SF's Millennium Tower deemed safe, for now, as legal issues rise

SF's Millennium Tower deemed safe, for now, as legal issues rise

Damage detected: City inspectors detected stress on cable raceways and evidence of water intrusion after evaluating Millennium Tower late last year and in early January. 

by JOHN GREGERSON | February 13, 2017

Residents of Millennium Tower, once the height of luxury high-rise living in San Francisco, can exhale—at least for now.

Although the nine-year-old, 58-story structure has sunk 16 inches into its footprint and is tilting two inches at its base, city inspectors who performed evaluations on December 2, 2016, and January 11 reported, “There was no evidence of life-safety concerns. The building is safe to occupy at this time.” The inspection entailed evaluation of the building's electrical, plumbing, and life-safety systems, among other components.

However, the resulting report indicates “visual evidence of the effect of settlement on some electrical wiring systems,” including stress on cable raceways. Additionally, “evidence of water intrusion” on a basement level is “affecting installed electrical wiring and electrical components.”

Bottom line: Conditions “represent a need for an engineering solution to the building settlement issues,” the report concludes.

Celebrity power: The tower's homeowners associaton has hired famed attorney Daniel Petrocelli, a partner with Los Angeles-based law firm O'Melveny & Myers, for a forthcoming case seeking financing from tower developer Millennium Partners and other parties for repairs to the tower. In addition to representing President Trump in litigation involving Trump University, Petrocelli in 1997 secured a $33.5 million wrongful death civil judgment against O.J. Simpson, on behalf of the families of murder victims Nicole Browne Simpson and Ron Goldman.

To date, no such solution has presented itself. In the meantime, building residents have engaged in dual tacks to remedy the situation, one involving mediation with the building's developer, Millennium Partners, to execute repairs, and the other a law suit against the developer, the city's Department of Building Inspection, the City Attorney, and the Transbay Joint Powers Authority (TJPA), constructor of a transit center adjacent to the building. The suit, undertaken by 24 tower residents, alleges that the defendants knew the 400-unit, $350 million tower had sunk six inches, well in excess of projections, upon completion in February 2008 and that they colluded to withhold the information from prospective buyers. In November 2016, City Attorney Dennis Herrera, named in the residents' suit, sued the developer on similar grounds.

Should the parties be found guilty of fraud, law indicates insurers can't be held liable, according to Tom O'Connell, a senior vice president with insurance broker Hub International Ltd. 

Last week, Millennium Tower's homeowners association hired Los Angeles-based celebrity lawyer Dan Petrocelli of O'Melveny & Myers to serve as lead counsel in a forthcoming lawsuit seeking financing from Millennium Partners and other parties for repairs of the tower. In addition to representing President Trump in litigation involving Trump University, Petrocelli in 1997 secured a $33.5 million wrongful death civil judgment against O.J. Simpson, on behalf of the families of murder victims Nicole Browne Simpson and Ron Goldman.

“We will proceed swiftly to secure all available legal relief from all responsible parties to assure that Millennium Tower is restored to pristine condition,” Petrocelli said in a statement. “The homeowners association and its residents who purchased the units are the innocent victims, and the people who built this building and were involved in the project—as well as others who contributed to its problems—all have to pay their fair share.” 

Plain sight: Late last year and in early January, city inspectors detected evidence of water intrusion in the basement levels of Millennium Tower.

Estimates indicate that repair costs could be in the tens of millions of dollars, if not the hundreds of millions. Millennium Partners contends it is not responsible for bankrolling repairs since the tower is owned by residents rather than the developer. However, residents maintain that Millennium Partners is nevertheless culpable for damages, since they occurred on the developer's watch.

If the association prevails, insurers will have no choice but to make good on the coverage Millennium Partners carries, says Nicholas Mullikin, a senior consultant with Hub International.

At issue are questions of potentially faulty design—specifically whether the building's foundation, a concrete slab supported by more than 900 “friction piles,” is inappropriate for the dense mud and landfill it rests upon, whether the adjacent terminal constructed by TJPA disturbed the foundation, or whether damage occurred because of a combination of the two.

Coming up short?: One theory holds that Millennium Tower's structural friction piles fall 100 feet short of bedrock, contributing to the building's destabilization. 

One theory holds that the piles fall 100 feet short of bedrock, contributing to destabilization. Most high-rises in San Francisco fall short of bedrock, though the majority of them are framed with steel. Millennium Tower, by comparison, is framed with concrete, a heavier material that may have further exacerbated problems.

Although Jack Moehle, a professor of structural engineering at the University of California-Berkeley, performed a peer review of the tower's structural system. “My interests went as far as the concrete mat,” he told San Francisco's Government Audit and Oversight Committee in late January, adding that, to his knowledge, a geotechnical engineer was not hired to peer review underlying soil conditions.

“I don't foresee a scenario where anyone writes a check under any [insurance] policy,” Sarah Sherman, a US property practice leader with insurer JLT Specialty USA, recently told Bloomberg. “There is no way to avoid litigation at this point.”

“THE PEOPLE WHO BUILT THIS BUILDING AND WERE INVOLVED IN THE PROJECT—AS WELL AS OTHERS WHO CONTRIBUTED TO ITS PROBLEMS—ALL HAVE TO PAY THEIR FAIR SHARE.”

— Daniel Petrocelli, attorney and partner, O'Melveny & Myers

A pair of individuals informed Bloomberg that Millennium Partners is insured for $100 million in damages resulting from settlement or construction defects, with coverage divided among multiple insurance companies. One of the two sources further indicated that ancillary policies among building architect Handel Architects, structural engineer DeSimone Consulting Engineers, and general contractor Webcore Builders amount to between $50 million to $100 million. Although any legal fees could be deducted from the policies, the cost of repairs could exceed coverage, experts told Bloomberg, potentially leaving property owners on the hook.

On the the other hand, “An attorney will exhaust all avenues to collect more money, over and above the amount included  in the policy,” O'Connell says.

“Problem is, no one knows the costs of damage versus the limits on the insurance policies,” Mullikin says.

Inspectors were scheduled to further evaluate Millennium Tower on February 6. It is unclear when the results of their findings will be released.

To gain a clearer picture of conditions, the city has requested that Millennium Partners determine the extent to which the building could further settle without undermining its integrity. It also has requested that the developer assess the impact of an earthquake on the building. In January, Millennium Partners refused, based on its continuing mediation and litigation involving the tower.

Patrick Shires, a geotechnical engineer hired by tower homeowners, has indicated that the tower could sink an additional 15 inches at the rate of one inch per year.

Although many unknowns surround the case, one resident told reporters that resale value of units isn't among them. The amount: $0.