Forest City formally discloses that lender for B2 tower has suspended disbursements; seeks longer forbearance period
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"Mortgagor has obtained forbearance from the Lenders until October 8, 2014 in order to finalize negotiations on a longer forbearance period," wrote Forest City's affiliate, Atlantic Yards B2 Owner, which is co-owned by the Arizona State Retirement System, in a letter dated 10/1/14.
With a typical loan for a finished property, a forbearance gives the borrower time to renegotiate and repay unpaid debts. In this case, the forbearance is aimed at reestablishing progress on the building and thus reassuring the lender the money will be well spent and result in a building that will deliver revenues to repay the bonds.
"In addition, Mortgagor is taking multiple steps to resume construction of the Improvements," the letter from Forest City's David Berliner said.
Those steps include an attempt to reopen the factory at the Brooklyn Navy Yard, as well as (presumably) a new construction manager for the tower, which is stalled at ten of 32 stories.
The lender's letter came 9/18/14, some three weeks after FCS Modular--co-owned by Forest City and Skanska, but managed by the latter--furloughed some 157 workers at the factory, in an action Forest City said violated a contract requiring board assent.
For now, the two companies remain uneasy partners on the factory, though Skanska has resisted Forest City's attempt to reopen it. Skanska has canceled the contract to build the tower as well as the contract to buy modules from FCS Modular.
The two companies have agreed to go to arbitration to resolve some if not all of their legal differences.
Funding suspended earlier
Though notice may not have been formal, the lender suspended funding months earlier. Skanska said in an 8/8/14 letter:
As of April 28, 2014, David Berliner advised [Skanska's] Richard Kennedy that FC's lending institution has stopped funding. This fact was confirmed by [Forest City's] Robert Sanna on July 7, 2014. As noted previously, FC has not furnished a bond or undertaking guaranteeing payment to Skanska, as required by § 5 of the Lien Law of the State of New York.
By contrast, according to a 7/7/14 letter from Forest City to Skanska (right), Forest City said that the suspension of funding should not have caused Skanska to doubt that the B2 Owner could meet its financial obligations.
Not only was Skanska to blame for the suspension, according to Forest City, the Owner "has paid every invoice since Lender suspended funding (less disputed sums)."
Those disputed sums are significant. Skanska counts at least $30 million in damages, including $10 million in change orders.
Skanska said that an 8/14 letter from Skanska, which made reference to parent company Forest City Enterprises (FCE), fell "short of identifying that financial arrangements exist."
From the bond documents
According to the Official Statement for the first of two rounds of bonds for B2, each Event of Default must be announced within 90 days after the bond Trustee learns of the occurrence.
Events of Default include, among other things, not meeting the completion date, project suspension for 21 consecutive days, and the failure of the Mortgagor (aka B2 Owner City) to cover certain cost deficiencies.
Upon the occurrence of an Event of Default, the Bank may pursue multiple remedies, including declaring the debt immediately due and payable, and stopping the disbursal of loan proceeds.
Subcontractors on the building, according to Skanska's 8/8/14 letter, are expected to file claims:
Subcontractors, particularly Banker and M.G. McGrath, Inc. ("McGrath"), have advised that a claim for additional compensation will be forthcoming, with McGrath asserting an amount without backup of $2.5 million and Banker explicitly advising that its claim will be based on the inadequate design and IP, as well as representations made to it by FC prior to Banker ever submitting a proposal to Skanska. Banker advises that it will also rely on its involvement with FC "early on" as a basis for its claim. Skanska has advised FC of its intent to properly process and submit subcontractor claims to the Owner for appropriate action and payment as warranted. However, since no actual claim has been received, nothing can be vetted or processed.McGrath supplies architectural sheet metal, while Banker Steel has supplied the module frames; the latter also supplied steel for the arena.
While the McGrath web site no longer has information about B2, a cached version suggests that the firm, like Skanska, expected work on all three towers around the arena:
Banker Steel's press release stated:
Banker Steel, known for its expertise in fabricating complex steel structures, has pushed the limits of traditional steel fabrication with tighter tolerances, demanding quality control and production practices.It is interesting to see the statement regarding "tighter tolerances," because tolerance--the variability of the steel frames from the specifications--likely will remain an issue in dispute. Also see coverage of how Forest City misleadingly claimed Banker Steel was a union shop.