Lawsuit, other delays interrupt ‘greener-than-green’ River Market apartment construction

Construction halted on $62 million River Market apartment project

The general contractor has stopped work and sued the the developer for $969,501 for work completed this spring. The Second and Delaware apartment project in the River Market is billed as a greener-than-green development.
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The general contractor has stopped work and sued the the developer for $969,501 for work completed this spring. The Second and Delaware apartment project in the River Market is billed as a greener-than-green development.

The internationally touted apartment project on the edge of Kansas City’s River Market was supposed to be open by now.

Instead, the $62 million “passive house” development, promising better energy efficiency than the highest LEED-certified standards, remains less than half done, and construction is stalled.

The general contractor stopped work on the 276-unit property named Second and Delaware in June and sued the developer, alleging $969,501 in unpaid construction bills.

A new general contractor may be ready to step in by the end of July. But prospective tenants — the project already is 15 percent leased — now are being told to aim for a move-in date in mid-2018.

So what’s ahead for the ambitious project, the largest energy-saving multifamily building of its kind in the nation? And how did it end up behind schedule and in Jackson County Circuit Court?

Developer Jonathan Arnold, principal with Arnold Development Group LLC, went public in May 2014 with plans for the greener-than-green development just northwest of the River Market. It was to be built with an “integrated project delivery” system that was to expedite the construction process with all the subcontractors at the planning table from the beginning along with the architects and general contractor.

By September 2015, Arnold had the “lean building” construction team in place and was working on financing. At the time, he expected tenants to move in by February 2017.

But it took months of financial deals, including getting approvals for tax-exempt revenue bonds; property tax abatement; low-income housing tax credits for part of the project; equity investment from Affordable Housing, a subsidiary of Warren Buffett’s holding company, Berkshire Hathaway; and a fixed-rate, government-insured mortage loan, to move the project along.

When earth moving finally began in January 2016, the occupancy target was pushed to May 2017.

That clearly didn’t happen.

General contractor Haren & Laughlin Construction Co. Inc. stopped work on the project in June and petitioned the court to force payment on its bill submitted in May. It named Arnold Development Group and Second and Delaware LLC as defendants.

On June 16, the day the lawsuit was filed, Morningstar Communications, publicist for Haren & Laughlin, which uses the HarenLaughlin brand name, pitched an interview to The Kansas City Star and The Kansas City Business Journal.

“Unfortunately, several issues have arisen with the Second + Delaware project stemming from the Integrated Project Delivery system developed by the owner prior to bringing HarenLaughlin on board,” wrote publicist Sheri Johnson. “If you would like to talk to Wells Haren or Jeff Wasinger, I’d be happy to arrange a good time.”

That offer quickly disappeared.

It remains unclear exactly what issues developed before HarenLaughlin came on board; the general contractor was part of the originally assembled lean building team.

“We’re in a dispute with the owner, and we’re looking to resolve it,” was all that Wells Haren said. “Before the lawsuit was filed, we each wanted to talk about it, but now we’ve agreed to not publicize much about it while we’re in litigation.”

Haren & Laughlin’s attorney, Scott Long, also said that he had nothing to add.

The publicist apologized for making the interview offer. “I didn’t anticipate this would happen or I wouldn’t have reached out,” Johnson later said. She said that she no longer could talk because the matter was in litigation.

Arnold also skirted direct comment about the lawsuit, but he agreed to speak about the project so far and what lies ahead.

“We have retained The Boldt Company out of Appleton, Wis., to develop a plan to complete the project,” Arnold said. “The company is a national leader in LEED construction, and its track record is proven on taking on projects that have gotten off schedule.”

Arnold said he wasn’t really worried until April this year that Second and Delaware was behind schedule. Uncontrollable weather-related delays had flooded the excavation site several times last year. But something else may have contributed to the delays.

Second and Delaware’s energy efficiency design calls for 16-inch-thick walls — actually two layers of poured concrete sandwiching an insulation layer. The design made the concrete contractor a key team member.

For reasons Arnold said he can’t explain, the original concrete contractors that participated in the planning process, John Rohrer Contractors and KAT Excavation Inc., never started on the project. Arnold said HarenLaughlin hired George J. Shaw Construction Co., Three Feathers Construction & Sales Inc. and Dun-Par Engineered Form Co. to do the concrete work.

“That was out of our realm of control,” Arnold said. “In the world of construction, the general contractor is responsible for the ‘means and methods.’”

He said he believes quality work has been done so far, and he praised the multipart financing deals for requiring “checks and balances” on construction progress.

“With loans guaranteed by the U.S. Department of Housing and Urban Development and the tax revenue bonds, we were provided with long-term, highly regulated financing designed to prevent losses to taxpayers and bond investors,” Arnold said.

Under those financing terms, the general contractor submits monthly payment applications to the architect of record who has the fiduciary responsibility to decide if the necessary amount of work was done to justify the bill.

In May the architect, Jeffrey White at Direct Design Enterprises in Pawling, N.Y., “made the decision that not enough work had been completed to approve HarenLaughlin’s payment application,” Arnold said.

When told the requested payment of $969,501 wouldn’t be made, HarenLaughlin ended work on the project.

Attorney Susan McGreevy, who represents Second and Delaware and Arnold Development Group, said that neither entity had been served with the lawsuit yet, and her clients had no counterclaim to date.

“We’ve just hired someone to tell us how much it will cost to finish the project,” McGreevy said in reference to the Boldt company.

Arnold said his team was taking over agreements to control site security and keep the construction crane on site rather than incurring take-down and put-back costs. One of the Second and Delaware buildings has risen to a four-floor height; another has only the ground floor poured.

“We’ve met with the tenants who’ve signed leases so far, and all of them are planning to stick with the project,” Arnold said, saying that most are attracted by the environmentally friendly features such as the landscaped roofs, an inner courtyard the size of a soccer field or riverfront views.

“I hope people see the project as a bright shining emblem of hope, a light for future construction, and not one that is characterized by small disagreements,” Arnold said. “This will still be the nation’s first multifamily building of its type.”

Anyone interested in seeing what the proposed project looks like can visit the leasing office at 304 Delaware and don a virtual reality headset for a walk-through, or go to the Second and Delaware website to view renderings.

Diane Stafford: 816-234-4359, @kcstarstafford