Skip to main content

In effort to reopen modular factory, Forest City modular affiliate asks judge to intervene in dispute with Skanska

Two months since the factory producing modules for the stalled B2 tower shut down, FCRC Modular, the affiliate of developer Forest City Ratner, has asked a judge to intervene to allow it to reopen the factory without its former partner Skanska Modular.

The ill-fated partnership, known as FCS Modular, had signed a contract to produce modules for Skanska USA Building, which was hired by the B2 Owner, an affiliate of Forest City, to construct the tower. 

But Skanska has canceled both contracts, while claiming $50 million in damages from cost overruns. Skanska blames Forest City for defective intellectual property, while Forest City says Skanska agreed that the project was buildable without an increase in cost. The two parties filed dueling lawsuits, and B2 owner filed a separate lawsuit aiming to reopen the factory.

At a hearing 9/23/14 on that suit, Forest City unsuccessfully asked state Supreme Court Justice Saliann Scarpulla to order the reopening of the factory. She did not, but did order the parties to have a board meeting that, presumably, could hasten resolution of the dispute. It did not, so the court battle continues. (Also see Wall Street Journal article on whether Forest City's modular plan is feasible.)

Board deadlock

In a letter filed 10/23/14 with the court, FCRC Modular seeks a conference "to discuss defendant Skanska Modular's continued efforts to prevent the reopening" of the modular factory.

FCRC attorney Harold Weinberger noted that Skanska Modular had argued in court that FCRC Modular could reopen the factory immediately by presenting an opportunity to FCS Modular board--three directors from each partner--and if the board said no, the presenting member could go alone, licensing and using the company’s intellectual property and resources, including the factory.

Scarpulla last month did order a board meeting, which would trigger a “Buy-Sell” procedure so that one member could buy out the other. As expected the board deadlocked.

New opportunity must be equivalent?

FCRC Modular, according to Weinberger's letter, then informed the board of the new opportunity. Skanska Modular refused to consider it, according to FCRC Modular, "unjustifiably" claiming the financial aspects of the proposal had to be identical to the previous one. Skanska also said the parties had to agree with a license agreement regarding intellectual property and the factory.

After a phone conference, Skanska Modular’s counsel said the proposal only needed to be “functionally equivalent.”

FCRC Modular, in a 10/15/14 letter, said it would functionally equivalent, given that the B2 Owner would enter into a fixed price purchase order with FCRC Modular, and B2 Owner would pay cost overruns previously proposed to be borne by Skanska Modular and guaranteed by Skanska USA.

But B2 Owner would have the right to claim cost overruns against Skanska USA "as damages arising from the termination of their prior contract"--surely a major sticking point.

Mediation not enough

Skanska Modular, which FCRC Modular said "failed to respond to FCRC Modular’s letter for a week" (six days, to be precise), said it disagreed, because the proposal was "materially different," and said the issue should be addressed at the first scheduled mediation session between Skanska and Forest City, which also concerns the dueling lawsuits filed over cost overruns and breach of contract.

That session is set for November 3--a week from today.

FCRC Modular, according to Weinberger, said that was neither adequate nor appropriate, and has asked Judge Scarpulla to set a conference to address the dispute as soon as possible.

Earlier this month, Forest City, a minority owner of B2, bought out the majority owner, the Arizona State Retirement System. B2 is the only Atlantic Yards/Pacific Park tower not owned in partnership with the Greenland Group, which owns 70% of the project (sans arena) going forward, and--who knows--may well own a share of B2 when the legal battle is resolved.


Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…