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,” she 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.”
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 2 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,” she 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.”