Archives for February, 2017

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No Comments February 28th, 2017 Latest News, Other Commercial Lines

3 Types Of Insurance You Need For Your Import/Export Business

You’ll need insurance for many aspects of your import/export business, from your employees to your cargo.

Here’s the lowdown on the specific types of insurance to protect your business.

Insuring Your Employees

Once you hire employees, you’ll need to think about caring for them. Workers’ compensation insurance laws vary among states; check with your insurance agent for details in your area. Workers’ comp covers you for any illness or injury your employees might incur on the job. If your employees work in your home office and get injured there, your homeowners’ insurance may refuse to pay on the grounds that it’s actually a workers’ comp case. Check with your insurance agent regarding what you need, then make an informed decision.

Export Credit Risk Insurance

Thanks to the Export-Import Bank of the United States, you can purchase several types of export credit risk insurance designed specifically for the newbie exporter and small- to mid-sized enterprises. These policies protect you in the event that your foreign buyer decides not to pay you for either commercial or political reasons. The Ex-Im Bank (and the United States) hope policies such as these will encourage both you and your financial institution to take on higher-risk foreign markets.

Your menu options at Ex-Im are the following:

Small-Business Policy: This multibuyer policy requires that you insure all your export credit sales with Ex-Im; it’s designed to free you from the “first-loss” deductible of most commercial policies. To take advantage, you must have an export credit sales volume of less than $5 million in the past three years before application, your company must qualify as a small business under the Small Business Administration’s definition of the term and you must have been in business at least one year with a positive net worth. How do you find out if you qualify? Call the SBA’s Office of Size Standards at (800) 827-5722, or check its website.

Umbrella Policy: This policy boasts the same coverage and eligibility as the small-business policy above, but it allows you as an export management company or export trading company to act as an adminis­trator or intermediary between Ex-Im and your clients.

Short-Term Single-Buyer Policy: This one, which covers a single or repetitive sale, is for the exporter who doesn’t want to insure everything with Ex-Im. A special reduced premium is offered to small businesses.

Cargo Insurance

When it comes to cargo insurance, to mangle a well-known advertising maxim, “Don’t let your merchandise leave home without it.” The cost of the insurance usually runs about 1 percent of the insured value, although this varies with the type of goods and method of shipping.

What do you get for your money? Peace of mind, for one thing, as with all insurance. And, in the event of a cargo misadventure, your insurance coverage should include enough to repay you for not only lost or damaged products but for your extra time and trouble and those lost profits. You’ll want to purchase all-risk insurance, which covers your cargo against everything except man’s inhumanity to man — war, strikes, riots and civil commotion — and inherent vice in the cargo. What is vice, you ask? It refers to any sort of plague or pestilence that might attack your cargo, such as boll weevils in those gorgeous cotton blankets or E. coli on your Texas steaks.

You might also want to consider general average insurance. This protects you in the event of someone else’s cargo loss. Say the ship carrying your containers runs afoul of stormy weather. The captain decides to jettison a portion of the cargo to save the rest, and they dump somebody else’s stuff into the briny deep. Fine, you say. Not quite. According to maritime law, even though your merchandise has made it to port safe and sound, you can’t take possession until you’ve paid for your share of the loss.

Let’s look at another scenario. Say the other party in your transaction has purchased insurance — for example, the exporter who’s shipping to you CIF (cost, insurance and freight) but you’ve got a funny feeling that their coverage isn’t too reliable. Not to worry. You can purchase a contingent policy, which is about half the price of regular insurance and will serve as backup insurance in the event of a catastrophe.

As a newbie trader, your best bet will be to purchase insurance through your freight forwarder, who has a blanket policy, or directly from the air carrier. As you grow, you may wish to purchase a blanket policy of your own, which will cover you for everything you ship over the course of a year.

Avoiding Insurance Claims

Out on the high seas, your cargo may be subjected to rough and stormy weather. On the docks, it can be equally buffeted about by tough longshoremen. What can you do to help ensure your cargo doesn’t become a marine insurance claim?

1. Pack with dock loading and unloading procedures in mind.

Your cargo may be slung around (or skewered) by anything from a forklift to a sling or net, and then, if it survives that, left outdoors to rot. Often, cargo is “stored” on port decks or out on airplane cargo tarmacs, without any covering. If you’re unfamiliar with overseas port operations and don’t have the right packaging, you can lose cargo.

2. Pack to expect Mother Nature’s worst.

Container loads can shift during heavy seas and storms. Someone else’s cargo can smash into yours — or vice versa. A sea voyage may be good for a human’s health, but it can be murder on merchandise. Think heat and humidity, salt air (which is incredibly corrosive), rain and sea spray. When any or all of this gets into your containers, you can end up with rust, blistering, mold, mildew and moisture damage.

3. Pack to expect human nature’s worst.

Some people just can’t resist somebody else’s goods. Theft can be a problem, especially when containers are left on the docks for a long time. With all these potential disasters in mind, pack smart. Use adequate packaging materials; make sure your merchandise is cushioned against blows. Waterproof everything possible. Have package exteriors shrink-wrapped. Use waterproof lining on interiors. Coat exposed metal parts on machinery, for example, with grease or some other rust arrester. Use heavy strapping and seals. Discourage theft by eliminating trademarks or content descriptions on container exteriors.

 

Source: Entrepreneur

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No Comments February 21st, 2017 Latest News, Other Commercial Lines

Uber And The Freight Business: Collaborative Partner Or Disruptive Competitor?

With over 30 million users a month in 425 cities in 72 countries, some would say that Uber is fast changing the face of global road transport.

The start-up, which was founded by Travis Kalanick in 2010, has severely disrupted the taxi industry in many cities around the world. And now it seems, Kalanick, whose company is now worth a staggering $70 billion, has his eyes firmly fixed on unsettling the logistics sector by establishing a new business line, Uber Freight. In August 2016, Uber issued a statement of intent by purchasing Otto, an autonomous truck company for over $600 million.  Recently, in an interview given to The Economist, Uber estimated that it could draw “20 percent of its future profits from trucking.”

So how exactly does Uber plan to turn the global freight business on its head? What are its aspirations? Details are sketchy and opaque at present. On contacting Uber’s media relations team, a spokesperson would only confirmed that it “didn’t have anything more to share on this subject at the moment,” but promised to reach out in the future when it did. But while Uber’s communications team chooses to remain tight-lipped, Kalanick has been fairly bullish about his company’s ambitions.

“Uber is definitely “getting into the trucking business,” Kalanick told German-owned online newspaper, Business Insider late last year.

Since giving the interview, according to Business Insider, Otto has begun advertising vacancies in both Illinois and California, which many recognize as the heartland of the U.S. logistics brokerage. And Eric Berdinis, a senior product manager for Uber Freight, has gone even further.

In October last year, Berdinis told Business Insider, “Uber’s aim is not just to create, develop and engineer self-driving truck apps that freight operators could buy and use, but to build a marketplace that would allow self-driving trucks to flourish.”

So, what will this new marketplace look like? More important, what are the unique selling points – the differentiators – that Uber believes sets it apart from traditional freight models? At the heart of its offering, says Business Insider, is a leading-edge freight app, not too dissimilar from its ride-sharing platform, which Uber hopes will enable shippers to connect to trucks in real time, thus eliminating middlemen, such as brokers altogether.

But with brokers earning as much as 20 percent in commission, some say, in theory at least,  that the new model that Uber is championing, in which the fee paid to Uber by the shippers is determined by supply and demand, could spell danger for the brokerage industry.

While only time will tell if Uber’s Freight offering is successful, it has a longer term vision in mind, seeing Uber Freight as a staging-post for mass autonomous truck take-up. As part of its blueprint, it plans to reach out to carriers and shippers with a symbiotic blueprint. In return for granting early adopters access to its technology platform, Uber hopes to benefit by collecting advanced driving data to feed its algorithms, which it sees as a stepping-stone to automation.

However, while Uber has made no secret of that fact that its ultimate goal is automated fleets, it stressed to Business Insider that “self-driving vehicles won’t be substitutes for human drivers in all situations.” But, for many in the industry, Uber’s masterplan raises some fundamental questions. Namely, can Uber, with its fledging autonomous freight business, really compete with established freight, haulage and logistics operators? Many have not only spent decades perfecting their service.

Many startups seeking to build trucking services have already tried and failed. Take Cargomatic, for example. In 2013, the California startup began to develop a real-time app, linking shippers to truckers and, more important, the available space in their trucks. While in theory the app made sense, in reality, according to Business Insider, only around 10 percent of the company’s business was generated through the platform. Perhaps, most tellingly, was Business Insider’s observation that the Cargomatic’s USP – the flow of real-time data between trucker, load and shipper – did not actually exist. Instead, information was being inputted manually and there was no real-time integration.

Five other match-loading startups, Convoy and CargoX, Transfix, CargoChief and TruckerPath are still attempting to blaze a trail, but Jonathan Wichmann, who worked as a consultant for Maersk for two years, says that the jury is still out as to whether startups can truly disrupt traditional markets. In an article written by Peter Tirschwell, a senior director of content within the IHS Maritime and Trade Group, Wichmann said that “the logistics business is not easy on the startups. There’s a reluctance among the big players to change their business models.”

But, it is a view that Evan Armstrong, the president of global third-party supply chain market research firm Armstrong & Associates, Inc., only partially agrees with.  There is very little that Armstrong does not know about transport, third-party logistics services and trailblazing startups seeking to corner the market for that matter.

In a recent conversation, Armstrong, whose market research firm recently produced a report titled “Digital Freight Matching – Capturing Technology-Based Efficiencies in the Trucking Industry,” related : “We carried out an in-depth analysis of the 27 digital freight matching companies that currently operate in this space. In short, our research revealed that while the startups were offering a high-degree of innovation, it still fell short of actually being able to solve many of the real-world challenges that the industry faces day-in and day-out. For example, while many of these apps are beneficial to the industry, in the way they harness real-time time data to accurately match a shipment to a carrier, or pinpoint truck stops; however, the transport sector is more complex than simple passenger ride-hailing. For example, there are different modes and equipment types, and no algorithm currently exists which neatly ties this industry together. If, for instance, you have a 2,000 kilo shipment destined for La Guardia Airport in New York, and the truck breaks down, the shipment cannot walk out of the truck and find another one. A reputable replacement carrier that can cover the load would need to be found quickly. At this point in time, human intervention is required to accomplish this exception handling.”

Armstrong continues, “So, it’s not that large third-party logistics providers such as C. H. Robinson and DB Schenker are not interested. They are. In June 2016, for instance, DB Schenker struck a deal with online freight platform, UShip Inc. to connect shippers with truckers online in Europe.”

However, Armstrong, who recently presented his findings at a roundtable logistics seminar at MIT, doesn’t believe any of these startups, Uber included, will be successful in disrupting the highly organic and innovative model that already exists.

“When we read the headlines about Uber Freight, it is easy to forget that multi-billion dollar, third-party logistics providers such as C.H Robinson, Coyote, TQL, XPO Logistics, DHL Supply Chain, and DB Schenker are already very efficient at managing transportation for customers. They have more carrier capacity and network scale, which drive superior pricing and operational performance, making them more competitive than any startup. “

Armstrong also thinks that industry-leading load board operations, such as DAT and Internet TruckStop, which help match million loads to carriers via their powerful applications, and freight trading platforms, like the Transport Exchange Group, which helps its 4,500+ member companies to reduce dead mileage and empty legs through several innovative online exchanges, also could make it very difficult for companies like Uber to flourish in the future.

“They have already developed integrated desktop and mobile applications for matching loads to carriers. The real-time technology has been programmed to understand the ‘load-matching’ requirements of shippers, brokers and carriers who operate in this highly nuanced logistics landscape. In addition, they have information on carrier regulatory compliance as well. Therefore, the software carries real-time reviews of carriers’ capabilities and insurance details, plus real-time updates when the load has been dispatched. The large scale of this existing visibility and collaboration is very hard to beat.”

So, does Armstrong see a future for Uber Freight?

“I don’t believe it can flourish as a company championing one stand-alone app. If it wants to grow, it will have to adopt a flexible and collaborative approach to the wider industry. Second, it will need to recruit world-class management staff who understand every aspect of the industry. And third, Uber Freight must put in place a transportation management/freight brokerage operation to support its application and allow it to ‘work out’ any transportation exceptions which may happen en route. While I don’t see it as being a threat to established players. Armstrong & Associates estimates the U.S. domestic transportation management third-party logistics sector to be worth $60 billion and its overall market potential is an estimated $380 billion, so there’s space for everyone to grow.”

But for anyone still fearing for the future, perhaps Armstrong’s telling anecdote will help provide some reassurance and prevent any more sleepless nights.

Recounts Armstrong, “I recently participated in a roundtable discussion at MIT which was centered on how Digital Freight Matching startups like Uber Freight were impacting the industry. In the room were over 25 experts from 3PLs and large shippers. While there was some interest in next generation freight matching apps, the discussion of apps got overtaken by shippers discussing Electronic Data Interchange, which is a problem that even a flashy app can’t fix.”

 

Source: SDC Executive

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No Comments February 14th, 2017 Commercial Property, Latest News, Storm Preparation

5 Business Insurance Gaps To Patch Before Disaster Strikes

From a family-owned winery to a growing startup in Silicon Valley, it can be difficult enough for a company to keep up with the daily demands of running a business, let alone remember to update their insurance.

As a result, businesses tend to overlook certain areas of insurance coverage. The beginning of the year is a great time to review your policy and ensure your business is protected. As those policies are reviewed, here are five things for business owners to consider:

1. Business Income Coverage

Should something happen to your business, you may think you’ll close up shop for only a week or two. Unfortunately, business owners tend to overlook or underinsure for this type of protection. While property insurance covers the physical damage to a structure, business income coverage covers the additional costs caused by a business interruption. The coverage is designed to be applicable for all businesses, in order to put a business back in similar financial position prior to the incident.

For example, consider natural disasters, such as wildfires or severe winter storms. Monterey County witnessed this last summer with the devastating Soberanes fire, cited as the most expensive wildfire in United States history. Powerful winter storms have flooded the region already this winter while heavy snow hit the Sierra Nevada and triggered an avalanche just west of Lake Tahoe. And that’s just the short list.

When damage occurs from these instances, reconstruction or repairs can take much longer than expected due to stretched resources. Your business needs to be covered for that loss of time and lack of income. Consider permit acquisition, municipal building inspections, and supply and contractor availability. This must all be considered, when insuring for loss of income.

2. Building And Ordinance Coverage

Business owners who own and operate older buildings, this one is for you. While it’s easy to underinsure or disregard this coverage, it’s a good idea to reconsider. Depending on the age of your building, municipal building codes can require extensive updates to an entire building even if only a portion is damaged. For the best protection, and to avoid additional out-of-pocket expenses to rebuild, you should add the cost of updating the entire building when you purchase insurance.

3. Umbrella Coverage

Business owners should consider umbrella liability coverage to add an extra layer of protection. The umbrella of liability is essentially a safety net in the event of a large claim and when your existing policies require extra limits to cover the unforeseen costs. Usually for only a fraction of the cost of the package or auto policy, you can extend their liability coverage dramatically by adding this. The coverage provides extra protection, and can be tailored to the needs of different business types.

4. Business Name Change Or Reorganization

When a business undergoes a name change, rebrand or reorganization, it’s important to update the insurance policy to reflect those changes. For example, what if your company transitioned into a limited-liability corporation? Insurance updates will ensure that entity is included for liability coverage and that any checks issued to cover damages are made out to the correct entity. Otherwise, there could be a significant delay in your benefit provisions.

5. Review Your Policy Ahead Of Each Renewal

A best practice for business owners is to review and renew their insurance policy 90 days prior to the start of the next term. Companies should have an established process in place, and maintain a strong relationship with their insurance agent to ensure their policies are updated. The agent should understand the nuances of what makes your business tick and what you need to protect it.

As with any type of insurance, business insurance is there to protect your business for the unexpected. Work with an agent who knows your community and industry, someone who emphasizes personalized, local-decision making and expertise. By doing this, you can have the confidence to take on the challenges of your daily business and hopefully — with more peace of mind.

 

Source: North Bay Business Journals

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No Comments February 7th, 2017 Commercial Property, Latest News

Will Insurance Cover $750 Million Tilting Tower?

Nina Agabian, a retired director of research in global health science at the University of California, bought a 29th-floor apartment in San Francisco’s Millennium Tower in 2010.

“It was supposed to be a wonderful building,” Agabian said in January, sitting in a leather chair in the building’s vast, low-lit, owner’s-club level. “For many of us, who left our business lives to start our older years, this had become a nice, comfortable place.”

San Francisco’s Millennium Tower

The building, which opened in 2008 and was touted as the most luxurious tower in San Francisco, became a beacon of the city’s burgeoning wealth, attracting tech millionaires, venture capitalists, and even the San Francisco 49ers retired quarterback Joe Montana.

The 58-story tower’s shine faded on May 10, 2016, when Agabian attended a homeowners association meeting and was informed that the building had sunk 16 inches into the earth and tilted over 15 inches at its tip and two inches at the base, according to suits filed by residents and the city of San Francisco.

“You can imagine how distressed we were to know that, for one, our lifetime investment and savings are at risk,” Agabian said. “And we have no idea whether or not there’s a fix to it, and if there is a fix to it, what it will entail.”

The building, meanwhile, continues to sink. As Agabian and more than 20 other residents file multiple lawsuits against the building’s developer, the city of San Francisco, and the Transbay Joint Powers Authority, another, potentially more ominous development has emerged. Two people with knowledge of Millennium Partners’ liability policy say the developer is insured to cover some $100 million in damages caused by settlement or construction defects; the policy is split among several insurers.

Ancillary policies held by the building’s architect, structural engineer, and general contractor are worth another $50 million to $100 million, according to one of the people. Any legal fees incurred by the policyholders could be deducted from their policies. But according to experts, fixing whatever is causing the building to tilt could cost far more than that amount.

Further adding to residents’ woes is that it’s not even clear if coverage will be available under the liability policy: It might have been voided by the flaws in the building.

“I don’t foresee a scenario where anyone writes a check under any policy,” said Sarah Sherman, the U.S. property practice leader at JLT Specialty USA, an insurance broker in San Francisco. “There’s no way to avoid litigation at this point.”

It’s possible, in other words, that homeowners already under water on their damaged real estate investments may have to cover millions in costs to repair the building. And that’s not even the extreme worst-case scenario—in 1989, some buildings on loose San Francisco soil collapsed during an earthquake. The city has asked Millennium Partners for information on how much the building can further settle without compromising the building’s stability and how it will perform during a quake. In a letter dated January 13, 2017, MP declined to supply the city with that data, citing ongoing litigation and mediation.

“I don’t want to be in a situation in two years where we look back and think we really could have done something to prevent a terrible situation,” warned San Francisco Superior Court Judge Curtis Karnow at a January 13. If such a terrible situation occurs, there is little clarity as to who would pay for the damage.

“Let’s say there’s an earthquake and there’s major damage, the insurer will fight like hell not to pay the claim,” Sherman said. “I would not be pleased if I was in that building.”

Surrounding the building is the $1.1 billion new Salesforce Tower, the new condominium tower 181 Fremont, and a neighborhood bar. While the best method of fixing the building’s tilt won’t be known until an engineering firm hired by the developer completes its investigation— and perhaps not even then— the cost is certain to be millions, and perhaps hundreds of millions, of dollars.

“Conservatively, I think it’s fair to say that you’re at least in the tens of millions of dollars,” said Joe Maffei, who noted that his San-Francisco-based structural engineering firm is not associated with project. “Stopping the settling would be very expensive and then you have the added expense of actually evening out the building’s base. A recent study released by the city which examined the fire safety, disability access, plumbing and electricity, declared the building remains safe for occupancy at this time.”

Beyond their lawsuits, the residents can’t hope for recourse from the developer.

“Millennium Partners doesn’t own the building,” said P.J. Johnston, a spokesman for the developer. “Even if there was an immediate and agreed upon measure to take, the building is owned by homeowners. Millennium Partners cannot just move forward with any set of measures” to fix the building.”

Castle In The Sand 

Since the mid-19th century, the city of San Francisco has expanded its shoreline by dumping debris into its coastal marshlands and transferring sand and clay from the ocean bed onto land. Much of downtown San Francisco, including parts of Mission Street, where Millennium Tower was built, is constructed on this loose, wet soil.

“The city’s proximity to two major faults—the San Andreas and the Hayward—could render that same ground unstable in an earthquake,” said Keith Knudsen, the deputy director of the U.S. Geological Survey’s Earthquake Science Center. “The soft material tends to amplify the parts of the shaking—the earthquake’s wavelengths—which are damaging to buildings.”

The engineers who designed Millennium Tower were aware that the building sat on unstable soil and constructed the 645-foot tower’s base so it would behave “dynamically” in the event of an earthquake, at least partially withstanding the shocks on the unstable ground. To achieve this effect, they chose a support known as “friction piles,” a series of rods bored into the ground that would help stabilize the building as the earth rocked. While other buildings in the area were built with similar foundations (and still others use pilings drilled all the way down to firmer bedrock), the majority of the skyscrapers in downtown San Francisco are built with steel frames. Millennium Tower, in contrast, is made of vastly heavier concrete.

A decade after the first piles were drilled, walls in the underground parking garage have begun to crack due to the shifting, marble floors in the lobby have begun to buckle, and residents have complained that the ventilation units have begun to fail, raising questions about when the tilt will stop, or if it will stop at all.

Sold Out

Sales for Millennium Tower started around November 2007. By 2013 the building was fully sold for a reported total of $750 million; an April 5, 2013 article in the San Francisco Business Times, which Millennium Partners posted on its website, quoted the building’s costs at $600 million.

In the same story, Richard Baumert, a partner at the company, sounded a triumphant note. “We saw it through and in the end our plan and vision for the project were validated,” he said. The building’s appeal, he continued, was “not as much about the physical structure as the residential experience.”

The article also quoted Gregg Lynn, a broker at Sotheby’s International Realty who reportedly represented about a dozen Millennium Tower buyers. “The situation we are facing is that everybody wants to buy into that building, and they are kicking themselves that they didn’t when they had the chance,” he said. “People who sell now are expecting to cash out with major profits.”

The golden era for the Millennium Tower would last less than three years.

Problems Emerge

No one is quite sure why the building began to sink and tilt. It could be a flaw in the structure, which would make it Millennium Partners’ responsibility, according to the building residents, or the result of the nearby construction of a major transit station, which would make it at least partially the responsibility of the station’s builder. Possibly, it could be some combination of the two.

A class-action by 20 building residents, led by their fellow resident, patent litigator Jerry Dodson, alleges that Millennium Partners knew the building had sunk 8.3 inches into the ground by 2009, the year after it was completed.

“There’s the possibility that when they poured [the concrete base] in 2006-07, that it immediately sank,” Dodson said in an interview in his living room in the tower, which is filled with art-deco vases and sculptures and overlooks San Francisco Bay. “It’s extremely unlikely in my mind that as we began 2009 that it immediately tilted 6 inches to the northwest. What’s more likely is they poured the slab on unstable soil.”

Millennium Partners denies responsibility for the tilting.

“At the time of its completion in 2008 and throughout its entire sales process, Millennium Tower had settled within predicted, safe ranges,” said Johnston, the developer’s spokesman.

Dodson’s 20 homeowners, who collectively paid some $75 million for their condos, claim that the developer hid the building’s faulty structure from prospective buyers and that the city’s administrators joined in the alleged fraud by helping conceal the tower’s engineering flaws as early as February 2009 by signing mutual nondisclosure agreements. The two colluded over half a decade to keep Millennium Tower’s design defects secret to allow the city to move forward on its own construction in the neighborhood, according to Dodson’s complaint. The city and Millennium Tower deny these allegations

Another target of Dodson’s suit is the Transbay Joint Powers Authority (TJPA), which is building what it calls a “Grand Central Station of the West” next door to Millennium Tower. Part of the development, which also includes towers and below-ground rail tunnels in the soft soil, could have undermined Millennium Tower’s foundation, causing the building to tilt, according to Dodson’s complaint. If TJPA is found to be at fault, San Francisco taxpayers could be obliged to fund the tower’s repair. The developer blames TJPA for the tilt. The TJPA has denied the allegations.

The TJPA attempted to dismiss one lawsuit Millennium Tower residents filed by claiming that the tower was still structurally secure. In a move critics attributed to the city’s desire to absolve itself of any blame surrounding the project, the San Francisco Attorney’s office subsequently sued Millennium Partners on behalf of TJPA.

Regardless of who is legally responsible, all parties have finally agreed that there is, in fact, a problem. A report commissioned by Millennium Partners and published in 2014 by the engineering firm Simpson Gumpertz & Heger determined that the building’s support columns and foundation were experiencing “significant stress.”

Nevertheless, the report concluded: “With the exception of the foundation,” it read, “none of the settlement-related demands on these elements are at levels that indicate impending failure.”

The building’s supports might be cracking, in other words, but—as of a few years ago, at least—it was unlikely to collapse.

Potential Solutions

Recently, Millennium Partners entered private mediation with building residents, with the goal of halting environmental damage and to “stop any undue further settlement of the building,” according to the developer’s spokesman. As far as Millennium Partners is concerned, the culprit is the TJPA project next door.

“We need to ensure that the damage being caused by our immediate neighbors, TJPA, is stopped,” the developer’s spokesman added.

The Oakland firm Sage Engineers has been hired by Millennium Partners to investigate the foundation, but as yet the firm hasn’t offered potential solutions. Inspiration might come from the 1998 case of the Mandalay Bay hotel-casino in Las Vegas, which sank almost 19 inches as its weight displaced water from an underlying aquifer. The solution was to drill 536 metal cylinders underneath the casino’s 43-story tower, which stabilized the edifice at the cost of between $8 million and $10 million, according to a 2000 article in the Las Vegas Sun.

Several engineers and developers contacted by Bloomberg suggested a similar methodology—the insertion of slender, 5-inch to 12-inch supports called “micropiles” beneath Millennium Tower’s existing foundation—could be effective.

“Engineers might have to go down to the bottom of the garage and drill through the mass slab,” said Jake Albini, the senior manager of real estate development at Jay Paul Co., which is developing a 70-floor, mixed-use skyscraper neighboring Millennium Tower. “It’s not an easy task, but nothing’s impossible.”

But Steven Sanders, the president of Sage Engineers, cautioned against jumping to conclusions. “You have to be very careful about these different fixes, They’re very dependent on soil conditions and building types. Millennium Tower is fairly unique. It may be tough to really go down the road and identify possibilities based on historical knowledge. I think it would be hard and probably dangerous to say, This is done here, why don’t you do the same thing there?”

Resale Quagmire 

Any fix to the building will almost certainly take several years, and the lawsuits over who will pay for it could take even longer. In the meantime, residents of the building remain in limbo.

“There haven’t been a lot of resales in the building since all of this news came out,” said Gregg Lynn, the Sotheby’s broker. “There’s still no clarity about what it takes to fix or stop the problem.”

“We can’t sell, we can’t rent, we can’t move,” said Agabian, the retired scientist. “I’d sell it in a second if I got fair market value for it.” She corrected herself: “Well, there’s not a fair market for it, because now the fair market for it is zero.”

Lynn recently sold deceased venture capitalist Tom Perkins’s Millennium Tower penthouse for $13 million but noted that it was purchased by an existing resident and was a unique transaction.

“The buyer was aggressively convinced that this problem is solvable and felt that the apartment was a bargain,” Lynn said

Perkins purchased the apartment for $9.4 million and reportedly spent another $9 million renovating it. Other residents are stuck.

“I’m getting a lot of calls from homeowners in the building who want to make plans to list their places once the settlement solution is announced,” Lynn said, adding that he had close to 25 clients in the building. “What we’re waiting for is the public announcement for what the solution to the structural concerns might be and how it’s going to be paid for. It’s the latter question that could be the hardest to answer. The second question’s answer is going to be mired in litigation for five to 10 years, But from what I hear from people at the top, this is very fixable—we just don’t know when the solution is going to be announced. That’s fine for residents who want to stay put—people are “absolutely passionate about it, the service there is extraordinary, and the HOA is extremely well-run but there are many others who are hoping to move yet are unwilling to sell at fire-sale prices, I can’t tell you what percentage down the values are because nothing is trading.”

Currently, just three apartments are on the market: apartment 4E, which has 1,136 square feet and is listed at $1.299 million, or $1,143 a square foot; it last sold in 2013 for $915,000. There’s also penthouse 1A, which is 2,706 square feet and is listed at $8.995 million, or $3,324 a square foot; it’s been on the market since July and last sold in 2014 for $3 million. The final apartment, 14C, is a one-bedroom, one-bathroom space with 833 square feet. It’s on the market for $1.08 million, or $1,296 per square foot, and was listed in December. It last sold for $790,000 in 2012.

These can be compared with other new-construction luxury towers, such as the residences at the St. Regis, the Four Seasons, and 181 Fremont, which is still under construction. These properties, whose price per square foot range from about $1,400 to more than $3,000, continue to sell—condos sold at the Four Seasons in October for $11.7 million, at the new development One Rincon Hill for $3.7 million in November, and in the refurbished loft development 6 Mint Plaza for $2.5 million in December, according to Lynn’s 2016 San Francisco Condo Report—while Millennium Tower residents have been forced to wait on the sidelines, fretting about whether they’re sitting on significant assets or a stratospheric liability.

“Everyone at this building is forced to bring the players to the table,” said Agabian. “No one has stepped up, not Transbay, nor the city, nor Millennium Partners has done anything to fix this, and we’re left holding the bag of you-know-what.”

 

Source: Insurance Business

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