Thursday, November 05, 2015

Forest City says B2 modular building cost rises $30M, cites need to re-staff factory, suggests incomplete units

The B2 modular tower in Atlantic Yards/Pacific Park has been rising steadily (to perhaps 23 of 32 stories), a sign, perhaps, that the much-touted technology might eventually prove replicable after delays, cost overruns, an ongoing legal fight with former partner Skanska, and revelations of interior damage.

But the cost of the building--which indeed has fluctuated in the past--went up $30 million in the last three months, to $192.1 million, Forest City Enterprises revealed in documents released Tuesday and a conference call with investment analysts yesterday. 

(Note that, even while setting the previous $162.1 million cost, Forest City in February 2015 announced a $146.3 million "impairment"--or write-down in the asset's value--regarding B2.)

"These increases reflect a more complete assessment of construction conditions in the field, including the degree of completion of units already at the building site and those remaining in the factory," stated CFO Bob O'Brien in the conference call yesterday.

B2, Sixth Ave. side, Oct. 27, 2015
"We also experienced greater delay than anticipated and costs related to rehiring, or replacing talent that was let go when our former partner separated from the project," he added. "We have made significant progress in the factory and the site, and our team is very focused on completing this project."

Drilling down

O'Brien's explanation is curious. The whole point of producing modules in the factory was to eliminate questions about "the degree of completion of units already at the building site."

So what did he mean? Perhaps units are arriving unfinished, to save time and/or reduce the risk of water damage, or installed units have absorbed damage (as in the past) and require repairs. Or maybe both.

After all, it's clear that some units have needed exterior work. Note the photo at right, taken 10/27/15, of missing exterior panels on the side of B2 facing Sixth Avenue.

As to the delay in hiring or rehiring staff, well, that's not an unusual snag. However, that does contrast with the promotional talk and factory tours Forest City was offering elected officials and others in the construction industry.

The screenshots below come from Forest City Enterprises Investor Presentations. It's not clear to me why the cost figures have fluctuated so much.

Sept. 30, 2015 estimate: $192.1 million

June 30, 2015 estimate: $162.1 million

Sept. 30, 2014 estimate: $193.7 million

Dec. 31, 2013 estimate: $183.9 million



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