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After a Catastrophic Fire, a Long Road Back

The day the Treadmark apartment building went up in flames in the Dorchester neighborhood of Boston, James Keefe, the $45 million property’s developer, waited anxiously on the back porch of his home a few blocks away.

A few friends and key employees commiserated with Mr. Keefe, a principal at Trinity Financial, as swarms of firefighters sought to control the fire, which grew into a six-alarm blaze that day, June 28, 2017. Reporters called, asking about possible causes. Mr. Keefe had no reply. But he quickly figured out that they were seeking to draw a connection to a horrific public housing fire that had killed 72 people in London just two weeks before.

Treadmark had not opened yet, and no one was hurt, but its 83 units were to include 51 affordable apartments.

“The not-so-subtle undertone of the questions was: Was this a cheap building, cheap construction because it was affordable housing?” Mr. Keefe said.

The media onslaught was one of a series of challenges facing him and Trinity after the only such fire in the company’s more than 30 years in business. There were also financial, operational and public relations obstacles to overcome before the rebuilt Treadmark opened in June.

More developers are confronting similar challenges these days. Catastrophic fires have increased in major metropolitan areas as the number of large construction projects has grown, according to a May report from the insurance rating firm AM Best.

“The impact has been felt acutely by companies underwriting builders’ risk exposures and by construction underwriters in general,” the report said. Consequently, it continued, risk underwriters are raising requirements for on-site building security and lighting.

Engineered wood-frame construction of the type Trinity used at Treadmark has drawn more scrutiny in recent years because of its link to a number of destructive fires. A cost-effective approach for putting up midrise buildings, engineered wood is also a higher risk for fires during construction, before sprinkler systems are operational.

In the Treadmark case, the Fire Department determined that the cause was an exhaust pipe that Trinity’s construction contractor had installed improperly. The sprinkler system had not yet been turned on — the final inspection was scheduled for the next day.

Until those systems and other protections are in place, “it’s really like a lumber yard of two-by-sixes in the air,” said William M. McLaughlin, the executive vice president of development at AvalonBay Communities, which owns about 85,000 apartments across the country.

The first 54 units of a wood-frame townhouse development under construction in West Oakland, Calif., caught fire in October. Called the Ice House, the 124-unit project was being built by City Ventures, an infill developer that owns developments throughout the state.

Security personnel monitoring 24-hour on-site cameras called the Fire Department shortly after the fire started, but all six of the buildings under construction went up in flames, said Phil Kerr, the developer’s chief executive of homebuilding. The cause was determined to be arson.

Financially, City Ventures was fine. The company was well capitalized and had a revolving construction loan led by Wells Fargo and an insurer “who stepped up right away,” Mr. Kerr said. Losses were around $15 million.

The more pressing need was helping buyers; sales of about 50 units were scheduled to close in less than two months. City Ventures offered to maintain those contracts at the early pricing levels, which were $650,000 to $750,000. The company also offered to switch buyers to the other half of the project, now scheduled to be finished before the half under demolition. Buyers who needed to move in right away were offered a 10 percent discount on another City Ventures project less than a mile away.

About 30 of the 50 buyers stuck with their contracts, Mr. Kerr said.

“Our sales and construction team spent a lot of time working one on one with buyers to answer their questions,” he said. “Everybody was emotionally affected, but they turned that very quickly into: ‘This is a challenge. Let’s hit it head on.’”

Trinity faced a similar predicament: Nearly all 32 of the condos that filled Treadmark’s top two floors had been sold. Working with those buyers, the company managed to keep 10 under contract.

The bigger problem, Mr. Keefe said, was negotiating a settlement with Hanover Insurance through a builders’ risk policy, which took more than six months of often heated back-and-forth discussions. Mr. Keefe repeatedly rejected sums he felt were too low given the increase in construction costs since ground was broken.

He declined to say what the final number was, but in the end, he said, “we got what we needed.”

In the meantime, the company needed to draw on its construction loan to pay contractors for the most recent round of work completed. But the collateral on that loan, the building, was all but gone. Only the concrete podium was salvageable.

“In order to get the banks to advance the money, we had to reallocate some of our resources, recollateralize,” Mr. Keefe said.

Because the complicated financing for the mixed-income project involved about $10 million in city, state and federal subsidies, Trinity had to work with various agencies to keep the money in place, said Kenan Bigby, the company’s managing director. In addition, the project had more than $22 million in private equity from the sale of federal and state low-income housing tax credits, and Trinity had to assure investors that the situation was under control, he said.

The firm tried to lie low during the media swarm, issuing only brief statements and trying to ignore the narratives swirling on social media. However, it stayed attuned to the concerns of the surrounding community. The project occupies a highly visible location, across from a busy subway and bus station, and was to provide more-affordable rental and home-ownership options.

“A lot of people in the neighborhood didn’t think we were going to be able to rebuild,” Mr. Keefe said. “But not rebuilding was not an option for us.”

The restoration began in the fall of 2017, this time with round-the-clock security on the site.

AvalonBay has had a number of construction fires over the years, raising concerns from community leaders over safety issues.

A self-funding real estate investment trust with a risk management team and a master policy covering all of its construction jobs, the company is well positioned to handle an occasional fire. But a 2017 blaze that damaged an apartment project under construction in Maplewood, N.J., caused executives to establish new guidelines for fire safety on its construction sites.

In addition to moving temporary heat sources outside buildings and installing electronic sensors that can detect excessive heat, AvalonBay now uses a fire-inhibiting coating on its wood framing. Made by M-Fire Suppression, the coating is sprayed on as the framing goes up.

“It adds a half-million dollars on the average job, but it’s the key differentiator for us since that Maplewood fire,” Mr. McLaughlin said.

Mr. Keefe said Trinity had used the same coating technique during the Treadmark restoration. The cost was of no concern, he said. After what the company went through, he said, avoiding another fire is a top-of-mind priority for him and his team.

“These projects are like your children — there is a long gestational period when you’re trying to get it financed and built,” he said. “You see it form, day by day. And then, to see it burn a few days from opening — the shock of it is hard to describe.”

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