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Forest City, Skanska end bitter lawsuits over ill-fated Brooklyn modular tower; murky settlement years after developer claimed to have “cracked the code”

After five-and-a-half years of legal jousting over the ill-fated Brooklyn tower once said to revolutionize modular construction, Forest City Ratner Companies and Skanska USA Building in April agreed to settle their three lawsuits, state court records show.

B2 under construction, 2015. Photo: Norman Oder
The confidential settlement leaves murky the degrees of fault, and financial responsibility, for tens of millions of dollars in damages and losses over 461 Dean (B2), the first tower in the 15-tower project originally called Atlantic Yards.

Launched in 2012 with ambitious, ultimately unfounded, claims about saving time and money, the 363-unit tower flanking the Barclays Center suffered leaks and delays before finally opening in 2016.

Skanska, which served as general contractor for the building and also ran the jointly owned modular factory at the Brooklyn Navy Yard, blamed Forest City for inadequate design for the world’s tallest (as of then) modular tower.

Forest City, which unwisely claimed it had “cracked the code” for modular, charged Skanska with poor execution.

If the lawsuits didn’t resolve that dispute, the case file--a review of hundreds of documents--provides fodder for both sides. And, of course, those pursuing modular these days acknowledge that 461 Dean was overambitious, given its height, irregular site, and large variety of unit designs.

Representatives of both Skanska and Brookfield Properties (which now owns Forest City) declined comment. Not long before the settlement, the parties had been scheduled to pursue depositions of key figures, a costly process surely challenged by the coronavirus pandemic.

A developer bruised

October 2018. Photo: Norman Oder
Though Forest City saw 461 Dean as the start of a new product line, the modular flop led the developer to abandon its modular aims; in 2014, it sold a majority share of Atlantic Yards to Greenland USA, an arm of a Shanghai-based conglomerate.

Greenland renamed the project Pacific Park. Since then, three more towers have been completed; two are under construction. (Here's the status report.)

Atlantic Yards, and the modular tower, arguably contributed to the demise of Forest City, once Brooklyn’s dominant developer and a builder of outer-borough malls as well as Manhattan showcases like the New York Times Tower and 8 Spruce Street.

In late 2018, its parent Forest City Realty Trust was acquired by Brookfield Asset Management, after losses and stumbles—notably in New York—led to a shakeup of the REIT’s board, diminishing control of the founding Ratner family.

Bruce Ratner, who founded the New York subsidiary, now focuses on philanthropic endeavors. His successor as CEO, MaryAnne Gilmartin, left the company in 2018 to form L&L MAG, joining the principals at L&L Holding Co.

(Last December, Gilmartin said she’d start a new firm, MAG Partners, though that firm doesn't have a web site, her LinkedIn page still lists L&L MAG, and a 6/15/20 press release regarding a board which she now chairs cited L&L MAG as her affiliation. That said, this news article about Your LIC mentions the firm, though the Your LIC web site lists L&L MAG. But the Secretary of State doesn't have a listing.)

Skanska USA Building President Richard Kennedy now heads parent Skanska USA, which builds a wide range of projects as part of the Stockholm-based worldwide company. Though Skanska USA still pursues modular construction, a company video describes work on a pharmaceutical lab and a hospital, a far cry from tall residential towers.

Ambitious plans

While modular construction had been used for low-rise, standardized structures, Forest City, which had invested more than $6 million in research and development, aimed to build high-rise, starting at a wedge-shaped parcel flanking the Barclays Center at Dean Street and Flatbush Avenue.

One driver of Forest City’s modular plan was the company’s costly but politically calculated commitment to use union labor to build 6,430 apartments, including 2,250 units of affordable rental units. Half the units at 461 Dean are “affordable,” or income-linked, part of another strategy behind Atlantic Yards, which was announced in 2003 and approved in 2006 during a time of greater developer optimism.

Another was ambition. According to a January 2012 Opportunity Brief that Forest City circulated to potential partners, it had “assembled a world class team” that had “developed a methodology to revolutionize the way we build highly technical buildings today in dense urban environments like New York City.”

The new factory would target not only multi-family housing but also bathroom pods for healthcare and hospitality, as well as data centers. Forest City executives even talked about building modular office towers.

Wikimedia Commons,
Photo: GrissJr, August 2017
Forest City sought a partner in the factory, “fueled by a robust, built‐in local pipeline and a favorable labor agreement,” according to the Opportunity Brief, with a negotiated wage-and-benefit package averaging $36 an hour, far less than on-site unionized pay, albeit with a promise of year-round rather than intermittent work.

In October 2012, Skanska USA Building entered into a construction management agreement to build the tower for the Atlantic Yards B2 Owner, a Forest City affiliate.

Skanska also agreed to purchase the modules from FC+Skanska Modular, a partnership between two company affiliates. That company was managed by Skanska; after the latter halted construction in 2014, Forest City bought out its partner and hired Turner Construction as general contractor. The renamed FC Modular built the rest of the modules before it was sold to former manager Roger Krulak.

Subcontractor conflict persists

Skanska also had subcontracts with Banker Steel, which produced steel frames for the modules, for $26.5 million and M.G. McGrath, which produced the facades, for $12.2 million. (The complex contractual arrangements are delineated in a graphic from the legal file, below.)

Skanska’s legal claims persist against those two subcontractors, which denied fault and claimed that, on the contrary, Skanska owes them money. (In late May, Skanska said it would file a separate case against McGrath and Banker.)

McGrath asked the court for an in camera review of the Forest City-Skanska settlement agreement, noting that it was “unknown which, if either, of these two higher tier parties received payment from the other.”

But if Skanska paid, McGrath argued, it “is critical for the third-party defendants to know all the facts and circumstances,” since that would relate to Skanska’s claims against them.

Skanska has resisted McGrath’s request, arguing it should first go not to the judge—the ultimate trier of fact—but to a special discovery master, and that disclosure is appropriate only “where the terms of the agreement are ‘material and necessary’ to the non-settling party's case.” The issue remains pending.

The original combined three cases generated significant paper. According to a legal filing by Banker, since 2018, when the parties began producing electronically stored information (ESI), Banker produced 452,813 documents and 1,172,543 pages of ESI, while Skanska-Related Entities produced nearly twice that volume, and Forest City-related parties produced as much as Skanska and Banker combined, or more than 3 million pages.

Troubled partnership

The 322-foot, 34-story tower, originally designated B2, had a ceremonial groundbreaking in December 2012. Savings were expected from faster construction, with parallel work inside the enclosed factory and at the site, plus lower wages for lesser-skilled workers. But the tower took more than twice as long as projected.

State documents described water damage in the structure’s lower floors, later repaired, and prefabricated modules delivered without components like appliances. Pieces of the facade—attached in the factory, rather than on-site, typical at other modular projects—flapped in the wind.

The Forest City-Skanska partnership was troubled from the start. Skanska contended in legal papers that Forest City selected an unsuitably cramped building, and did not fit it out appropriately.

Bad luck also delayed production, as Superstorm Sandy swamped the Navy Yard shortly before the launch period.

Production of units for the tower’s first two floors was delayed, Skanska charged, by the production was slowed by the plan to have each factory worker perform multiple tasks rather than to have more skilled workers specialize. Forest City, by contrast, took credit for speedier later production.

Though Forest City concluded that using structural steel brace frames would more snugly fit modules than a concrete core—as at the then-tallest building, in Wolverhampton, England—B2 also faced “tolerance” problems, or the cumulative effects of slight imprecisions, exacerbated by height.

Skanska cited alignment problems regarding the match plates that tied the modules together. Though holes were originally reamed too small to secure the modules, they were later reamed too large. That made it easier to set modules, but “also created the potential for larger deviations from total system tolerance,” Kennedy wrote in a letter terminating the agreement.

Irregularities and a manager's worries

Moreover, the irregular site hampered standardization. B2’s 419 bathroom pods had 179 different designs, and its 929 modules used 222 types of steel frames, according to a report from an early Skanska manager at the factory, Robert Francis, unveiled in the legal battle.

Forest City saw Francis’s report, as well as his more freewheeling emails, as bolstering its charge of mismanagement. “The challenge of the project was significant in terms of timing,” he wrote.

In an April 2013 message to another Skanska manager regarding “Factory Fitout,” Francis wrote that he was “really worried that we are not going to make our timing. If you look at the factory–we have done nothing, other than tidy up offices.” He also harshly criticized subcontractor McGrath’s performance.

Forest City, after failing to get Francis, by then retired and a resident of the United Kingdom, to agree to questions, in July 2019 asked state Supreme Court Justice Saliann Scarpulla to approve a Letter of Request to get the UK courts to help.

In January 2020, Justice Scarpulla granted that request. Francis was to be questioned about the factory site, the labor pool, the modular assembly process, his knowledge of subcontractor quality and design issues, and the causes and reasons for delays. At the time, it was expected that the trial in the case would occur “in or after June 2021.” The settlement, obviously, precluded such questioning.

A breakthrough, or an “experiment”?

Long before Skanska shut down the factory in August 2014, bad blood was brewing. According to an affidavit from Kennedy, after William Flemming, then President of Skanska Building, in January 2014 brought up design issues, Bruce Ratner responded by using “a vulgar street epithet followed by ‘I don't care if it costs you 50 million [dollars] to finish the project ... I'll see you at the grand opening.’"

In April 2014, Kennedy emailed Forest City Chief Operating Officer David Berliner, expressing dismay that the developer had told the New York Times it planned to build the next two Atlantic Yards towers via conventional means, thanks to its upcoming joint venture with Greenland USA. The loss of that pipeline jeopardized Skanska’s investment in the factory.

In response, Berliner noted that the developer had to plan the next building immediately and that only a completed and leased B2--at that point far from finished--would trigger agreed-on conditions for a new modular contract. “As you can see in the press,” Berliner wrote cordially, “we have touted the modular technology experiment.”

That phrasing, Kennedy replied with frustration, was “a far cry from the definitive representations” made by Forest City executives about how they’d “cracked the code.”

New wariness

In the wake of B2’s struggles, both modular builders and government sponsors grew wary. “Hopefully, we’ll sign contracts with some hotel developers and some mid-rise projects in Brooklyn,” Krulak said of the modular company, renamed FullStack Modular, in October 2016. (Hotels, of course, feature standardized units.)

“One thing we’ve learned is don’t try to do high-rise,” New York City’s then-Deputy Mayor Alicia Glen said in March 2018. In March 2019, the city announced a seven-story project in East New York involving FullStack Modular.

From 461 Dean website
Forest City, after finishing 461 Dean, withdrew further from the project. In March 2018, not long after announcing it would sell nearly all its remaining Pacific Park share to Greenland USA, it sold 461 Dean, the only tower it owned outright, to Iowa-based Principal Global Investors.

Oddly, as I wrote for TreeHugger in October 2018, several press accounts straightfacedly repeated the claim that the use of modular techniques purportedly allowed Forest City to save 20 percent on construction costs.

Today the 461 Dean website proclaims sunnily that the tower was “handcrafted locally in the Brooklyn Navy Yard as the tallest modular building in the world.”