Monday, October 31, 2011

The secret history of Forest City's prefab plans: partner modular firm charged with sneaky business, but settlement resolves lawsuit; case file reveals threat by FCR exec

The first third of this article describes the outline of the story; the rest delves into further depth. The article is based on my reading of the case file in the lawsuit described below (Kullman Buildings Corp. vs. XSite Modular), online sources, as well as additional comments from architect James Garrison. 

I contacted Forest City's spokesman this morning to ask for comment on behalf of the company and its partner XSite and was told, "As of now, they will not comment." I will post updates should they develop. 

Developer Forest City Ratner’s ambition to build modular towers at record-setting heights, which could make Atlantic Yards profitable and launch a new prefab business, has provoked curiosity, speculation, and concern since reports of such plans surfaced in March 2011.

After all, with modular construction, Forest City might cut costs and construction time considerably. Atlantic Yards, now likely to take decades, could be completed closer to the long-promised ten-year schedule, albeit with question marks about its durability, diminished spending on jobs, and lowered tax revenues.

And, previously unreported, the modular venture has a contentious, litigious history, which for months slowed Forest City's efforts.

Today, while Forest City still faces challenges to go modular, including union negotiations and investment to start a factory, it has cleared a major hurdle.

By virtue of a legal settlement in August involving its business partner, FCR gained the expertise and financial terms it sought for assistance "in the development and implementation of a system and methodology of designing, manufacturing, and constructing modular" high-rise buildings "in a cost effective manner."

The charges in the lawsuit, aired in numerous legal papers, were settled before adjudication, thus leaving the full story ambiguous. The judge did issue two temporary restraining orders, lending some credence to the plaintiff's claims of potential harm caused by FCR's partner, whose legal defense the developer apparently funded.

The essence of the lawsuit

From Forest City's perspective, it was trying to negotiate the right transaction with the right partner, figuring out how to build 35-story-plus towers at a time when the tallest modular building rises only 25 stories. (The taller the building, the more complex the challenge, given wind and seismic stresses.)

To the Kullman Buildings Corp., which lost a potential contract and apparently has since gone out of business, Forest City benefited from its partner's alleged sneaky tactics.

As Kullman alleged in its lawsuit, FCR "was effectively able to circumvent Kullman's refusal to turn over the ownership rights in this system by the fact that Kullman's key employees collaborated a plan to work directly with FCRC under the formation of a new rival company."

Kullman not only refused to give up some rights to proprietary technology, it sought a royalty rate higher than Forest City would pay, and its CEO sought to change another key contract feature.

Forest City ceased negotiations and soon signed a contract with a new firm, XSite Modular, which agreed to a deal with different contours, including a lower price and less control of intellectual property than Kullman had sought.

XSite is staffed by former Kullman employees recruited by the recently-fired Kullman second-in-command, even as at least one was participating in communications on behalf of the firm regarding the Forest City contract.

Kullman sued XSite and six employees. The defense, denying the allegations, pointed out that employees had not signed non-compete agreements and that Kullman had failed to identify specific proprietary technology.

While the plaintiff's claims likely overreached--if Forest City had already decided to drop Kullman, could the defendants have caused the loss of that future contract?--Kullman argued that the defendants, among other things, faced a common-law duty not to act against the interests of their employer while still working there.

Forest City was not named in the suit, nor did it provoke the formation of XSite. Still, FCR played a key role, supplying testimony and, according to documents in the suit, agreeing to pay the defendants' legal fees.

(Click on graphics to enlarge)

Charged sequence, shrouded settlement

Though Forest City's relationship with Kullman began in mid-2009, the lawsuit highlights negotiations that began in late December 2010. Forest City was discussing a second contract with Kullman, a Lebanon, NJ-based firm specializing in modular construction for the education, residential, healthcare, and hospitality industries, among others. (Here's Kullman's web site, via the Internet Archive.)

Kullman, also known as Kullman Offsite Construction, built the Shake Shack at Madison Square Park in Manhattan, among other projects, using modules produced in a factory, with fixtures installed, trucked to the site for swift construction.

The new contract involved helping Forest City create “a business entity to develop, own and implement a system of designing, manufacturing and constructing” modular buildings far taller than the four stories the company had previously built. The cost per square foot might be less than half that of conventional construction.

After some negotiations in January 2011, FCR decided against working with Kullman. In a sequence that provoked “concern” from a New Jersey judge, Forest City soon signed with XSite.

Kullman ultimately sued on multiple grounds, including unfair competition, employee piracy, and breach of duty of loyalty.

In court papers, FCR stated that the decision to drop Kullman was not related to the later decision to sign with XSite.  Indeed, no evidence in the case file suggests that FCR instigated the formation of XSite.

Rather, the new firm was spurred by the firing of Kullman's second-in-command--who'd had a difficult, even toxic, relationship with her boss--and her recruitment of employees dissatisfied with the CEO and dismayed about the firm's financial instability.

However, the plaintiff charged that Forest City ultimately benefited from XSite's alleged improper behavior: for example, even as Kullman was seeking the FCR contract, a key Kullman staffer, later to join XSite, discussed the new firm's plans with XSite's president, both using Kullman’s online GoToMeeting account.

The defendants were either employed by or collecting compensation from Kullman as plans were finalized for the new company that would later win the contract Kullman had previously sought.

Did XSite behave improperly as charged, and did Forest City gain the fruits of that behavior? The judge never got to rule on that.

Nor did the judge evaluate XSite's defense, which, among other things, cited the alleged "erratic" behavior of Kullman CEO Avi Telyas, his firm's "unrealistic" demands, and a failure to identify proprietary technology.

The parties--Kullman, XSite, and the individual defendants-- settled in Superior Court in Hunterdon County, NJ, on August 16, three months after the suit was filed. The settlement requires confidentiality.

By then, both sides likely had reasons to reach a settlement. A temporary restraining order, which gave credence to the plaintiff's claims of potential harm, had since July 12 fully stalled the alliance between Forest City and XSite.

Kullman, however, faced a financial squeeze. Though settlement terms were not disclosed, the balance of forces, as I suggest below, favored XSite and Forest City.

High-stakes development and a threat

Documents in the case, examined after multiple visits to the case files in New Jersey, suggest how Forest City's pursuit of cost savings can get tense.

In a memo, Brooklyn architect James Garrison, who had been working with the New Jersey-based Kullman as a consultant, warned the firm to negotiate carefully, given that Forest City was “among the most ruthless and difficult developers in the city.”

Garrison shortly afterward withdrew from the project, saying the proposed compensation, in a package deal Kullman had presented to Forest City, was inadequate.

He conveyed his departure to FCR executive MaryAnne Gilmartin, the company's Atlantic Yards point person. Gilmartin, after communication with Telyas, had believed Garrison was on board, accepting a fee far lower than Forest City had, in a pre-recession (and non-modular) iteration of its plan, projected it might pay.

Gilmartin, angry at the breakdown in negotiations, issued a threat, which Garrison described in an email to Telyas. "I had an unpleasant conversation with MaryAnne," he wrote. "I was told they know the same people I know and they’ll make sure to fuck me whenever possible."

Settlement opens path to promised housing

Since the settlement, Forest City has been free to work with XSite, a firm and partnership not previously known to the public. XSite staffers agreed to work from Forest City’s MetroTech offices.

Beyond the under-construction arena, the developer promised 16 Atlantic Yards towers, most with subsidized housing, key to gaining political support. The towers have been delayed, so modular construction could be the key to progress.

Alternatively, the modular plan may be a tactic that pushes construction unions into concessions, just as Forest City temporarily halted construction on the Beekman Tower in Lower Manhattan to renegotiate union contracts.

Also, however serious its modular plans, Forest City may not take the risk of building its long-delayed first tower via such a emerging technology.

The developer in August filed a permit for that first tower (33 stories, 375,000 sf), at the northeast corner of Dean Street and Flatbush Avenue bordering the arena, but the document hints at conventional construction.

A paradigm shift?

Should Forest City figure out how to successfully build modular towers at record-setting heights, the developer could save tens of millions of dollars per building compared to conventional construction--though only after amortizing significant start-up factory costs.

FCR, according to documents in the suit, would become more than a developer, establishing a new factory “within a reasonable distance from the Atlantic Yards Project” to build modules not only for its own projects, but also for other developers. According to a New York Times report in March 2011, FCR was scouting manufacturing sites in Long Island City.

Success would mark a major advance for Forest City, which now builds conventionally, with well-compensated union labor and subject to weather and other site constraints that can impose delays and inhibit quality control. The impact on the community from prefab construction, a Forest City executive has suggested, would be diminished because of shorter construction timetables.

Apartment modules would be assembled in a factory where workers, though in a union, earn far less than union labor at outdoor construction sites. Modular construction, by addressing the vexing challenge of bringing more affordable high-rise buildings to New York City, might revolutionize the construction industry, the Observer suggested 3/17/11.

Developers are scrambling to save money, planning to negotiate directly with unions and even start their own construction companies, Crain's New York Business reported 9/18/11.

(Screenshot from Kullman video.)

Potential negative consequences

While the cost savings from prefab could deliver profits to the developer, the lowered expenditures likely would upend projections of new Atlantic Yards tax revenue to the city and state, part of the justification for public subsidies.

A switch also might infuriate unions that vocally supported Atlantic Yards. That's why an FCR official said last month that talks were scheduled with a key union leader.

There's much to discuss. In March, the Building and Construction Trades Council of Greater NY told Patch, “We have obvious concerns about the safety and quality of modular construction for larger buildings as well as its impact on estimates for job creation, wages and benefits that have been central to the economic justification for projects advancing,”

Settlement savings speculation

Given that the judge in the lawsuit issued a full temporary restraining order in July, XSite, likely after consultation with Forest City, had incentive to reach settlement in August.

However, Kullman, which by that time had lost business, laid off nearly a quarter of its staff, and was expecting more layoffs, likely had even more incentive, given the battle against a team with deeper pockets.

The settlement terms--presumably money to Kullman, the plaintiff--were not made public. (I queried Kullman's lawyers and Telyas was told that the settlement requires confidentiality.)

However, should Forest City’s venture be even partly successful, the litigation may have been worth it. Compared to the contract Kullman sought--but to which Forest City never agreed--the deal XSite signed represented a significant discount, saving the developer $3 million for each of the first three planned towers, and more after that.

Crucially, with that contract Forest City keeps full ownership of emerging intellectual property: the design of the system to produce modular units for buildings of such heights. Kullman had wanted to share ownership of such methodology.

Though Kullman's lawyers asserted the potential damages were significant, the still speculative nature of very tall modular buildings would complicate that claim. Moreover, if Kullman was no longer in the running for the contract, that would diminish the alleged harm caused by its former employees.

XSite, unlike Kullman, may have been better positioned to sign a lower-value contract; as a small firm, it has a low overhead and single-client focus.

For Kullman, whatever the size of the settlement, it wasn't enough to make up for the lost contract and the firm's general financial troubles. (CEO Telyas, in a 1/28/11 email in the case file, had described the Forest City project as "the bulk of my time.") The firm's web site went dark in late September and its business phone doesn't work.

Kullman expected a deal from Forest City that went beyond the consulting work to which XSite agreed; a document from the plaintiffs indicated that Kullman had planned to produce the steel frames for the modules at its factory in New Jersey.

Big potential savings, but only if challenges met

It's unclear when and whether Forest City’s modular plans will come to fruition. Forest City's Gilmartin told the Observer that the developer will decide by the end of the year whether the first tower will be modular.

The modular payoff, though a gamble, could be dramatic. Rather than take 18 months or more to build a tower, Forest City aimed--in its initial Kullman study--to erect a 35-story building in under six months. (The new permit indicates a 33-story building.)

At a goal of $161 per square foot (sf), excluding such things as foundation work and elevators, modular construction would cost well below conventional construction costs--at least after the set-up costs for a factory were amortized. (Forest City officials have said modular would cut hard costs 20-25%.)

According to documents unearthed by Brooklyn Assemblyman Jim Brennan in 2007, Forest City at that point anticipated hard costs ranging from $259 to $369 per gross sf, even as other developers cited hard costs of $350 to $400 per sf, at least for high-end condos with union labor. For Atlantic Yards, Forest City would build both condos and mixed-income rentals, with the latter expected to cost less than condos.

Still, the path isn't simple. Brooklyn architect Garrison, who initially worked with Kullman as a consultant, warned in a memo in the case file that, ”to be cost effective, [modular buildings] require development totally outside of normal building practice.”

Garrison, who was not a party to the case, told me that he thinks modular faces significant challenges: "The American modular industry typically builds up to four stories. It has not yet built a 30-plus-story modular tower or anything nearly that tall. The challenges are those of engineering, assembly, and production. "

So, whatever team Forest City has assembled, it may still be early in the process. "Industrialized buildings hold great promise, but it's not going to happen overnight," observed Garrison. "Forest City is going to have to invest and get involved over a reasonably long time to get the outcome they want."

The Atlantic Yards twist

The story revealed in the legal filings confirms comments made by real estate analyst Richard Moore, in a 7/1/07 New York Times article about Atlantic Yards. While Forest City was known for careful planning, he observed, even the most skilled developers lack a crystal ball for long-term projects.

“I could see this project taking many forms over the years,” Moore told the newspaper.


Below, a more detailed reconstruction of the case. 

Beginning in 2009

The modular option emerged on Forest City’s radar screen in 2009, the year when, in the wake of global economic turmoil, the developer made cost savings a priority. FCR successfully revised separate agreements with the Metropolitan Transportation Authority (MTA) and the Empire State Development Corporation (ESDC), saving well over $100 million.

Along with the arena, Forest City pledged to start the first residential tower (known as Building 2 or Tower Two) and deliver some of the promised affordable housing. But the building's been delayed more than a year, as Forest City sought new subsidies and other savings.

One potential solution was prefab, so the developer approached Kullman. “In late 2009, I was informed by Avi Telyas that a client was interested in looking at solutions for a modular building of 30-50 stories in Brooklyn,” stated Michael Pitt, an architect from the United Kingdom who worked with Kullman as a consultant, in legal papers.

Kullman had never built a structure above four stories. Pitt had designed a nine-story building in the UK, then the tallest modular building of its time. He then produced a 12-story building. Other designs were not built, but one described a 40-story building in London, “where an effective solution for buildings of this height was produced,” according to Pitt’s certification in the lawsuit.

Kullman background

Kullman, the world's oldest modular company, had a long but interrupted history in the prefab business.

Kullman Industries, established in 1927, was long known for building diners, but expanded to branch banks, equipment shelters, and even U.S. embassies. However, an embassy planned for Dushanbe, Tajikistan was ultimately canceled, provoking Kullman’s bankruptcy in 2005.

Telyas, who acquired and grew the robotics firm Bayside Motion Group in 1986, sold that company, then called Bayside Controls, to the much larger Parker Hannifin Corporation, in 2005.

In 2006, Telyas bought Kullman’s assets and renamed it Kullman Buildings, introducing lean manufacturing techniques to speed production. A Harvard Business School graduate and trustee of the Pratt Institute in Brooklyn, Telyas built a booming business in the first few years.

The firm produced, among other things, hospital child care facilities, equipment shelters for telecom companies, structures for retail outlets like Home Depot, and student housing.

Perhaps its most prominent project (as in this YouTube video, screenshot at left), was the summer 2007 construction of five three-story dormitory buildings, installed in just ten working days at Muhlenberg College in Allentown, PA.

Design report

The FCR discussions that began in late 2009 led to a contract about five months later. On 5/20/10, the Atlantic Yards Development Company, an arm of Forest City, agreed to pay Kullman $173,000 to “provide schematic design services for a 35-story mixed-use residential tower utilizing Consultant’s Modular Insitu-Formed Concrete System (IFCS).”

Kullman hired Arup Design Engineers as structural engineer; Michael Pitt as architectural consultant; and Mohamed Al-Hussein as the crane specialist. That study, according to Pitt, analyzed five different concepts he provided, plus a variation of one concept with Arup-suggested modifications.

Kullman’s report, which analyzed the various options and made preliminary production and cost proposals, was completed by October 2010. It recommended proceeding with the option that included the Arup modification.

All documents produced were “works for hire,” Forest City’s property, though Kullman could retain ownership of pre-existing standards (documents, drawings, processes, specifications), “except to the extent modified or improved” in connection with the services contracted.

Ambitious next step

The next step for Forest City and Kullman would be the pre-construction plan. Under a new contract, which Kullman first proposed on 12/30/10, the firm would help Forest City create “a business entity to develop, own and implement a system of designing, manufacturing and constructing” tall modular buildings.

Two phases were contemplated. The first phase, R&D (research and development), would take six months. Kullman would work with Forest City and designated architectural, engineering, and technical team members to produce design details for the project; address and resolve factory start-up issues; determine staffing and overhead requirements; and develop a protocol to ensure that the project met building code requirements.

The contract also contemplated developing a strategy for local union negotiations, a sign that Forest City recognized a significant hurdle.

The second phase, the operations phase, could last many years. Forest City would operate a business to design and manufacture modular units, with consultation by Kullman.

Durign the R&D phase, Forest City would pay Kullman's costs. During the operations phase, the developer would pay a royalty fee, at least initially.

Developing the line

Kullman, according to its CEO, offered the ability to build a better factory. "Ultimately, I believe this will be one of our key competitive advantages in that we can design lines that will assemble modules in less hours than anyone else," Telyas wrote to Roger Krulak, a Forest City executive, on 1/3/11. "This is how Toyota kicks butt."

Part of that team, to report through Kullman, was architect Garrison, a veteran in modular projects and a 2010 winner of an AIA New York Chapter Design Award,

Garrison recognized the challenges ahead. In a detailed message to Telyas on 1/8/11, Garrison  proposed design and construction changes in the proposed tower. “This alone illustrates our value to this project,” he wrote. “None of the alternative firms discussed can provide this level of service. Our knowledge... will make the building and factory production process much more efficient."

Garrison stressed the “care with which this building is detailed and put together.” He warned of a modular building built for the City University of New York by another team that could not be occupied because it was so “poorly executed.”

Cost pressures and IP

However, Garrison resisted Forest City’s cost constraints. The developer’s proposed $500,000 fee to his firm, as part of the Kullman consultant package, was “simply not enough for any firm to adequately complete the CD [construction documents] package for a 380K sf apartment bldg,” he wrote.

If an adequate fee were not available, he told Telyas, “then we have to consider an alternative delivery model.”

In that memo, Garrison added what seems, in hindsight, a prescient warning about intellectual property. “With regard to protecting future leverage with FCR it is imperative that we copyright and retain the ownership of documents,” he advised Telyas. “If they can use the documents you and I become unnecessary. If they want ownership of the documents there must be a whole different fee structure.”

"I understand the position Forest City has put us in but I fear that you are blinded by the desire for this deal," he cautioned Telyas. "FCR is among the most ruthless and difficult developers in this city. If it is not in their interest they will not honor their commitments and therefore any promises for the future are useless.

Developer "ruthless and difficult"?

Was Garrison exaggerating about Forest City? Consider the developer's success in revising the MTA and ESDC deals, or in failing to hire the promised Independent Compliance Monitor for the Atlantic Yards Community Benefits Agreement.

Also, the developer’s Ridge Hill project benefited from alleged corruption in Yonkers, and while Forest City gave a no-show job to a lobbyist who was later indicted, the company was not charged.

Forest City executive Bruce Bender in December 2010 was taped having a profane exchange with state Senator Carl Kruger, now charged with corruption. Bender wanted Kruger to deliver new subsidies for Atlantic Yards work the developer was expected to do.

Also, a Forest City partner in the effort to attract immigrant investors seeking green cards in exchange for Atlantic Yards investments was caught in several misrepresentations last year. However, neither that partner nor FCR have faced consequences from the federal agency in charge of the EB-5 immigration program.

Seeming progress, but architect withdraws

Telyas and Gilmartin continued to negotiate. In a 1/10/11 email, Telyas proposed a package that he said included significant discounts on some fees previously discussed.

Gilmartin seemed pleased. “This has been a huge lift all-around,” she responded later that day. “We appreciate this and look forward to working collaboratively with you to build a viable and long-term urban modular business.”

(Gilmartin, at left in photo by Adrian Kinloch, with ESDC staffers Steve Matlin and Rachel Shatz, at 7/22/09 informational meeting on Atlantic Yards.)

However, Garrison had not agreed to the $500,000 fee that Telyas and Gilmartin discussed. Telyas was pressuring him, so he decided to contact Gilmartin separately. Garrison told her he couldn’t make it work at the fee Forest City wanted.

"She basically became irate, and said my proposal was unreasonable," Garrison recalled in an interview. And then she issued the threat that Garrison reported in that 1/10/11 email to Telyas.

Did he take the threat seriously? "I don't, because they don't really know the same people as I do," Garrison observed. "But I do think it was delivered seriously."

Gilmartin's anger, acknowledged Garrison in response to my query, might have been provoked--as court documents indicate--by believing she'd been misled about his willingness to sign on. "But she knows what the market is," he said.

Gilmartin, admittedly "intense," is the city’s 35th most powerful woman, according to Crain’s New York Business. As a boss, she told The Real Deal, "I imagine at times I'm overbearing and exhausting. Hopefully at times, uplifting, funny and inspirational."

Was architect's proposal reasonable?

Garrison, a veteran in the modular field, said that Forest City offered $500,000, while the best he could do was $1 million, already a significant discount on typical fees.

The defense in the lawsuit saw the sequence differently, paraphrasing a statement by Gilmartin:
The next significant hurdle in the negotiation was the very high fee to Garrison Architects, brought to the project by Mr. Telyas. There were also issues as to whether Mr. Telyas was going to get a fee from Garrison. In mid-January, FCRC believed it had reached a deal with Mr. Telyas, but Garrison suddenly backed out, throwing the entire situation into flux.
Did Garrison's seek a "very high fee"?

According the Atlantic Yards financial projections acquired by Assemblyman Brennan, Forest City in 2007 expected to spend more than twice as much--nearly $2.5 million--on its architectural base fees for Tower 2 (335,000 sf), and much more on related architectural costs. (Click on graphic to enlarge.)

However, those are not necessarily precisely comparable, given the different methodologies at issue.

Two days after his conversation with Gilmartin, on 1/12/11, Garrison formally withdrew from the project. In a cordial memo to three Forest City executives (but not Gilmartin), he wrote:

Having designed several modular buildings I can say that they are intricate and if they are to be cost effective require development totally outside of normal building practice. They are more like product or automobile design where assembly and detail may be considered together.

For that reason they take more development time than a normal building....

Unfortunately we simply could not give the project the time we believed it requires to be successful within the fee limits prescribed... Mary Anne [Gilmartin] has explained that we may be able to make up any losses in the future but I hope you can understand that this simply is not possible given the size of our office.
He closed by noting that he’d made his firm’s work available to Telyas. “It will speed you on your way,” he wrote to the FCR executives. “Best of luck.”

Deputy fired, toxic history

Meanwhile, there was turmoil at Kullman, leading to the formation of XSite. On 1/13/11, Telyas fired his deputy, Amy Marks (aka Kulka-Marks), for what is described in one case document as insubordination that had "accelerated."

Marks, in a legal certification, stated that it was “without warning or cause” though she expected he'd take revenge on her for challenging his behavior.

The legal file presents an unresolved stew of charges and counter-charges. There was apparently a close, complex, and ultimately toxic relationship between Telyas and Marks, who previously headed sales and business development at her family’s construction business. She teamed with Telyas “when she saw a rare business opportunity," according to a 2008 article in Real Estate New Jersey and 
helped generate a 166% revenue increase at Kullman in two years.

In legal papers, Marks stated that Telyas relied heavily on her and used her as a personal confidant--but also was verbally abusive and discriminated against her as a woman. She filed a counter-claim charging gender discrimination, a hostile work environment, and retaliation. Other defendants backed Marks and blamed Telyas for the company's financial precariousness.

By contrast, an associate of Telyas, in an email message included in the file, lodged harsh criticisms of Marks's impact on the company and on Telyas personally.

The defendants' counter-claims were never evaluated. Kullman, in legal papers, did not address the counter-claims but called them a sideshow, arguing that the defendants' written certifications should be disregarded because they ignored a court order to appear for depositions, thus avoiding cross-examination about those issues.

Indeed, the judge severed the counter-claims from the core lawsuit, moving them to a separate court, a seeming rejection of the defense argument that "unclean hands" should preclude Kullman's effort to obtain equitable relief.

In another twist not fully explained in the documents I saw, Marks wasn’t fully fired. A few days after Telyas dismissed her, he offered to keep her on the payroll until she obtained a new job or decided to return to work.

Marks agreed, according to Kullman’s papers. (That episode was unmentioned in defense papers I saw.) Marks asked to be removed from Kullman's payroll on or around 2/9/11--well after she'd formed XSite and contacted Forest City. She was paid through 2/18/11, after the XSite contract was signed, according to Kullman's papers.

Surreptitious planning?

Shortly after Marks was fired, according to Kullman’s papers, she and co-defendant Michael Hathaway, Kullman's Director of Pre-Construction and Estimating, began what the plaintiffs alleged as a civil conspiracy.

Hathaway left work early the day Marks was fired, claiming a doctor's appointment, and on another, claimed a doctor’s appointment for his wife.

The defense, noting that planning to join a competitor is not a breach of the duty of loyalty, stated:
Plaintiffs will be unable to prove that any of the individual defendants did more than make plans to join a new employer, XSite, while they were employed at Kullman.
Hathaway and Marks did admit they attended an online meeting using Kullman’s GoToMeeting account. During that 1/18/11 meeting, Marks stated, they "discussed my business plans, which were then in a very early stage of development." They did not discuss "any of Kullman's business information."

"Kullman cannot possibly maintain that such discussion caused it any damage," the defense stated, acknowledging that the firm could claim "a technical violation" of company policy regarding use of equipment. The implication was that they were discussing only preliminary issues, not how that new company might work with Forest City on the project currently being negotiated by Kullman and the developer.

The meeting, according to the plaintiff's lawyers, lasted more than three hours. Given that Forest City is now XSite’s only client, and the new company, according to Marks, has neither pushed to market itself nor create a website, it’s questionable that the potential to work with Forest City never came up.

But that issue never went to trial.

On the next day, 1/19/11, a third party spotted Marks and Hathaway meeting offsite and reported that to Kullman.

Getting closer to a deal

Kullman’s Telyas, however, still expected a deal. On 1/24/11, he sent Gilmartin a reminder regarding the unresolved agreement. "Also, it has been many months since we were paid for the work that we have completed to date," he wrote. "I need your assistance in processing a long overdue payment."

The next day, 1/25/11, apparently in response to communication from Gilmartin, Telyas sent suggested revisions to their draft agreement.

Gilmartin responded later that day with “proposed language to address your concerns.” Her tone was encouraging, as she wrote, “let’s plan to discuss tomorrow after the kickoff.”

Despite that sign of friendliness, in a certification in the lawsuit, Gilmartin stated, "Through the course of our discussions, we developed numerous concerns about proceeding with Kullman, and particularly about our interactions with Avi Telyas."

Not quite coming to terms

Gilmartin's proposed language went only part of the way to addressing Telyas’s goals and suggested that FCR and Kullman were never on the same page.

Though Forest City had initially proposed to pay Kullman royalty fees for eight years, on an annual basis, Gilmartin agreed to more generous terms: the firm would be paid fees for ten years, on a quarterly basis.

On the issue of intellectual property (IP), however, the parties remained at odds. Telyas, apparently mindful of Garrison’s warning, objected that the modular methodology be owned by Forest City.

The developer did not relent, but agreed that for ten years it would not license the proprietary IP to any other modular builder. If Kullman identified a potential modular project, Forest City would have the right of first refusal to do that work, or charge Kullman a license fee to use the proprietary IP.

Nor did the developer agree to Telyas’s request that, if the project under negotiation fell through, any newly developed IP would revert to Kullman.

Fees unresolved

The parties met at a 1/26/11 kickoff meeting in Forest City's offices in Brooklyn, but the issue of fees remained unresolved. Also, Telyas alarmed his hosts by indicating that he wanted to substitute his name for that of Kullman on the agreement.

Only individuals, not companies, can apply for patents, so Telyas may have been anticipating future processes would be eligible for a patent. It also may have been a belated recognition that Kullman's business--at least according to his adversaries in the lawsuit--was run with less attention to protecting IP than rival companies.

That change began to scotch the deal, according to Forest City. Gilmartin stated that, once Telyas at that 1/26/11 meeting indicated that he wanted to substitute himself as the party to the agreement, that gave the firm "further pause" about working with him.

In a message the next day, 1/27/11, Telyas cited a $161/sf target cost model, meeting Forest City's goal to cut construction costs roughly in half. He sought a royalty fee of $3500 per module. (A module is not an apartment--a building with 400 units could have 1000 modules.)

Telyas also requested that royalty fees be paid for 12 years, not ten, and wanted those fees to be applied not only to units produced by Forest City but also to units produced by others for the developer using the new system. He requested a minimum quarterly payment of $750,000.

Regarding IP, Telyas proposed that Forest City and "Inventor" (himself) would jointly own and retain patents and IP. However, if Forest City chose not to proceed beyond the R&D phase, he would get back the rights to the developed IP.

That proposal didn't fly. Such terms, Gilmartin stated, "were completely unacceptable," and FCR that day decided not to work with him.

Beyond that, XSite's lawyers argued in response papers, Kullman had no standing to claim that the defendants interfered with a hoped-for continuing relationship between Kullman and Forest City, because Telyas had already modified the contract to make himself the counter-party.

From contact toward contract

When was the competing bid hatched? The timeline is fuzzy; the plaintiff charged there was significant overlap between Kullman’s pending bid and XSite’s formation, while the defense emphasized a gap in time.

Marks, in her legal papers, stated, “Approximately two or more weeks after my [1/13/11] departure from Kullman, I searched the Internet for the contact information for some representatives of FCRC.” (Marks "had involvement" with the 2010 for FCR study, according to the plaintiff's papers, so she was known to the developer. Gilmartin stated she had met Marks only once.)

Two weeks exactly would mean the contact occurred on Thursday, 1/27/11, the day Forest City said it had decided to drop Kullman. However, documents in the case suggest that Marks made contact six days later, on Wednesday, 2/2/11.

Marks spoke to Gilmartin, who asked her to send her resume. A day later, Gilmartin called again, requesting her resume. Gilmartin invited Marks to meet with her and other Forest City staffers the next day, 2/4/11, on the 37th floor at 8 Spruce Street, Forest City's new, Frank Gehry-designed Lower Manhattan apartment tower.

At the meeting, according to Marks, she was told Forest City was done with Kullman. Marks said she planned to start her own company. Forest City asked her to consult on the Tower Two prefab project.

Marks already had been contacted by Kullman employees requesting that she keep them in mind if she left, she stated. So she knew she could put a team together, especially since no Kullman employees were subject to a non-compete agreement. Marks said she used no confidential information in the negotiation.

In an email later that day, Gilmartin thanked Marks “for making time today” and said she’d attached a document detailing the scope of work once planned by Kullman, a document previously sent by Telyas to Forest City. Because there was no attachment, Gilmartin actually sent the document the next day, Saturday, 2/5/11.

On Monday, 2/7/11, Marks and Hathaway went to Brooklyn for a meeting at Forest City’s offices. “My participation in the meeting was in the nature of an interview," stated Hathaway, "as Forest City was essentially considering hiring a team, on a consulting basis, to assist it with its project.”  He took a personal day off.

Had Forest City decided by 1/27?

The defense papers, as well as a certification from Gilmartin, indicate that Forest City had decided to drop Kullman by 1/27/11.

However, the plaintiff's papers cite evidence that leaves a question mark. In a 2/7/11 message, Marks told Gilmartin she was bringing Hathaway with her to a meeting that day at MetroTech:
He is a member of my team and is familiar with the project as well. He is taking a day off from Kullman, so this would of course be confidential that we are meeting. I'm assuming Roger Krulak will not be meeting with us, since [Hathaway's] presence would get back to Avi [Telyas]. 
If Krulak, another Forest City executive, was still in contact or discussions with Telyas, that suggests that FCR either hadn't yet decided to drop Kullman or, if it had, Krulak and/or Telyas had not been informed.

New company emerges

Marks, in a document dated 2/7/11 but mailed to Gilmartin 2/8/11, sent a consulting proposal on behalf of a firm at that point named “Prefab Tech.” The team was moving so fast the company didn't have a name.

That day, according to plaintiff's papers, Hathaway again left work early, claiming a dental appointment. The next day he took another sick/personal day.

On that day, 2/9/11, Marks established the firm XSite and claimed the web address, though no web site has been set up.

The case file includes an undated promotional announcement on XSite letterhead (the firm logo includes the not-yet-live web address):
The XSite Modular Team is the most experienced team in the United States in modular building design, construction and installation. Our team has designed and installed modular buildings on five of the seven continents... If you think you are in a modular building, it’s not an XSite Modular building.
There are, of course, no XSite Modular buildings yet, just buildings produced by the team members at other jobs. According to the plaintiff’s papers, "The photographic images utilized by XSite in its 'representative work' include photographic images of modular buildings designed and built by Kullman."

The promotional page offered two company addresses: one is Marks’s home address in New Jersey, the other, without a phone number, at One MetroTech Center in Brooklyn, home to Forest City.

Getting to the contract

On the same day Marks claimed the XSite web address, 2/9/11, she queried Gilmartin about when FCR would have a contract for her and Hathaway to review.

On 2/11/11, Gilmartin sent Marks two versions of the consulting agreement; in the second version, according to the plaintiff’s papers; Kullman was still identified as the consultant, so “[p]resumably, the XSite contract was nothing more than a modification of Kullman's proposal." The participation of Hathaway, still at Kullman, was a condition of the proposed agreement.

The contract was modified after further negotiations. In a 2/14/11 email with the subject line, “It’s contract day!” Marks sent a revised agreement, noting that Telyas’s name and Kullman had finally been excised from the document.

She noted that she had to bump salaries/benefits up to get two staffers to commit, given that they had not had raises in five years and seen a 10% salary cut at Kullman. Also, given that one staffer had to travel from Pennsylvania, Marks wrote, “quite frankly the Brooklyn commute takes some selling.”

"My goal is that everyone can resign as of Tuesday and we can start on March 1 as discussed," Marks wrote.

A different deal

In the final agreement, signed 2/15/11, XSite agreed to a target cost of $161/sf. The agreement would last 24 weeks, expiring on 8/12/11, but could be extended.

Forest City would pay a royalty fee of $500 for each modular unit, but only for the first three building and only for units constructed within five years. Forest City had tentatively agreed to a ten-year deal with Kullman, without specifying the fee, though Telyas sought $3500 per unit.

Forest City would keep all work product emerging from the alliance with XSite.

As part of the contract, XSite agreed that staff assigned to the R&D Phase would be present “during normal business hours in FCRC’s offices [in Brooklyn] not less than three (3) full business days per week, not including Fridays.”

Three Kullman staffers resigned on February 17; one, according to the plaintiff’s papers, collected contact information from KBC factory workers, potentially helping to establish a new factory.

Controversy emerges

Only in mid-March--a month after the XSite contract was signed--did word of Forest City Ratner’s modular plans reach the New York Times, which put the news on the front page 3/17/11, then ran a follow-up the next day.

The controversy did not mention Kullman’s battle with XSite, which had not surfaced publicly.

Rather, it concerned Forest City’s ambitious plan to build modular, given that the technology was untested at such heights, as well as the dismay expressed by construction unions at the loss of potential jobs.

The case goes to court

Kullman filed suit on 5/13/11 in state court in New Jersey, home to both companies. (As noted, XSite also has an office in Brooklyn.)

Gilmartin on 5/20/11 filed a certification arguing against a temporary restraining order (TRO), stating that FCR had terminated its negotiations with Kullman before talking with Marks.

However, Somerset County Superior Court Judge Allison Accurso that day issued a partial TRO, preventing the defendants from using confidential pricing information to compete with Kullman and to return any documents belonging to Kullman.

However, she did not stop XSite from working with Forest City.

According to the transcript (left) of the hearing on the TRO, Accurso expressed skepticism about apparently contradictory statements in affidavits from Marks and Hathaway, which the defense attorney explained as the byproduct of haste.

The judge added, “I have some concern about documents that the individuals have retained admittedly without being requested that they return them."

 “The other thing I have concern about is in terms of the timing," Accurso stated, "the circumstance of Ms. Kulka-Marks's being terminated from the company... which I believe was on January 13th, and Forest City Ratner deciding not to use Kullman and then enter into a contract with XSite are very, very close in time."

IP issues

According to an affidavit from Telyas, Marks and her team were put in a position to design the tower for Forest City based on Kullman’s pre-existing studies and technology, and in violation of Kullman’s contractual and other intellectual property rights.

In response, the defense said Kullman failed to identify specific information that is confidential or proprietary and that only two of the defendants were asked to sign a confidentiality agreement. Also, the defense pointed out, Kullman had allowed clients to tour the factory and published a manual of its techniques.

Moreover, the defense said, Kullman had not objected to other former employees starting businesses in the same field.

According to Marks, Telyas often said he saw no reason to apply for patents, because “he felt the value wasn’t in the technology, it was in the ‘secret sauce’ of his management techniques.”

As for Kullman’s previous study for Forest City, according to the defense, the developer already fully owned the information, given that KBC's pre-existing techniques had been “modified or improved.”

Hathaway, who was said to have taken Kullman information, acknowledged that he made an entire copy of his office computer's desktop, including both personal and professional work.

That may seem glaring; his defense was that he was not aware that it was prohibited, as such actions were so common for departing Kullman employees that the IT department helped.

The defense stated:
Clearly, Kullman is having trouble identifying any confidential information because the construction process in the modular industry is relatively standardized, and the differences between companies lies in the service they provide to their clients, and in their ability to coordinate the client’s needs, with the design of the buildings, the domain of the architects and the engineers, and finally, work as a team to bring the project to fruition. This is the ability to develop personal relationships with clients and with the professionals, the ability to manage a project, and the ability to pull a project together in a timely fashion. These are not protectable interests; these abilities travel with the individuals who possess them, and clients are entitled to work with the companies that employ people whose abilities to accomplish these goals they respect. Clearly, here, FCRC, the one former client of Kullman, who decided, prior to meeting Ms. Marks, that it was not going to proceed to phase II of its project with Kullman, saw just those qualities in Ms. Marks, and because of these qualities, permitted her to build a team to assist them in breaking new ground in modular construction.
(Emphasis added)

“Just those qualities” may also have included a greater willingness to meet Forest City's preferred contractual terms.

The response: IP emerging

To Kullman, the defense posture on intellectual property missed the point, In a brief, Kullman charged that key legal cases were “not even cited or addressed by defendants in their voluminous opposition papers.” The plaintiff's brief argued:
FCRC was effectively able to circumvent Kullman's refusal to turn over the ownership rights in this system by the fact that Kullman's key employees collaborated a plan to work directly with FCRC under the formation of a new rival company.
Kullman's lawyers argued that, however public Kullman had been with its information, it was disingenuous for the defense to argue that the methodologies and processes to be developed in the future would not be proprietary.

After all, the plaintiff said, the XSite agreement referred to a future proprietary system that would be owned by Forest City, and required to be kept confidential.

That dispute over IP was never resolved in court.

Pressure intensifies

As the suit proceeded during May and June 2011, Kullman laid off 45 employees--of about 200--due to the loss of work.

On 7/12/11, after further exchanges of legal papers, Judge Accurso intensified the TRO. She barred XSite from doing business with Forest City, thus fully stalling their modular partnership (see below).

Two days later, Kullman’s attorney tried to up the ante, sending the court a letter indicating that “non-parties may be liable to plaintiff,” citing Forest City, company CEO Bruce Ratner, and Gilmartin. However, they were never added to the suit.

Expedited discovery, in which each party requests information and documents from the other side, was supposed to occur later in July.

Instead, the parties moved toward settlement.

The day the lawsuit was settled, 8/16/11, Forest City filed for a building permit for Tower Two. As noted, the document does not point to modular construction.

Still, if there's a connection, the developer may have felt more confident about proceeding once the lawsuit was resolved.

Modular's long future

Long before Forest City got involved, Telyas and others in the field thought that modular had huge potential.

In 2007, at the Pratt Institute in Brooklyn, Kullman began a three-year sponsorship of the Kullman Center, an Innovation Lab dedicated to innovative ideas in industrialized construction. The center sponsored a spring 2008 symposium at Pratt.

“Industrialization of the building process has remained the great unfulfilled promise of our time,” wrote architect Garrison in his introduction to Kullman's modular manual. “We now face a crisis of affordability in the construction industry. As a culture we have largely failed to deliver high-performance and durable buildings at an affordable cost.”

Telyas, in a 2/27/09 article in the magazine On Earth, asserted, “Our goal is no less than trying to reinvent the construction industry." The narrator in the Muhlenberg video said Kullman was on a mission "to fundamentally change construction as we know it today."

His rival Marks, in a 2/15/11 email message to Gilmartin, thought similarly. “I am excited to be working with you and look forward to a long relationships with you as well as...  everyone at FCRC," she wrote, after the XSite contract was signed. "We have an opportunity to really change the way FCRC builds high-rise buildings.”

From Atlantic Yards Watch and CLEXY Block Association: concern over "Future Stadium Event Traffic on Classon Avenue"

A message on Atlantic Yards Watch, headlined Future Stadium Event Traffic on Classon Avenue , from CLEXY Block Association (Classon, Lexington, and Quincy):
Over 500 people have signed the petition to address the traffic issues on Classon Avenue created by the Atlantic Yards.
Classon Avenue is clearly being targeted as the main means of egress for future event traffic to the BQE. Classon Avenue is almost exclusively a residential street, yet current levels of illegal truck usage from the Atlantic Yards (Classon is not a truck route [map excerpt above], Bedford Avenue is the designated truck route) are creating serious health and safety risks for all who live, work and travel on Classon Avenue. These unsafe conditions will be greatly exacerbated by the increased traffic associated with the Atlantic Yards events. The CLEXY Block Association is petitioning for:
1. No Left Turn designation from Atlantic onto Classon Avenue
2. Clear and prominent signage along Atlantic designating Bedford as the route for the eastbound stadium traffic to access the BQE.
3.Addition of signage reinforcing Classon Avenue as prohibited to all truck and traffic excluding those making local deliveries.
4. Addition of a bike lane on Classon Avenue from Bergen to Dekalb.
Here's coverage on Brownstoner and Patch. Below, a map for context.

On official abdication of responsibility, and cheerleading editorials

Let's take a look at an interesting column today about the impact of political and journalistic forces. I've left some identifiers blank until the bottom:
So how does [blank] it? It starts with Mayor Michael Bloomberg.

No mayor in recent history has abdicated his responsibilities in [blank] as has Bloomberg.

...Second, there is the compliant media, reflected in the cheerleading editorials of the Daily News. That was the paper with the once-proud motto, to contrast it with the Post, “The City’s Honest Voice.”

That motto is as dead as the dodo.
This is from Ray Kelly: Too Much Respect, from Leonard Levitt's NYPD Confidential blog, and the blanks reference police commissioner Kelly and police department oversight.

Bloomberg is only partly responsible for Atlantic Yards--the state has more responsibility--but, in both cases, they've mostly let developer Forest City Ratner take the lead, complying, for example, with Forest City's 2009 request to renegotiate its deal with the Metropolitan Transportation Authority.

And the Daily News has had the most cheerleading editorials about Atlantic Yards.

Sunday, October 30, 2011

Guilt over recycling? Consider construction waste from "the 1%"

The New York Times today prints comments regarding last Sunday's article on the recycling conundrum facing New Yorkers, headlined Lunch, Landfills and What I Tossed. One comment that made it into print, from union carpenter Gregory A. Butler:
It's fascinating that most of the commenters are focused on hectoring and lecturing the common man and woman to bring their own knives, forks, plates, napkins (and maybe even tables and chairs) from home as a means of reducing waste.

The thing is, a full 50% - 7 million tons out of 14 million tons of waste generated in this city every year - is industrial debris from construction.

Contrary to the article, we're not talking about "dirt" here. We're talking about cutoffs from metal studs, tracks and beams, pieces of scrap sheetrock, cardboard boxes that contained bathtubs, sinks, toilets and stoves, pieces of wood, sawdust, scrap electrical wiring ect ect ect.

There would probably be a lot more waste if construction workers like me didn't scour the jobsite dumpsters for scrap metal that we can sell for a profit.

However, nobody here talks about making Mr Trump, Mr Zuckerman, Mr Silverstein, Mr Walentas, Mr Ratner and the other New York real estate billionaires "reduce, reuse and recycle".

Why not charge them by the pound for all the garbage their construction sites generate?

That makes a lot more sense than putting a regressive garbage tax on the working class and the poor, or lecturing people to bring their own plates to a restaurant!

Let's keep the focus on the 1% and the garbage their businesses generate, rather than wagging our fingers at 99%ers with a plastic bag and a paper cup!

In Westchester magazine, a heroic profile of FCR's Gilmartin, with some acknowledgment of controversy

Reporters aiming to profile Forest City Ratner executives have a couple of options: there's the route of total sycophancy, as with the Real Deal's portrait of CEO Bruce Ratner, or the path of complication, as with a piece in the Forward on Ratner.

Given that Westchester Magazine is one of those glossy publications with a booster-ish edge, it's unsurprising that the publication's profile of FCR executive MaryAnne Gilmartin emphasizes triumph: Neighbor: Edgemont Resident MaryAnne Gilmartin, Executive Vice President of Commercial and Residential Development at Forest City Ratner Companies:
She’s overseen some of the area’s largest real-estate projects. But before MaryAnne Gilmartin could become a force among New York’s developers, she had to build up something else from nearly nothing: herself.

The summary:
If the woman in front of [FCR's] 8 Spruce Street is a household name, the woman behind it is less so, though remarkable in her own right: MaryAnne Gilmartin, executive vice president of commercial and residential development at Forest City Ratner Companies. Indeed, the Spruce tower is far from the only mark this innovative and tenacious builder has left on the skyline. The Edgemont mom of three made her first splash by winning the contract to build the New York Times building, an intricately designed tower that brought new life to Eighth Avenue. In Brooklyn, she’s helping to shape Atlantic Yards, a complex of residential and commercial buildings that will also be the new home of the New Jersey Nets. Right here in Yonkers, her handiwork can be seen at Ridge Hill, a cluster of stores, offices, and residences beckoning like Mecca off the Sprain Brook. “They’re more than just buildings to me,” Gilmartin says of her projects. “They sort of become like my children.”
Some controversy

However, the article acknowledges some controversy:
Problem children, some. Atlantic Yards has been a focal point of bitter controversy going on a decade, with certain locals protesting everything from the destruction of neighborhood character to use of eminent domain. Ridge Hill, too, inspired opposition and incited scandal. Smack in the middle of the Sturm und Drang, helping her company’s visions go from point A (abstraction) to point B (built!) is Gilmartin, poised and proud. “We tend to take things on only when they’re complicated,” she declares.

And if you think her present life sounds complicated, wait till you hear about her past.
In other words, the article stresses how Gilmartin, who "looks lovely" during a meeting at a "posh Yonkers restaurant," survived a painful family life by working hard, getting a scholarship (and working her way through school), and graduating Phi Beta Kappa and summa cum laude. (Yet, she still doesn't understand Atlantic Yards affordable housing.)

Those praising Gilmartin include her boss, Bruce Ratner, and the firm's associate, Mary Ann Tighe, CEO of CB Richard Ellis.

Criticisms emerge

The article mentions criticisms from me, and Develop Don't Destroy Brooklyn's Daniel Goldstein, who offers an anecdote new to the press:
When Gilmartin first approached him to discuss a buyout, he says, she requested confidentiality, then breached it. “A friend’s child goes to the same school as her kids, and told his mom Gilmartin came to talk to the class about the Yards and gave them Nets swag,” he says. “Apparently she told them that they were building houses for poor people and bringing in a basketball team, but that a mean man named Daniel Goldstein wouldn’t leave. I wasn’t there, obviously. Who knows, maybe she said I was standing up for my beliefs. But to discuss me at all with a bunch of third graders? That’s warped.” He also feels Gilmartin portrayed his settlement to the media as “having been all about money, when the big holdup was, they wanted me to accept a gag order and I kept refusing.”
More on AY

Interestingly, the article gives Gilmartin and Ratner the last word on Atlantic Yards--Ratner suggests that, “Often, when you have a large development, the opposition focuses on an individual, because it’s effective,” which rather misses the point. The only reason Goldstein and I commented on Gilmartin was because we were asked to do so.

The article states:
"[Norman Oder] once put an aerial image of Gilmartin’s home (as well as other homes owned by those managing the Atlantic Yards project) on his blog."
As I commented:
Readers can see that "aerial image" means "home in neighborhood context," not a bulls-eye--and that I also included my own residence.
Gilmartin says the most baseless criticism about her is:
That I don’t really know Brooklyn, so I’m not qualified to develop a project there. I lived in Brooklyn from 1988 to 1993.
Well, she works in Brooklyn too, but maybe that 1993 recollection is why she thinks Brooklyn would just roll over at Forest City's effort to corral valuable public property for itself without any public bidding. I'll stand by what I wrote:
Still, when a project bypasses intermediate institutions like the elected City Council and the appointed (but local) community boards, it's notable how much responsibility has been thrust on unelected officials and private businesspeople who have little affinity for Brooklyn.

Ridge Hill and the lingering tensions

When it comes to Ridge Hill, the article leaves it more ambiguous, stating, "Less easy to shrug off is the bribery scandal that tainted the project last year." However, Gilmartin doesn't get asked any questions about it; in her view, as it's described, Ridge Hill represents the fulfillment of community needs.

So, is Gilmartin merely the driven, creative businessperson who gets major projects done? Or is she integral to a company that plays hardball and just might play dirty?

When I say "play dirty," I mean official misconduct, with which Forest City has not been charged. But Gilmartin has no trouble shading the truth, as described, for example, in my comments on her notorious Observer op-ed.

My comments

That tension shadows the article. I posted several comments, including the full statement I gave to the reporter, refutation of the reporter's claim that Atlantic Yards would be "situated over an active rail yard," and refutation of Gilmartin's assertion that Brooklyn has "never recovered from the loss of the Dodgers.”

My statement to the magazine:
Forest City's successes are inextricably related to acquisition of public subsidies (Bruce Ratner has been called "the master of subsidy"), major spending on lobbying, and substantial political/charitable contributions--as well as hardball tactics.

For the Frank Gehry-designed Beekman Tower, the developer gained triple tax-free Liberty Bonds, yet halted construction midway to renegotiate and gain concessions from construction unions. In Westchester, Forest City's Ridge Hill project passed thanks to the surprisingly changed vote of a City Council member who was later charged with taking bribes. Her cousin, a lobbyist, was charged with giving bribes, but Forest City, which gave a no-show job to that lobbyist, somehow emerged unscathed.

With Atlantic Yards, Forest City promised Brooklyn 17 Frank Gehry-designed buildings, but dumped Gehry when his plans proved too costly. The developer initially promised four office towers--and 10,000 office jobs--only to trade office space for more lucrative condos. Forest City--and Gilmartin herself--have promised 17,000 union construction jobs (actually 17,000 job-years, or 1700 jobs a year over a decade)--even as the developer, with Gilmartin in the lead, was exploring how to slash that total by using lower-cost modular construction.

In 2009, FCR and Gilmartin successfully renegotiated separate and settled Atlantic Yards agreements with the Metropolitan Transportation Authority (MTA) and the Empire State Development Corporation (ESDC), ensuring a lesser flow of dollars to the public and a greater margin for the developer. The revision of the design for a replacement railyard saved FCR well over $100 million, while the developer saved tens of millions of dollars by deferring payments to the MTA for Vanderbilt Yard development rights. Similarly, the developer saved significant cash flow by having the ESDC condemn Atlantic Yards property in stages, rather than all at once.

Gilmartin, who commutes by chauffeured car to Brooklyn, strikes me as comfortable among real estate peers, but chilly at the few--and heavily managed--opportunities she has to interact with Brooklynites with qualms about Atlantic Yards. Two years ago, at a public meeting, Gilmartin said, in a carefully worded formulation, “Forest City does not expect to ask for more subsidy” regarding Atlantic Yards. The company has since done just that. "I'm paid to make sure we make some money," Gilmartin has said. That goal apparently trumps candor.

What's the press for? "To hold those in power accountable." But a lack of attention or sustained coverage diminishes accountability.

At the Brooklyn Book Festival Sunday, September 18, I attended a panel featuring three journalists, all Pulitzer Prize winners.

One, Jesse Eisinger of ProPublica ("an independent, non-profit newsroom that produces investigative journalism in the public interest"), observed, "The primary function of the press is to hold those in power accountable."

That's a justification for First Amendment protections, but that doesn't mean the press consistently recognizes that watchdog role.

That issues arises in the book Bad News: How America's Business Press Missed the Story of the Century, about the failure to anticipate the financial crisis, despite significant evidence that it was looming.

And yes, there are some observations that apply to Atlantic Yards.

The impact of under-coverage

In an essay titled "Missing the Moment," Ryan Chittum, who writes about the business press for Columbia Journalism Review, observed:
It's easy to find perfectly fine stories than demonstrably wrong ones, especially in the top tier of the financial press. But the hardest part of journalism is the picking of priorities. A news organization can only cover so much. What was left out or under-covered is as much a part of the story of how the press performed as what made the papers.
What about Atlantic Yards: Did the New York Times cover the oversight hearing led by state Senator Bill Perkins? The failure to conduct a market study regarding blight? The delays in the release of the Development Agreement? Even Forest City Ratner's role in Marty Markowitz's fundraising?

Why coverage should be sustained

Chittum adds:
Even when it succeeds in doing so, the press's instinct is to dig up a story, run it, and move on to the next one. But one-off stories rarely leave a large impact. Real change usually takes a drumbeat of reporting that pounds critical information into the collective consciousness, forcing the powers that be to act.
That applies, for example, to the impressive but one-off Reuters investigation of the EB-5 program for immigrant investors.

That news organization, even when offered rich fodder for continued reporting, chose not to follow up

Saturday, October 29, 2011

The Markowitz defense/explanation: I did it for Brooklyn (plus a letter the Times didn't print)

Brooklyn Borough President Marty Markowitz has a letter in today's New York Times, responding to the newspaper's lengthy investigation of his private fundraising:
I wasn’t elected Brooklyn borough president to do nothing, and I certainly wasn’t chosen for my good looks. My office doesn’t set its own budgets, and gets only $300,000 in discretionary money for programming in a borough of 2.6 million people — less than 12 cents per person! I refuse to accept these limitations, and Brooklynites deserve better.

To make a difference for Brooklyn, I’m an aggressive supporter of economic development and proud of every project that has helped our borough reach new heights.

The nonprofits affiliated with my office have helped countless Brooklynites, sending thousands of kids to summer camp, entertaining millions at free summer concerts, playing host to the largest book festival in the Northeast and providing residents in need with toys and food during the holidays.

And to the businesses that have helped these efforts, I say, Bravo! And more companies should do the same.

If when I’m finished, I have made you prouder to be a Brooklynite, improved your life even a little bit and put a smile on your face, then I achieved what I set out to do.

Brooklyn, Oct. 25, 2011
What's missing

Yes, Markowitz has used the money to serve the public--and to burnish his reputation, thus ensuring cakewalks in his two races for re-election. And Markowitz, of course, evades the question of whether those firms that donate get special favors.

Here's the letter I sent, but the Times didn't print:
Brooklyn Borough President Marty Markowitz shrugs off concerns about his fundraising by claiming "the people in Brooklyn know me." They don't. They know him as a showman, but not his machinations.

Nor do they know the extraordinary lengths he's gone on behalf of Forest City Ratner, his largest charitable contributor and developer of his beloved (but highly controversial) Atlantic Yards project. He even made a video, aimed to help Forest City recruit Chinese investors, claiming, fantastically, that "Brooklyn is 1000 percent behind Atlantic Yards."

Forest City: dropping Mill Basin project had nothing to do with corruption probe

The Wall Street Journal today follows up on news (as I and others reported yesterday) that Forest City Ratner's Four Sparrows Marsh Retail Center at Mill Basin has been withdrawn, explaining that it's actually dead, but--according to the developer--the Carl Kruger corruption charges have nothing to do with it.

In Plans Killed for Project Tied to Probe, the newspaper reports:
The shopping center had ties to a corruption case involving Mr. Kruger, a Brooklyn Democrat, but Forest City officials said that case had no connection to their decision to drop the project.

The builder believed the shopping center faced an uphill battle on two fronts, according to a person familiar with the matter: Forest City was worried about political opposition to the big-box retailers planned for the site, and the developer wanted to avoid an expected lengthy legal battle over turning city park land into commercial space.
Well, Atlantic Yards faced a battle, if not an uphill one, but Forest City Ratner deemed it worth it. There's always a cost-benefit analysis, and I'd bet that the corruption case was another factor in Forest City's analysis of Four Sparrows.

Post coverage

The New York Post, in Ratner scraps pol-tainted retail project, reported similarly, though with another headline that referenced the corruption charges:
The firm denied that the move was tied to Kruger’s case, saying it simply wants to focus more on projects such as Atlantic Yards in Brooklyn. But two sources said the company also wants to avoid a costly legal battle with project opponents who do not want to see Flatbush Avenue parkland removed to make way for the commercial development.
Past help from Kruger

The Post noted:
The Post previously reported that Kruger sent former Deputy Mayor Robert Lieber a scathing letter in January 2008 threatening to sue the city because it then wanted to begin the mandatory public review process on the dealership’s portion of the Four Sparrow project, without FCR’s part. At the time, the car dealership plan was in jeopardy if the city didn’t move quickly, but FCR wasn’t ready to begin a public review – and was concerned that segmenting the project could hurt its plans, sources said. "It is our intent, and the shared intent of the community and other elected officials, to commence legal action if necessary," Kruger said in the letter.
The city ultimately gave in to Kruger’s demands, setting back the entire project three years.
In other words, Kruger was doing Forest City's bidding.

A "tough guy from Brooklyn": new book describes Vinny Viola, Nets minority owner (and the one who brought Mary Higgins Clark on board)

Had the larger-than-life Russian billionaire Mikhail Prokhorov not emerged on the scene, the buyer of the New Jersey Nets may well have been Brooklyn-born Vincent (Vinny) Viola, former chairman of the New York Mercantile Exchange (NYMEX) and now chair of the firm Virtu Financial.

And Viola appears to be a colorful figure in his own right, according to The Asylum: The Renegades Who Hijacked the World's Oil Market, journalist Leah McGrath Goodman's dishy 2011 book about NYMEX. Still, given some careless reporting, we may have to take some of it with a grain of salt.

(Photo from Combatting Terrorism Center at West Point, which Viola has supported philanthropically. A retired Army Reserve Major, he still lectures on cyber warfare.)

The book also explains that Viola was the connection that brought several investors to the Nets, including novelist Mary Higgins Clark.

A "tough guy from Brooklyn"

Goodman credits Viola with managing NYMEX well in the horrific wake of the 9/11 attacks, and argues that NYMEX controls the oil market. However, she seems equally interested in portraying the "lurid culture of NYMEX traders," in the words of Publishers Weekly.

She describes a businessman capable of getting tough:
Viola was perhaps the handsomest of all the exchange chairmen, but beneath the spit and polish he was still a tough guy from Brooklyn. Growing up, he'd attended a vocational technical high school and graduated from the military academy at West Point in 1972. He'd gone on to the Army Ranger school, served as an infantry officer in the 101st Airborne Division, and transferred to the Army Reserve in 1982. Viola left the Army Reserve as a major in 1993.... After becoming a local in the Nymex gasoline pit, he finally found his niche. He compared trading to being in an army platoon. "You have all this information coming at you and you have to focus, to pick out what's significant and make decisions in real time."
(Emphases added throughout)

Viola attended Brooklyn Technical High School, aka Brooklyn Tech, which is one of the city's most competitive schools, aimed at the college bound, not a vo-tech school designed to steer students toward a career.

Getting involved with Ratner

Viola, a New Jersey resident and longtime Nets season ticket holder (via NetsDaily, which offered a 6/26/09 bio sketch), got to know Bruce Ratner through real estate. Goodman writes:
After becoming a Nymex trader, Viola also dabbled in other businesses, running some community banks in Dallas and starting up proprietary trading shops active in the New York and London energy markets. After taking the chairmanship, he even invested in the Nets basketball team alongside real-estate developer Bruce Ratner, who'd worked on the construction of the Nymex building that had generated so much controversy. The two men moved the team from New Jersey to Viola's hometown of Brooklyn, with Viola bringing in other investors from Nymex--most notably, bestselling mystery romance novelist Mary Higgins Clark, whose daughter Patty Clark Derenzo was Viola's secretary.
Despite the past tense, the team has not yet moved.

The "intimidation factor"

Interviewee Ben Kaufman, the son of a big oil trader who interned at NYMEX, describes Viola:
"Viola was the street-smart Italian guy, always with a bunch of Brooklyn and Staten Island kids hanging around him. Vinnie had the influence and the intimidation factor going for him... He dressed and acted like a Mafioso don... We usually didn't see him come down to the pits unless he wanted to intimidate somebody.
That sounds impressive, but Prokhorov has "the intimidation factor" too, along with the exotic accent.

Author Goodman spends a lot of time on this theme, suggesting that Viola managed his image well:
Viola had a nasty temper, but [predecessor chairman Lou] Guttman says he didn't lose control of his emotions easily. "He exuded leadership. His personality was amazing. he drew people in. He was a phenomenal speaker. Even if he didn't know what he was talking about, he sounded like he knew what he was saying. He was an astute businessman and an extreme opportunist."
(I had a brief, non-Atlantic Yards-related interaction with Viola once. He seemed like a stand-up guy.)

Gargano-esque ambitions

Viola, who "even set up a dojo in his office to study kung fu," had ambitions that recalls those of former Empire State Development Corporation Chairman Charles Gargano, who once served as an ambassador to Trindad and Tobago and liked to be addressed as "Ambassador":
The son of a truck driver, Viola transcended the chairman's mold. He could mix with society pagers and pit traders with equal aplomb... Viola's fondest wish, says the former associate, was to be ambassador to Italy or to the Vatican, but "he acted way too shady for that."
The Kruger connection

Viola may live in New Jersey, but he works in New York and he's contributed regularly to political campaigns in New York State As noted 3/20/11, the New York Post reported that Viola gave $5000 to the campaign of state Senator Carl Kruger, now under indictment.

Viola's Brooklyn connection

NetsDaily reported 6/26/09, with no link to sources:
Viola, a native Brooklynite, has supported the move to Brooklyn and as an investor in the Nets, he retains a significant financial interest in the Atlantic Yards. He points out that the arena site is nearby St. Cecilia’s elementary school, which he attended in the 1960’s.
According to the 10/04 newsletter [PDF] of Futures in Education Foundation, Viola attended St. Cecilia’s School in Greenpoint. It recently closed, but was located at 15 Monitor Street, which is nearly four miles from the arena site, according to Google Maps.

Viola surely had referred to Brooklyn Tech. It's less than half a mile away, straight down Fort Greene Place.

Ratner's Viola connection?

Futures in Education, which "provides scholarships and program support to needy students and Catholic schools in Brooklyn and Queens," has regularly received contributions from the shadowy Forest City Ratner Foundation.

Though a gift was not in the most recent report, for the year 2009; in 2008, Futures in Education was given $16,000.

Could that be because Viola has (or at least had) Ratner's ear?

After all, the 2004 newsletter mentioned above explained that the "dynamically redesigned Brooklyn Museum" would host the annual scholarship fund dinner, honoring Viola, with Ratner serving as a lead chairperson of the dinner committee.

And if the gifts stopped or slowed, would it be because Viola's role has diminished with the advent of Prokhorov?