozy situation in which LIU shilled for Atlantic Yards and later got the opportunity to play basketball at the Barclays Center. (When LIU plays at the Barclays Center it can be quite empty.)

In the final paragraph of the article, Provost Gale Stevens Haynes calls Ratner a "mensch and master builder." How do we square that an affidavit from Skanksa's Richard Kennedy that details an increasingly contentious relationship between that firm and Forest City Ratner:
For example, at a meeting on January 28, 2014 when William Flemming, the President of Skanska Building, mentioned that design issues existed, Bruce Ratner's response was to use a vulgar street epithet followed by "I don't care if it costs you fifty million to finish the project ... I'll see you at the grand opening." 





Wednesday, September 24, 2014

Overnight work Thursday exploring LIRR tunnel near Sixth Avenue

From Empire State Development (via Forest City Ratner) comes word that there will be night work and, presumably noise, at the Long Island Rail Road tunnel at 6th Avenue near Atlantic Avenue:
PACIFIC PARK BROOKLYN Construction update
SUPPLEMENTAL REPORT
This is a Supplemental Report to the previously issued two week look – ahead regarding upcoming construction activities at Pacific Park Brooklyn covering the period of September 15, 2014 through September 28, 2014
The following section has been modified to include new information:
LIRR Yard Activities – Atlantic Avenue

New Information: On the night of September 25, 2014, the contractor will be doing additional work related to exploratory work for the LIRR tunnel wall across the intersection of 6th Avenue. A trench along the LIRR tunnel wall has been excavated and plated over to maintain traffic over 6th Avenue. The contractor will be conducting its work within the trench. This work will take place between the hours of 10:00 PM and 6:00 AM.

FCR's Gilmartin on Atlantic Yards affordability levels, the partnership with Greenland, community engagement, and the DTB office market

Forest City Ratner CEO MaryAnne Gilmartin appeared on a panel at the Massey-Knakal Real Estate Summit held at the Brooklyn Museum on Tuesday, September 16. (I have broader coverage of the event in City Limits' Brooklyn Bureau, Where the Brooklyn Boom is Headed.)

While Gilmartin's comments on the stalled B2 modular building--saying it's not a referendum on such construction--drew some notice, she spoke about a wide range of other issues, including affordable housing in Atlantic Yards/Pacific Park Brooklyn, Forest City's alliance with Chinese developer Greenland, and the Downtown Brooklyn office market.

On affordable housing

Gilmartin easily used the new name for Atlantic Yards, however much it for now seems unrealistic. "Pacific Park Brooklyn is in large part about affordable housing: 2250 units. With this administration, we are launching two all-affordable buildings," she noted. The towers will contain about 600 units.

"I can say that this administration believes that affordability needs to come in ranges and spectrums, and that it’s not just about low-income housing," Gilmartin said. "If a young urban professional wants to live in a dense urban core, that the city needs to find ways to encourage that to happen."

Indeed, the affordability in these towers skews toward middle-income households, departing from promises in Forest City's much promoted Community Benefits Agreement.

It's true that affordability comes in a wide range, but Gilmartin, especially to those in the real estate industry, has positioned Atlantic Yards as a middle-income affordable housing program more than one for the poor--not inaccurate, but certainly a departure from the way the project was presented and a mismatch with its fervent supporters.

"So, the mission at Pacific Park Brooklyn is to create a range of affordable housing types, and income [ranges]," she said. " I think these two buildings, in many ways, are going to be bellwether on that proposition, because the ranges of income are wide, but all they quality for affordable housing under the city’s definition."

"At the same time, it's a large site that can also accommodate luxury housing as well as condominiums," Gilmartin said. "That makes for good placemaking, and I think that's what project was supposed to be about from the very onset."

Actually, the project from the onset was supposed to include 4500 rental apartments and four office towers with space for 10,000 jobs. At least three of those office towers were swapped for housing, and now there would be 1930 condos along with the 4500 rentals.

Gilmartin allowed that significant aspects of the affordable buildings remain unresolved: "how do you incentivize developers to build larger units" when subsidies are attached to the unit count, not size or square footage, she asked, bringing up a fundamental issue. City administrations like to count units, since that gets them closer to numerical goals.

Indeed, the first tower, B2, falls well short of Forest City's professed pledge to devote 50% of the units, in square footage, to family size units. The next two all-affordable buildings will meet that or at least come closer, with 35% of the units two- and three-bedrooms.

 "I think there's more work to be done," Gilmartin said regarding family-size units. "We're doing it building by building, and every building will be a conversation with the city around exactly how we put that building together."

A "conversation" suggests negotiation around both the configuration of the building, in terms of unit size, as well as the range of affordability.

On building residential in Brooklyn

"It's quite difficult to imagine an oversupply issue in Brooklyn," said Gilmartin, who called condos "a great allocator of land costs… You've got to figure out how to get it on the market quickly and make it sing."

She cited the mix in a high-density building in the urban core as containing condos, rentals, and retail at the base, with the rents providing "that ongoing annuity."

Vacancies, Gilmartin said, are nonexistent but rather "pricing dislocations… if your units aren't moving, you move the pricing." Even in "the darkest days of recession, we barely got over 3% vacancy."

Asked about rezonings, she noted that the Downtown Brooklyn rezoning already took place and there are not a lot of places "where density is possible, in scale," beyond the waterfront. There are "very few places where you can create the scale and density like Pacific Park Brooklyn."

On Greenland Group

With Forest City's recent partnership with the Greenland Group (which bought 70% of Atlantic Yards/Pacific Park going forward), and given other Brooklyn projects funded by Chinese investors, Gilmartin was asked, what is the Chinese investment impact on Brooklyn?

MAG: So because Greenland was looking for scale and density, they build in 80 provinces in China, they are a $50 billion company, on the Fortune 500 list they are 359. This is a real company, they understand infrastructure and they understand real estate.

"In many ways, they are an ideal partner," Gilmartin replied. " They happen to be Chinese and they are a state-owned entity, but they understand our business, and they have come to understand the way we build in here in this country and particularly in New York."

"So now that we have signed on with them and they are full-on partners, there are ten Chinese nationals working out of our office," she continued. "We are joint venture partners in every sense of the word. We are running the day to day partnership. But what's interesting about the introduction of a new player in the marketplace is that they build a lot, and they have a lot of relationships, and they intend to build a lot more. So I think this has been not only great for the project, because now we are able to work toward an eight-year build... It also has opened our eyes, ways in which, in terms of contracting, supply chain issues, and just scale and infrastructure, they have been a value-add."

An eight-year build would be even faster than the 11-year deadline (to 2025) to build the affordable housing.

Gilmartin was philosophical about the implied uneasiness regarding China. "Whether it’s a good thing for this country, well, we already know who owns our debt," she said. "I don’t think this is a shocking proposition if you pay attention to world events. I think the question is: will they understand the American way and build the way we build, and I think all indications are that they are really good partners and that it’s going to provide a great success at Pacific Park Brooklyn."

That may be true. Then again, Forest City once had high hopes for its partnership with Skanska USA, and that has dissolved in a bitter dispute regarding the first modular building.

On community engagement

When the panel was asked about community engagement, Gilmartin replied, "We believe in community engagement.. it’s a decade-long story. I think the project is for the most part better because of community engagement.. we have the Community Benefits Agreement... We have active participation by local electeds [elected officials] as well as the Community Boards."

I'm not so sure anyone has "active participation" though elected officials and Community Boards do get briefed periodically.

On the Downtown Brooklyn office market

Gilmartin contrasted the current market in Downtown Brooklyn with that in the days of Mayor Ed Koch, when potential tenants would step out of their limos, take a look at the rough landscape, "promptly get back in, we’d never hear from them again."

She noted those were days when there was really great value available for companies, especially Wall Street firms moving back office jobs, aiming to lower their occupancy costs.

Gilmartin said rents would double if the high-class office space in Downtown Brooklyn were in Midtown Manhattan. "It;s been one of the unfortunate best-kept secrets," she said noting a changing profile of tenant, including those related to technology and academia, such as NYU.

(Indeed, just last week Brooklyn Friends School relocated to MetroTech.)

Workers at technology companies often either live in Brooklyn or want to live in Brooklyn, she said. Forest City "used to have a little bit of complex, thinking we had '80s buildings, not hip enough" compared to "all the fabulous space in DUMBO" owned by Two Trees, she said.

But such tech firms "want the same thing most companies want: they want quality space, access to transit, they want the ability to grow and contract... we can do that at MetroTech," she said, lamenting that it's not easy to get rents past $40 per square foot.

"With further constraints on supply, we will start to see those numbers going up," she said. "It costs the same amount to build a building in Brooklyn as in Manhattan... so those rents really have to be high enough to justify new construction... we're not quite there, but I think we’re going to get there."

She didn't mention Forest City's opportunity to build an office tower at the Atlantic Yards/Pacific Park site, replacing what is now the temporary arena plaza, nor Forest City's thoughts about even building office towers via modular construction.

Tuesday, September 23, 2014

As judge denies Forest City's request to reopen modular factory, contract with Skanska to build B2 terminated; judge orders meeting to resolve control of factory

A state judge today denied Forest City Ratner's request for a court order to reopen the closed modular factory at the Brooklyn Navy Yard, but did order a meeting to hasten the dispute resolution process between estranged partners Forest City Ratner and Skanska.

Justice Saliann Scarpulla, at various times exasperated with each party, urged mediation between the bitter adversaries to resolve differences over running the FCS Modular factory, which could take six months to resolve and form a cloud over attempts to restart the factory, run by both companies, as some of the 157 employees drift away.

Fundamentally, Skanska blames Forest City for huge cost overruns in the stalled and delayed B2 tower, while Forest City blames Skanska's mismanagement of a fixed-price contract. That gap--worth perhaps $50 million--has fueled a series of lawsuits.

"The landscape has changed a little bit today," Skanska lawyer Bruce Meller said at the outset of the 45-minute hearing, held in state Supreme Court in Manhattan.

Skanska Building had terminated its construction management (CM) agreement with Forest City to build B2, and terminated the B2 purchase order to buy modules from the jointly-owned and -operated factory.

Now, he said, Forest City, in the form of the entity known as Atlantic Yards B2 Owner, can present the project back to FCS Modular as a job. So, Meller suggested, Forest City is now capable of restarting the factory and getting all the relief it sought.

"He left something out," countered Forest City lawyer Harold Weinberger, noting that Skanksa would still have leverage via control of intellectual property (IP) related to the project.

Meller later said Forest City could come up with a contract to do work for B2: "If we say no, they do it at their risk and expense."

Resolving the dispute over who runs the modular factory

If that contract was terminated, asked Scarpulla, why were they in court?

Because, said Weinberger, they need to resolve on ongoing contract regarding the limited liability company (LLC) that runs the factory. FCS Modular, while a partnership between Forest City and Skanska, is run by Skanska, with a six-person board split among the two companies and a lengthy process to resolve disputes. 

Ultimately, Scarpulla did not agree that laying off the workers constituted a "Major Decision" according to the LLC agreement, as Forest City had urged. The judge said money damages would be the remedy, especially since there was no work at hand. She didn't buy the argument that losing the workers damaged the overall business, since the contract acknowledged potential for periods of inactivity.

But Scarpulla did give Forest City a smaller win, agreeing was a "Major Decision" for the LLC to change its managing member, and forced Skanska to hold a vote it had otherwise avoided. 

That vote, presumably ending in a 3-3 tie, would trigger a months-long deadlock process contemplated by contract, leading to potential buyout of one or the other's interests.

That, over time, also would jeopardize the modular factory's future, given the need to rehire and/or retrain workers, and further delay the completion of B2.

No wonder Scarpulla several times urged the parties to consider mediation. "I'm not trying to scold anyone," she said. "I'm just saying that the path you're going down is just going to  cost you more money."

The parties gave lip service to the notion of mediation, and Forest City said Skanska previously refused it. But the tenor of previous public statements, as well as those made after the hearing, suggest that mediation would be bumpy.

Forest City, Skanska statements

After the hearing, MaryAnne Gilmartin, President and CEO, Forest City Ratner Companies, made a statement:
“Today Skanska terminated their contracts as construction and factory manager for B2, making clear again that they have no intention of moving this project forward. We believe in modular and have worked tirelessly to get B2 back on track since Skanska blind-sided us by ceasing construction and putting 157 workers on the street last month. Skanska has responded with inaction and inertia, trying to leverage us financially by stonewalling B2's progress. These are deplorable and disappointing tactics that show remarkable indifference to the wellbeing of these workers and the project. We will continue to rigorously pursue our options through the courts to get B2 built."
Skanska USA Building Co-Chief Operating Officer Richard Kennedy pointed out that the 8/8/14 notice to terminate was issued after Skanska had not been able to resolve "significant commercial and design issues," including requests for additional payment, but B2 Owner took no action in response.

His statement:
“Today is an incredibly disappointing day. Our company has a long history of working with our clients through all kinds of challenges so, at the end of the day, we deliver the best product possible to our clients and the communities in which we live and work. In New York alone, we have worked on some of the city’s most iconic structures and with each of those projects, we have finished the job. While the B2 project certainly has its issues, we were hopeful that our client and partner would address them so we could move forward with building much-needed affordable housing in Brooklyn. But we could not continue to incur millions of dollars in extra costs with little hope that Forest City would take responsibility for fixing the significant commercial and design issues on the project. We pride ourselves on being an innovative company and we will continue to build using prefab and modular techniques to move the construction industry forward. This issue will not deter us from continuing on that journey of innovation.”
Argument in court

Weinberger, seeking to have the judge force the reopening of the factory, said Forest City wanted to be placed in the position it would have been had Skanska not breached the contract.

"How are they going to be paid if they're not working?" asked Scarpulla.

Weinberger said the joint venture would pay them.

Scarpulla suggested that money damages would be sufficient.

Weinberger said it wasn't so much an issue of wages as the viability of the modular company. "The longer it goes on, the business that we have is going to disappear."

"You're saying I should force the LLC to pay them?" the judge asked.

"I'm asking to be put back" in the earlier position, Weinberger responded.

"What if I just order a board meeting?" Scarpulla asked.

Weinberger said that Forest City had tried to replace Forest City as a managing member, but the vote went 3-3.

"You're taking the position that a change in the managing member is not a major decision," Scarpulla asked Meller incredulously.

"It was not a proper resolution for the board," he said. When Scarpulla asked the question again, he said, "I don't think so."

What happens, asked Scarpulla, if she called a vote.

It would trigger a deadlock process that could take five or six months, Weinberger said.

"That's what the parties anticipated," the judge said. "I think what I might do is enforce the agreement."

Weinberger, however, argued that if the dispute had gone to court in August, before the factory shut down, the status quo of an operating factory would have been preserved.

Why won't damages cover the losses, asked the judge.

The damages, he repeated, regarded the viability of the LLC. "We have a technology that's very new. This is the first project," he said, adding, in an understatement, " It's not working out very well."

He also suggested that having the workers in place would expedite whatever resolution is at hand, presumably because both companies would be paying their salaries. Delay, he said, is on the side of Skanska.

That, Scarpulla said, represents what the parties bargained for.

"Please, really, consider mediation," she said at one point. "This is something that should not drag on."

More coverage

Note: several Forest City executives, including CEO MaryAnne Gilmartin, were in court.

No other reporters were there, but, after press releases were issued, coverage emerged, including:
--Crain's New York Business, Skanska cancels Atlantic Yards contract
--Daily News, Construction company building world’s tallest modular tower in Brooklyn terminates contract amid dispute with developer Bruce Ratner
--Curbed, Skanska Terminates Contract for Atlantic Yards Tower B2
--Bloomberg BusinessWeek, Skanska Quits Brooklyn Prefabricated Apartment Project






Before hearing today on effort to reopen modular factory, more bitter arguments between Skanska and Forest City

As a hearing this morning approached on Forest City Ratner's lawsuit to reopen the modular factory producing modules for the stalled B2 tower at Atlantic Yards/Pacific Park, more legal filings yesterday detailed the increasingly acrimonious relationship between Forest City and Skanska Building, and their respective affiliates.

(See bottom for an organizational chart of all the parties involved, which include various corporate alter egos.)

Increasing contention

An affidavit from Skanksa's Richard Kennedy details an increasingly contentious relationship regarding blame for the delay in producing modules, including a "vulgar street epithet" from Bruce Ratner:
In early 2014, Skanska Building attempted to engage in constructive conversations with Forest City to resolve issues. Forest City's responses ranged from hostile to inattentive and accusatory. For example, at a meeting on January 28, 2014 when William Flemming, the President of Skanska Building, mentioned that design issues existed, Bruce Ratner's response was to use a vulgar street epithet followed by "I don't care if it costs you fifty million to finish the project ... I'll see you at the grand opening." 
(Did Ratner say "bullshit"--generally termed a "barnyard epithet"--or something else?)

Mike McNally, President of Skanska USA later phoned Forest City CEO MaryAnne Gilmartin, who, according to Kennedy, "was less than pleasant, if not rude." McNally then sent a conciliatory email:
I am very sorry that our conversation went so poorly.
Our team has been focused on finding solutions to increase module production in the factory and have developed several scenarios to complete the project following different production strategies, each of which carries a different anticipated TCO date. It is my understanding that we have shared these with FCR along with the potential financial impact of each scenario.
I believe it is important to state that Skanska wants to continue to work with FCR in a productive and proactive way to tackle the challenges we face and to resolve them in a way that achieves what I believe to be our organizations' common goal of building a successful modular building business and to complete B2 as quickly and economically as possible. And again, I regret our conversation did not conclude on a more positive note.
McNally pointed to "certain root causes" attributable to Forest City, such as an incomplete design for B2, an incorrect estimate of labor productivity, and a flawed module fabrication plan.

While Skanska could, according to its contract, "can stand our ground and insist that all of the costs be paid by FCR," McNally suggested a compromise, aiming to finish the project as quickly and inexpensively as possible.

Thus Skanska would "consider an equitable proposal for funding project costs that will exist through Project completion," then sort out each party's claims. However, according to Kennedy, "McNally's email was met with an aggressive, adjective-filled rebuff the next day."

Next modular buildings?

Beyond the construction questions, Skanska was blindsided by plans announced this past April by the new Forest City Ratner/Greenland Group partnership to build the next towers conventionally.

Kennedy asked Forest City's David Berliner to confirm whether any of the three new residential buildings referenced in a New York Times account were B3 or B4 at the arena site, each mentioned as part of the potential future pipeline in the FC Skanska LLC agreement.

"As you know, B3 and B4 were fundamental to our venture and explicitly formed the basis of Skanska's multi-million dollar investment in our modular business," Kennedy wrote.

But the commitment wasn't firm, given the delay in B2. According to the LLC Contract, the B3 contract for modular construction was predicated on having at least 100 (of 182) of the market-rate units getting leased, that the B3 Owner could get non-recourse financing "on commercially reasonable terms," and the total cost estimate "provides for a commercially reasonable profit for the B3 Owner."

Berliner responded that Forest City was obligated by the Development Agreement signed with the Empire State Development Corporation to start a third building by May 2015, but the delay meant that Forest City was not in a position to evaluate "whether the conditions specified in the Operating Agreement will or can be satisfied," including market-rate units leased, as well as a cost estimate for B3.

"In sum, the delays in the Factory have made it impossible to evaluate, let alone meet, the requirements for awarding it a modular construction contract for B3," wrote Berliner.

He noted that Forest City had promoted modular: "However, with delays that have caused the construction lender for B2 to stop funding, the Factory is not currently in a position to demonstrate such success."

Skanska framed another version of the grievance, citing the Opportunity Brief, as Kennedy wrote:
I am compelled to comment on your characterization below of our FC+S venture as involving a "modular technology experiment". This is a far cry from the definitive representations made by multiple Forest City representatives on multiple occasions over multiple months regarding Forest City's multi-year, multi-million dollar effort that led to it developing the "modular solution" that served as the basis for our negotiations leading to the creation of FC+S and execution of the Atlantic Yards B2 Contract. In this connection I refer you to Bruce Ratner's pronouncement in a November 27, 2012 New York Times article that Forest City had "cracked the code" with respect to modular, Forest City CEO MaryAnne Gilmartin seconded this, saying: "We've cracked a code that will allow us to utilize cutting-edge technology to introduce greater affordability, more sustainability and world-class architecture."
Not only were the factory workers unnerved by the announcement of Forest City's changed plans, so too was supplier Banker Steel "expressing anxiety" regarding Skanska's plans.

"Accordingly, the pipeline of work promised by Forest City in its January 6, 2012 Opportunity Brief and identified in Section 4.1 of the LLC Agreement as part of FCRC Modular's capital contribution to FC+S, no longer appears to exist," Kennedy wrote. (The Opportunity Brief actually refers to both a "pipeline" and a "potential pipeline.")

Losses, and conflicts

Meanwhile, the managers Forest City placed at FCS Modular, "through remiss or intention" did not ask to be paid for additional work caused by design errors or changes, according to Kennedy.

The affidavit, as well as other legal papers, describes a dispute about whether B2 Owner--the entity managed by Forest City--had the resources to fulfill its obligations to Skanska. While Forest City indicated corporate resources, Skanska did not find that acceptable, as no bond as required by Lien Law § 5 was posted.

As Skanska's multi-million dollar loss "continued to escalate," and with no evidence of commitment to pay, it told B2 it would stop work, and then furlough workers, and terminate the Construction Management and Fabrication Services (CM) Agreement.

Skanska and Forest City are in a bitter dispute about whether Skanska was permitted to proceed unilaterally or whether the board of FCS Modular, with three seats for each company had to weigh in.

Reopening the factory?

As noted by the organizational chart, FCS Modular is one of many subcontractors performing work for Skanska Building for B2.

The CM Agreement does not allow B2 to obtain an assignment of Skanska's subcontracts upon a termination for cause, which means, according to Kennedy, that even if Forest City were to prevail and get the current employees back to work while running the factory itself, "there will be no work to perform."

Moreover, Banker Steel, the fabricator and supplier of the chassis/frames, has been directed to stop work by Skanska Building under its subcontract, as have M.G. McGrath, Inc., the façade subcontractor, the mechanical subcontractor and the Simplex system subcontractor.

Skanska suggests there's a remedy: Forest City/B2 could "relet contracts and seek to have FC+S enter into an agreement with the new party constructing the Project... If Skanska Modular declines, FCRC Modular may pursue the opportunity individually, subject to the terms of the LLC Agreement."

Legal arguments

Skanska's lawyers take aim at the affidavits from community supporters of Forest City, writing:
In this third action, Plaintiffs Complaint and current application is long on theater, buyer's remorse and animus, yet short on substance, contractual support or legal precedent. Among the ten affidavits submitted by Plaintiff, nine of those Affiants have no knowledge of any of the facts which are relevant to this action or the two pending related actions. The tenth affidavit from MaryAnne Gilmartin is the subject of substantial dispute.
The alleged "buyer's remorse" refers to clauses in the LLC Agreement that Skanska's lawyers said give them the ability to furlough workers during an "Inactivity Period."

By contrast, Forest City says a "preliminary injunction is needed urgently" because Skanska acted wrongfully and unilaterally:
The Company’s cessation of work, the loss of specially-trained union laborers and the closure of the Factory are irreparably harming FCRC Modular. FCRC Modular is seeking injunctive and related relief to restore the status quo that existed immediately before defendants’ improper conduct.
Forest City says Skanska Building, parent company of Skanska Modular, refuses to accept contractual responsibility for cost overruns, and thus has blamed B2 Owner.

According to Forest City, among the Major Decisions that require Board approval are those that would “effect any material changes in the Business or the strategic direction of the Company that are not specified in an Annual Business Plan approved by the Board.” Instead, the LLC Agreement indicates a  “Deadlock” period and then a “Buy-Sell Option” to buy each other out.

Forest City says the work stoppage "jeopardizes the viability of the Project as a modular building and, with it, the entire business of the [modular] Company.... If B2 BKLYN is not completed as modular construction, the practicality of modular construction, and therefore the need for a modular factory business, will have been called into question."

Skanska has pointed out that, by designating the next buildings as conventional, the practicality of modular construction already has been called into question.

Monday, September 22, 2014

High hopes for modular: Forest City Ratner's "Opportunity Brief" surfaces

They had very high hopes. The "Opportunity Brief" dated 1//6/12 presented by Forest City Ratner CEO Bruce Ratner to potential construction partners declared a breakthrough, thanks to a "world class team of experts... who have developed a methodology to revolutionize the way we build highly technical buildings today in dense urban environments like New York City."

"Applying this R & D to high-rise construction and other markets creates a business opportunity that provides an unparalleled competitive advantage," states the document, filed in court today by Skanska, Forest City's bitter adversary in the dispute over cost overruns, delays, and the closing--temporary or not--of the modular factory in the Brooklyn Navy Yard.

(There's a hearing tomorrow regarding Forest City's effort to reopen the modular factory.)

"Forest City is committed to building the first residential building at Atlantic Yards by utilizing the solution developed during the two year R&D effort," the document states, adding that Forest City was "engaged in discussions with the Building and Construction Trades Council to create a new union classification of workers who will work in the factory at competitive wage rates."

"We are seeking an additional partner to establish and grow a viable, cost competitive modular factory business... fueled by a robust, built-in local pipeline and a favorable labor agreement, ensuring both long term sustainability and success," the document states.

The B2 module production was supposed to take 16 months, while now it likely will more than double.

However, the pipeline of 6,000 additional Atlantic Yards housing units and 2,000 "Forest City controlled housing units" in the New York area was deemed only "potential." And now one of the reasons for the split is Skanska's frustration that Forest City, steered by its new partner Greenland, has already decided to build the next towers using conventional construction.

In dispute over stalled modular tower, Skanska warns: "No one knows if the building is going to leak"

Update: also see coverage of Skanska terminating contract to build B2 and purchase order for modules, as well as the Opportunity Brief Forest City presented to further the partnership.

The planned tallest tower in the world built via modular construction—stalled at ten (of 32) stories next to the Barclays Center—may be not just delayed but also defective.

The tower, known as B2 and slated to include 363 units, half of them affordable, could leak “at the thousands of joints between module façade elements,” according to the construction company mired in a bitter legal dispute over the project.

B2's facade seems insecure; it's not clear if this signals
 the potential misalignment identified by Skanska
"It is impossible to predict that the building when completed will perform as designed; and in particular, it is impossible to predict that the curtain wall joints will be and, over time, will remain effective barriers to the passage of air and water,” warned Skanska USA Building in a 146-page letter August 8 to estranged partner Forest City Ratner.

“[I]n simple terms, no one knows if the building is going to leak,” Co-Chief Operating Officer Richard Kennedy wrote (p. 117), terminating Skanska's agreement with a Forest City affiliate, Atlantic Yards B2 Owner, to build the tower and fabricate the 930 modules to be trucked to the site and assembled in Lego-like fashion.

Both sides blame each other for delays and attendant excess costs, and have filed dueling lawsuits, with Skanska seeking at least $50 million in damages.

Skanksa’s letter, which surfaced in a recent legal filing, offers new details regarding the tower’s purported failures and suggests that—as experts have long warned—the creation of a new construction system poses big challenges.

Beyond that, according to Skanska, the system Forest City developed to build modules at the Brooklyn Navy Yard was flawed from the start.

"There is risk in this Project substantially in excess of a conventional high-rise commercial building, and that risk arises directly from a defective design," wrote Kennedy, who also blamed Forest City for unwisely cutting corners in preparing the project.

(Note: Unlike with much of the coverage of the B2 legal dispute, this article was not driven by a press release from Forest City or Skanska. I found the document on my own.)

Forest City blames Skanska

Forest City, which in available legal filings has not yet directly responded to Skanska's warnings about leaks, has blamed the Skanska for numerous implementation errors and said the builder “belatedly—and falsely—claimed the modular design is defective.”

Having claimed to have “cracked the code” with a “revolutionary methodology” for modular construction, Forest City backs the system it developed to lower costs, speed construction, and potentially transform the building industry.

“We believe the system is compelling, and works," Forest City CEO MaryAnne Gilmartin said at a conference September 16, adding that the stall was not a "referendum" on modular, which would be validated by a finished building.

In an affidavit, Gilmartin blamed Skanska Modular for delays “in fitting out the Factory and its ineptitude in procuring essential building materials,” and for falsely blaming B2 Owner for the delays.

Clearly contradicting Skanska’s stance, Forest City in legal papers said that Skanska "confirmed in writing that there were no flaws in the design or constructability of the modular units” that would have caused a material increase in the cost of unit fabrication.

If Skanska's warning about leaks is valid, that suggests that the tower may require new testing before it can be deemed habitable and potentially repairs or even unbuilding.

Tangled ownership, effort to reopen factory

Atlantic Yards B2 owner is a partnership between Forest City and the majority owner, the Arizona State Retirement System. B2 was being built under a contract with Skanska USA. In turn, Skanska has subcontracted module production to a new company, FCS Modular, co-owned by Forest City and Skanska, but managed by the latter.

Skanska USA agreed to construct the Project for a fixed price of $116,875,078, and hired FCS Modular for a fixed-price of $31,450,087, with Skanska taking responsibility for all cost overruns.

Skanska says the the intellectual property (IP) contributed by Forest City was fundamentally flawed, thus obviating that responsibility.

Meanwhile, Greenland Forest City Partners, the new joint venture building the 15 additional towers in the project launched as Atlantic Yards, has renamed it Pacific Park Brooklyn. The 70% owner of the joint venture, which excludes B2 and the Barclays Center, is the Chinese government-owned Greenland Group.

On August 27, FCS Modular furloughed some 157 workers at the modular factory in an action Forest City said violated a contract requiring board assent. Forest City then asked to reopen the factory, under its control, with Gilmartin assailing “Skanska's indifference to the well-being of these workers and the project.”

"If they really did care about the workers, they would have engaged in dialogue with us and resolved the significant commercial and design issues facing the B2 Project," Skanska's Kennedy countered.

Hearing Tuesday; affidavits support Forest City

A hearing on a preliminary injunction in the lawsuit aimed to reopen the factory is scheduled for 9:30 am, Tuesday, Sept. 23 in state Supreme Court in Manhattan, before Justice Saliann Scarpulla. The location is IAS Part 39, Room 208, 60 Centre Street.

Numerous supporters of the Atlantic Yards project filed affidavits backing Forest City’s effort to reopen the factory, saying Skanska’s action threatened both affordable housing and jobs.

They include Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York; Steven Spinola, president of the Real Estate Board of New York; the Rev. Herbert Daughtry of the Downtown Brooklyn Neighborhood Alliance; and Bertha Lewis, president of the Black Institute.

Skanska's opposition papers are due Monday afternoon.

Resolving blame, clouding re-opening of factory

If Skanska’s warning is valid, it clouds the potential reopening of modular factory, at which 60 percent of the building is supposed to be completed.

Forest City touted the plan as enabling greater more quality control, requiring fewer trucks and less waste, and saving money, thanks to increased construction speed and the use of cross-trained workers completing multiple tasks, at lower wages.

B2, which broke ground in December 2012, was originally said to take 20 months. The delivery date was extended to December 2014 and then the fourth quarter of 2015, well more than a 24-month schedule via conventional construction.

For now, there's no projected opening date, and Greenland has directed that the next few towers be built via conventional means, thus depriving Skanska of a previously presumed pipeline of additional work.

And though Empire State Development, the state agency overseeing/shepherding Atlantic Yards, presumably has an owner's rep keeping track of the project, no observation of problems and delays has publicly surfaced. The New York City Department of Buildings hasn't publicly weighed in. Nor has the Arizona State Retirement System commented.

Resolving the chicken-and-egg dispute—Skanska says Forest City’s design is flawed, while Forest City blames Skanska’s implementation—likely will rely on the Spearin Doctrine, which distinguishes between “performance” and “design” specifications.

While performance specifications give the contractor latitude to achieve the requested results, design specifications admit no such flexibility. Skanska says it was required to follow such design specs.

Forest City, however, says "nothing in the IP Transfer Agreement absolved FCS Modular’s responsibility to adapt, refine and supplement the IP to the extent necessary to timely fulfill its obligations.” Forest City also points out that B2 Owner, a limited liability company, is not a party to the IP Transfer Agreement, while Skanska is trying to assign blame to the larger but separate developer.

Questions over methods, “weather seal,” and flooring

Skanska says the system it was required to use was flawed from the outset. For example, Kennedy wrote that the steel frames used in the project “call for tighter-than-industry-standard tolerances in the fabrication shop and in the field erection,” so the exterior curtain wall panels will fit.

Such tolerance is crucial to achieve “an effective weather seal.” In a typical steel frame building, according to Skanska, adjustability would come from four sources, including the position of the steel framing, the adjustment of the facade, and the position of other structural facade supports.

Only the first source of adjustability is possible in this project at this time, with Skanska recommending that “FC's design team should develop additional sources of adjustability,” including the ability to adjust facade panels in the field.

Without such adjustability, “the building is expected to continue experiencing problems that will make it difficult or impossible to maintain the tolerance between façade panel gaskets that is required to support the warranty of these panels and their performance as a building envelope.”

It is “particularly troubling,” Kennedy wrote, that “the out of plumbness of assembled module columns”—the departure from perpendicularity—can “be cumulative.”

Large parts of the cost overruns, according to the letter, derive from the difficulty erection crews at the B2 site have had in “bringing the module columns as close to specified alignments as possible.”

The new production plan apparently provoked unintended consequences. The wood flooring supplier, Armstrong Flooring, told Roger Krulak—a Forest City employee placed at the factory—that factory installation would void the warranty, according to Skanska.

Forest City said it was a Skanska/FCS responsibility. Skanska called it a design error, referencing a Krulak email citing "a specification problem.” Forest City then said the email was taken out of context.

"There is no indication that FC has any intention of acting in good faith to resolve any of these Change Orders, Bulletins and issues," Kennedy, wrote, pointing to changes that led to increased costs but no payment. "They are simply acting in furtherance of the FC business ethic of denial, regardless of its contractual obligations and the legitimacy of the other party's rights."

Alleged additional flaws in match plates

Skanska also charges that match plates—3/8" thick plates which tie the modules together—were flawed. Though the drawings by Forest City consultant Arup called for a 1/4" tolerance between columns in the modules, the bolt holes in the original match plates allowed for only units to slide horizontally only 1/16”.

While Arup agreed on an enlarged match plate hole diameter, the holes were then reamed to 1 3/4", which, while adding flexibility to set individual units, also “created the potential” for misalignment, according to Skanska.

Skanska also blames Forest City for erroneously selecting Building 293 at the Brooklyn Navy Yard, saying it was not only not ready on time but also not effective for construction. (Forest City says Skanska was responsible for the factory.)

The lack of laydown space around the modules requires the operations team to move material multiple times, Skanska’s Kennedy wrote, suggesting that a truly "ideal factory" would be larger and allow for more concurrent work on modules.

Moreover, the space does not allow Group Technology Workcells (GTW) to work in a sequence that matches the position of modules at the construction site, which would make it easier to align facades.

Problems with workers, assembly process

While Forest City’s assembly methodology was used to produce modules for B2’s second and third floors, the time required—46 and 50 days, respectively, rather than the planned seven days each—spurred a change.

Skanska’s letter says “it was, and still is, completely unrealistic to expect the factory workers”—which it says were underpaid at a blended average of $36/hour—to “possess the skills necessary to perform all of the various tasks.”


Skanska said "there was a complete lack of reality to the ill- conceived seven (7) workday per floor duration. The fact that the workers were unskilled simply exacerbated the delay and damage."

After the slow production of modules for the second and third floor, FCS Moudlar abandoned the GTW methodology and had more skilled workers do “a narrow set of the more difficult tasks,” Kennedy wrote. That halved the delays for the next floor completed and further reduced delays for subsequent floors.

This learning curve trend will continue through the life of the B2 Project and would continue to B3 absent the improper repudiation of the LLC Agreement by FC," Kennedy wrote.

Skanska also says that more than 600 requests for information (RFIs) “were generated in the factory and field,” and unless such RFIs referred to existing drawings, the design was not complete, and therefore Forest City’s responsibility. Also, Forest City and its architect SHoP instituted design changes via several Bulletins.

Inadequate prototype alleged

Skanska even says that the prototype structure produced in the fall of 2012 was inadequate. Though “Arup and SHoP somehow declared the prototype and its erection sequence to be successful,” Kennedy wrote, the two 13th-floor units were bare steel, with no finishes, so they couldn’t be aligned appropriately.

Nor were two stories of stacked modules sufficient to simulate the cumulative effects of a potentially misaligned system.

In a report, SHoP observed that "Joints between the modules did not hold the 1" tolerance” but in some cases “approached nearly 2-1/4,” which Skanska says “should have raised a large red flag.”

“If FC [Forest City] had not been so profit- and schedule-driven at this stage of the Project, if it had been willing to step back and consider seriously the implications of its own prototyping information, the possibility existed for catching at the outset an important problem in its design,” Kennedy wrote.

Bitter disputes

According to Kennedy, the relationship quickly became adversarial: “As work began and problems were being encountered in the factory and on site, Skanska sought out the assistance of FC and its design team, with the expectation they would recognize that success in this Project depended upon joint efforts at every step. Consistently, however, Skanska's overtures were rebuffed.”

His letter even alleges that Krulak was a "spy" for Forest City “while pretending to work” for the modular joint venture.

By contrast, Forest City, in its lawsuit, charged Skanska with “gross incompetence,” thus causing the delays and cost overruns. “Skanska has stumbled through every step of the Project, and has repeatedly and routinely failed to meet any self-imposed or contractual deadlines, goals, or targets,” Forest City said.

“For example, Skanska employed three different project managers over the course of a fit-out process that was supposed to take approximately five months,” Forest City said.