Tuesday, August 12, 2008
Home Remodel Hits Bumpy Road
As head of the giant investment firm that controls ailing Chrysler, Stephen Feinberg has a fixer-upper on his hands.
As a homeowner, he's been in a similar predicament for years.
David M. Russell for The Wall Street Journal This 103-year-old building in Manhattan has been a major renovation project.A messy renovation of Mr. Feinberg's Manhattan townhouse has been a big turnaround project. Remodeling of the 103-year-old building has cost some $15 million, about triple early estimates, and dragged on for five years, nearly twice as long as expected. Mr. Feinberg -- whose net worth exceeds $1 billion, according to a Forbes magazine estimate made last year -- has missed payments, written checks that didn't clear and had liens filed on the property, say people who've worked on the project. Mr. Feinberg has said it's been "nightmarish," according to friends. And it's not over yet.
"A lot of people weren't getting paid," and the Feinbergs sometimes "wouldn't pay for their stuff unless you forced them," says Dennis Taylor, who runs a Yonkers, N.Y., storage and trucking company. He says he waited several months for overdue payments of $10,000 or more and his delivery workers sometimes demanded past-due payments when they showed up to the house with another load of furniture.
Mr. Feinberg declined to comment. Mr. Feinberg's wife, Gisela, who handled most of the project, also declined to comment. Some late payments on the project stem from "inconsistencies in billing," says Tim Price, a senior executive at Cerberus Capital Management, the hedge-fund and private-equity firm Mr. Feinberg founded in 1992. Cerberus controls Chrysler, auto-financing giant GMAC and other entities. In all, it controls $26 billion in assets.
Renovations can be nightmarish for any homeowner, and townhouses are notorious money pits. But the Feinbergs' drama is epic even by New York real-estate standards.
The neo-Georgian townhouse, a landmark building near Central Park, was designed by Henry Bacon, the architect better known for conceiving the Lincoln Memorial in Washington D.C.
The townhouse has a columned entry, five floors of living space, a home-fitness center, smoking room and sprawling roof terrace. The cellar once had a kitchen, dining room and mortuary, when the building housed a nursing home in the 1950s. City property taxes on the home are about $186,000 a year, according to the city's Department of Finance.
The publicity-shy Mr. Feinberg, 48 years old, paid $19.75 million for the house in April 2003, under a business alias. The Feinbergs generally shun society events, choosing instead to host small dinner parties at home, people close to them say. For recreation, Mr. Feinberg likes to hunt and parachute-jump.
Throughout the remodeling project, Mr. Feinberg kept a low profile. Says Margaret Kittinger, an architect whose firm helped draw up plans in 2003: "He's so private, he never even came to a meeting."
Carolina Gramm, an interior designer who worked on the Feinberg house for more than two years, says her marching orders were to outfit five stories of a "family-oriented" house on a "very tight budget" -- no gaudiness, and no trips to Europe to shop for furniture.
"Mr. Feinberg tends to be embarrassed by expensive things," Mr. Price says. He says reports of Mr. Feinberg's net worth are inflated because the fees top executives at Cerberus collect from the firm's investments aren't as great as outsiders estimate. That's especially true this year, as the value of Cerberus's big investments in Chrysler and GMAC have declined.
A series of construction delays, billing disputes and temper flare-ups among construction and design supervisors plagued the home-remodeling job almost from the start.
The building's structural defects were much more serious than expected, architects say. Steel beams were required to shore up some walls, and at one point water seepage halted construction for several months, says architect Kenneth Levien.
Costs "just kept escalating," Mr. Levien says. Mr. Feinberg, who originally hoped to spend about $5 million on the project, eventually "became concerned about money," Mr. Levien says.
The city's Landmarks Preservation Commission frequently was involved, denying a plan in 2004 to replace some exterior windows with French doors, saying it would "disrupt the uniformity of the historic fenestration."
The woes deepened in 2006, when several checks written on the Feinbergs' personal accounts in amounts between $15,000 and $140,000 failed to clear, according to people who worked on the project and correspondence reviewed by The Wall Street Journal.
Mr. Price says checks didn't clear because the Feinbergs were advised to hold back payments on work that missed deadlines or didn't meet standards.
As a result, contractors and others who say they weren't told about such problems simply couldn't cash or deposit their checks. The checks were re-sent and eventually cleared.
James Russo, who ran a company that provided security for the Feinberg renovation, says he got assertive last year about more than $20,000 in late payments he says he was owed.
Mr. Russo says he never heard of Mr. Feinberg, but a Google search led him to Cerberus. "I'm not going to eat this," he says he told a Cerberus representative. "The Feinberg guy stepped up and took care of the bills" last year, he says.
In January 2007, Mr. Feinberg hired an additional construction manager, Sal Bellino, of Tri-Star Construction. By then, the budget was "really out of control," Mr. Bellino says.
In April 2007, Mr. Levien -- an architect who has done work for Cerberus for a decade and who helped oversee remodeling of the firm's New York headquarters -- quit, frustrated with second-guessing of his decisions, he says.
He returned to the job two days later. "Professionals like us feel an obligation to finish," he says.
Despite complications of this job, both Mr. Levien and Mr. Bellino say they'd work with the Feinbergs again. "The first and last words out of both of their mouths are 'please' and 'thank you' " Mr. Bellino says.
Tensions still ran high, and last year, the original senior construction manager on the job, SMI Construction Management, relinquished responsibility for overseeing the project, Mr. Bellino says. SMI's chief, Steve Mark, declined to discuss specifics, but says disputes have been settled amicably.
The Feinbergs and their three daughters moved into their home in December.
Through April 2008, weather stripping was missing from the front door, windows still needed pulls and stonework was unfinished in the kitchen and foyer, according to a contractor to-do list. Fixtures in the master-bathroom were incomplete; the smoking room was missing certain brass grommets.
Two subcontractors filed liens against the property earlier this year. Peter Downs, whose company did flooring work, says there were "no complaints and no explanation" for nonpayment of work completed in mid-2007. His company was paid in June, he says, and he has filed papers asking for the lien to be removed. The other lien has also been satisfied.
"Liens, for a project like this, are part of doing business," Mr. Price says. Any remaining payments on the project will be covered when work "is completed as contracted," he says.
This spring, another architect, Ralph Gillis, withdrew applications with the city that are crucial to securing final work permits and inspections for the house. He cited construction delays that prevented the house from being certified as safe. A certificate of occupancy, required by the city for a building to be occupied as a residence, still hasn't been obtained for the home, according to New York City Department of Buildings.
Mr. Price says the family is in the process of obtaining the certificate and stressed "there are no safety issues for the Feinbergs or anyone around them."
Meanwhile, the Feinbergs are settling in. The family is very happy with the townhouse, Mr. Price says, though "disappointed in the cost and time overruns."
Write to Jenny Strasburg at jenny.strasburg@wsj.com
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