By Jim Benn, Senior Project Manager for KBS.
(Adapted from an article written for the March 2011 edition of Commonwealth Contractor, a magazine printed by the Associated Builders and Contractors-Virginia Chapter)
Building 160 at the Yards circa 2008
In October 2008, Building 160 (also known as The Foundry Lofts) was caught square in the crosshairs of Black Week when the Dow Jones industrial average fell a record 1,874 points and 18 percent and closed low for all five sessions; in addition, the S&P 500 fell more than 20 percent. Building 160 at the Yards is part of a Forest City Washington development project. A 1920s era structure formerly part of the Washington Navy Yards, the project was set to be renovated in the first phase of Forest City’s development known as The Yards—a 45-acre mixed-use development in Southeast D.C. near the new Nationals ballpark.
By September, KBS had completed 17 percent of the $33.8 million dollar adaptive reuse contract. It was around this time that it became evident to Forest City’s financial experts that a conventional lending arrangement was becoming problematic as deal after deal fell through with the collapse of banks including Lehman Brothers and Goldman Saks. What would normally have been a sweetheart deal for any bank—an owner willing to invest $15 million of its own capital in a $55 million project—was nearly unattainable.
Building 160 Suspended
By late September the decision was made to suspend Building 160 hopefully for one month, three at the most; and on October 13, 2008, KBS received a phased suspension letter.
A snapshot was taken of existing project funds and then KBS and Forest City worked closely to identify which trades to shut down completely and selectively, determining the financial implications for each scenario. After studies were completed for each trade a comprehensive plan was approved and implemented.
For example, the window package for the project, the single largest subcontract representing almost one tenth of the project budget was days away from going into production; so suspending production of the windows was an easy decision to make. On the other hand, a tower crane was erected to install the additional two stories on the roof of the four-story existing structure and the steel and prefabricated framing systems were already fabricated. A cost analysis indicated that it would be less expensive to continue this phase of the project than to shut it down.
Subcontractor’s and vendors were individually called and informed in writing of the situation and asked to provide an accurate Application for Payment, specifically documenting the value of any stored materials. A detailed video was taken of each area of the project including containers rented for valuable materials; and the detailed inventory was reviewed by Forest City and KBS for proper documentation.
By December 2008, all phased suspension was complete, temporary protection installed and the project officially mothballed.
Building 160 Restarted
Forest City explored numerous financing options in order to restart the project as quickly as the successful completion of that task would allow. They settled on a financing package obtained through the D.C. Housing and Finance Authority, under a risk-sharing program established with the U. S. Department of Housing and Urban Development and funded by a total of $47.7 million of New Issue Bond Program (NIBP) bonds.
One year after the notification of a phased suspension, KBS was informed that the job was restarting and that they should prepare a detailed estimate for the cost-to-complete agreement. Given the time that had elapsed and changing market conditions, KBS had to rebid all but the few selected trades that had completed shop drawings and submittals.
In spite of a few delays in closing, KBS remobilized to the site in September 2010; it is projected to complete and turn over the first four floors in October 2011, with the remaining two story “signature” units on the fifth floor completed by December 2011.
Through the dedicated collaborative efforts of the entire project team, what was initially an unfortunate result of the decline of the nation’s banking and finance industry, a timely restart to a keystone project in Forest City’s development of The Yards project was accomplished.
From initial award of the project through suspension and restart, the common goals of the entire project team, from the subcontractors and vendors to the architect, KBS and most importantly, Forest City Washington, were met through a combination of trust, open communication and collaboration. An unfortunate turn of events in the financial industry and the country as a whole, through hard work and a team oriented approach, was turned around 180 degrees to produce a final product that will anchor an exciting mixed-use development in the shadows of our Nation’s Capitol.
Side Bar: The NIBP program that was implemented as part of the Housing and Economic Recovery Act of 2008 is designed to help provide market liquidity for bonds that housing finance agencies use to provide financing.