nightmare scenario for lofts at 7 East 13 Street, as New School construction allegedly destroys building

another small building risk, embodied
What if you paid $8mm for two Manhattan lofts in a new 7-unit condo conversion in 2007 and with a 16-story university building under construction next door, found that the building was settling and your walls were cracking and pulling away from the floors? In the case of the owners of those units at 7 East 13 Street, The Real Deal has the story about the lawsuit they brought on January 30 against The New School, the Durst Organization, architects Skidmore Owings & Merrill, construction manager Tishman Construction and the unidentified project engineer involved in The New School’s 16-story new building on Fifth Avenue between 14th and 13th Streets (“354,000 square feet of space … including new classrooms, an 800-seat auditorium, a library and a 612-bed dormitory”), on which excavation began in December 2010 and construction is expected to be complete in fall 2013.

The allegations in the lawsuit are a laundry list of heavily soiled garments (per TRD):

from uneven and cracked floors, to distorted and jammed metal doorframes, bathroom shower stalls that have pulled apart, crumbling tile grout, buckling interior doors and windows that no longer close properly, and misaligned cabinetry, among other things.

Will the lofts at 7 East 13 Street be habitable when The New School opens the new building?

The plaintiffs Michael and Glorimar O’Hara bought the “2,458 sq ft” #2 and the “3,687 sq ft” #3 on January 9, 2007, paying $8,212,185 for the pair. (Sadly there is no loft #2 description or floor plans for either loft on StreetEasy and out data-base has only a bit more information; it is hard to envision how these two units fit together, but #2 is a duplex with a private garden and #3 is a triplex with private roof space.) Per Property Shark, together these two units own 24.49% of the building common interest.

risks are shared, but only by a few
I will come back to the specific allegations of damage to the lofts adjoining the construction site, but I want first to focus on this scenario as only among the most horrible things that can happen in a small loft building. I touched on the most likely kind of risk owners in small buildings face in my coverage of the epic unpleasantness widely reported in a Soho loft, April 12, 2011, 95 Greene Street, deadbeat condo owners, and small building risk. I outlined the general typical problem there, with a doff of the cap to other typical potential problems in small buildings:

when I talk to buyers who would consider lofts in small buildings about the different kind of risks in owning in a small building (coop or condo), I don’t mean to include 26-unit buildings such as 95 Greene Street. I mean buildings small enough that one’s share of a sudden repair bill (roof, new boiler, elevator) is relatively high, so a 5% share in a 20-unit building is not (generally) significant, but a 20% share in a 5-unit building is a different scale of risk. I also mean that one’s share of a cash short-fall from the bad luck to have an owner stop paying maintenance or common charges is of a different scale in a 5-unit building than in a 20-unit building. (Put aside for the moment that small buildings may be more likely to stint on capital improvement and repairs, or may have unaudited financials; either of those topics would digress from the main point here.)

The main point here … is that 95 Greene Street’s cash flow problem is not the result of the bad luck to have an owner stop paying common charges, it is that the single owner of four units comprising 20% common interest has stopped paying common charges. That’s a concentration problem, not a small building problem.

The parallel problem is not what is happening at 13 East 7 Street, of course. If it were, the fellow unit owners would be concerned because the O’Haras contribute nearly 25% of the common charges, so if they stopped paying the remaining unit owners would have a big cash-flow hole to fill.

The problem at 7 East 13 Street is that it is “small enough that one’s share of a sudden repair bill (roof, new boiler, elevator) is relatively high”, whether you are the O’Haras at 24.49% or the other owners who split the remaining 75% interest.

The fact that the O’Haras own the largest piece of the building suggests why they have sued first, without the condo board or any other unit owners (as of now). Obviously, there have been many discussions within the condo about the construction next door and conditions at 7 East 13 Street, but for reasons so far unknown there are no other plaintiffs (yet). Unless the O’Haras are delusional (not at all likely, but these are still formally allegations), the other unit owners will have noticed cracks in their walls, doors and windows that no longer close, buckling floors.

Maybe the O’Haras sued first because they have the most to lose; perhaps the other owners are still in the discuss-and-consider stage. But remember: this was a new luxury residential loft condo conversion completed in 2006, one that must have been gutted to the exterior walls and floor plates. In other words, this should have been high quality craft and materials, with shower stalls that should not, by themselves, pull apart.

a prediction about how this ugly litigation can get uglier
One way this could go is that the New School team is reasonable and is persuaded that the cause of the 7 East 13 Street structural problems are caused by their project. Engineers confer, the loft building is shored up, and at an appropriate time in the construction process, remediation measures restore the lofts to their former glory. There are insurance companies involved, of course, so this is by no means guaranteed to go down a reasonable path, but the fact that The New School has a neighborhood reputation to maintain may help.

But (cynic that I am) I can see this going down a very different path, in which the New School team asserts that the O’Haras problems are caused by shoddy work by their developer and construction team. And that their work has proceeded in a professional and safe manner throughout. Perhaps they even have tests and data to support that position. Add dueling engineers to a litigation that already has dueling attorneys and insurance companies, and this could easily get ugly.

The unfortunate dynamic is that the New School team has deeper pockets than even the $8mm loft owing O’Haras and their unit owners, and that the pain of continued lack of resolution falls entirely on the loft residents. Construction firms have been known to play hardball. D’oh!

8 million stories
Not all of the eight million stories in the naked city involve real estate, and even fewer involve building construction. But I touched on a similar issue way back in Year One of Manhattan Loft Guy, in my Nov. 1, 2006, will Zinc sink the nabe? / trembles & tribulations reported in Tribeca Trib, dealing with (wait for it) cracks in a loft building adjoining a construction site in northwest Tribeca.

I don’t know exactly how that movie ended, but the Manhattan loft on the 5th floor of 472 Greenwich Street (the building under attack by Zinc) traded last year, presumably with no structural problems uncovered during due diligence.

It would be nice if the New School team fixed the problems at 7 East 13 Street as quickly as possible.

© Sandy Mattingly 2012