Risk&REWARD - Issue 04

SUNK COSTS & SINKING TOWERS

The Tower

In the basement underneath 301 Mission St., San Francisco, there is a large crack running through the concrete floor. Above this basement, a 58-story mixed-use residential high-rise towers over the densely populated downtown. In the dead of night, residents hear a noise. A ghostly creaking echoes through the luxury bedrooms wrapped in wood veneer. The slightest of tremors resonates throughout the private lounges, lavish wine-cellars, and indoor pools behind blue-grey glass. This is the Millennium Tower, and it is sinking into the ground.

Construction for the Millennium Tower began in 2005. It was the tallest and heaviest concrete structure in San Francisco, weighed an impressive 686 million pounds, and cost an estimated $600 million dollars to develop. At first, the Millennium Tower was the darling of San Francisco real estate, the premier living destination for the rich and powerful. The discovery that the building was being gradually consumed by the ground transformed it into a scandal worthy of national headlines, and a textbook disaster likely to be studied by engineers for decades to come.

A Series of Incompetent Events

The Millennium Tower sinking is not a unique phenomenon - in fact, the engineers behind the Millennium Tower had always anticipated some degree of subsidence. When designing skyscrapers of this size, geotechnical engineers expect the soil underneath the structure to settle over time - especially in San Francisco, where the sub-terrain consists of a thin blanket of rubble and mud on the surface, a deep layer of soft clay underneath, and a thick bedrock base at the bottom. The soft clay layer in the middle is so weak that it is even sometimes called “liquid soil.” To prevent structures from sinking, most tall vertical construction projects in San Francisco utilize steel or concrete piles, oftentimes extending into bedrock. A common alternative to bedrock-driven piles are friction piles - which distribute the building’s weight by creating resistance with the soil around the piles, rather than planting the building on bedrock. In the case of the Millennium Tower, engineers utilized 950 60-90ft friction piles underneath the structure's foundation.

With this design, the geotechnical engineers expected the structure to settle a maximum of 6-inches over its entire lifetime. Before the structure was even completed in 2009, however, it was discovered that the Millennium Tower had already settled more than that. By 2016, the structure had already sunk an astonishing 16-inches, and, worst of all, was beginning to lean to the northwest, with no sign of stopping. Fractures began to appear in the basement, elevators became compromised, and - most worrying of all - hurricane-proof windowpanes alongside the facade were cracking, breaking apart and plummeting to the sidewalk below. Everything pointed to critical structural failure.

A media frenzy ensued, with the obvious comparison to the Leaning Tower of Pisa making its rounds in the tabloids. This wasn’t entirely unfair - the ‘Leaning Tower of San Francisco’ suffered from the same root problem as its ancient Italian counterpart: it was very heavy, and its foundation was inadequate for the clay soil it was built upon.

The finger-pointing between developers, residents, and the city of San Francisco began almost immediately after the sinking problem was disclosed to the public. While most compelling analyses now suggest that the geotechnical engineer for the project was clearly to blame, the lawsuit was pinned on a neighboring construction project owned by the city. This is because a legal loophole would allow residents of the Millennium Tower to circumvent the 40% cut of any award that attorneys would be owed had the lawsuit been simply brought against the (actually responsible) developers. The developers were still sued - but by the city during subrogation, rather than the residents themselves.

The basis for suing the city was that the city’s contractors had pumped water out of the soil to keep the site dry for their own construction project: the Transbay Transit Center. This had allegedly caused the soil under the Millennium Tower to dry out, shrink, and compact, contributing to the sinking problem. This accusation would perhaps hold more water if the Millennium Tower's contractors hadn’t done the exact same thing when building their 5-story subterranean parking garage and basement, 10 years before the city’s project even began. In fact, by the time the city broke ground on their project, the Millennium Tower had already sunk well past its estimated lifetime settlement.

Hitting Rock Bottom

One way or another, the problem had to be solved. The sinking appeared to have stemmed from the geotechnical engineers considering the effects of individual friction piles used in the foundation as opposed to their effects as a full unit. While concrete piles can help distribute the weight of the building, they can also turn into heavy loads themselves. The Millennium Tower’s foundation consisted of 950 of these heavy concrete piles - too densely packed and too shallow to adequately function as intended to support the superstructure. Later analyses suggest that foundation piles should have extended into the bedrock beneath San Francisco’s clay from the very beginning in light of the building’s weight. Hindsight is, of course, 20/20 - and many other projects (albeit far lighter projects) in San Francisco have avoided sinking with a similar foundation design. To prevent the building from sinking further, a settlement was reached that involved a $100M remediation project to correct the lean and stabilize the building. Remember how the city of San Francisco was sued as part of the perfectly functioning American legal system? Thanks to that little fiasco, San Francisco taxpayers also found themselves on the hook for $30M - nearly a third of the project cost. This $100M fix consisted of 52 new piles that would be drilled 250ft into the bedrock, on the perimeter of the building.

The principal engineer behind the project: a man named Ronald Hamburger.

(No, I didn't make that up. His name is really Ronald Hamburger).

So that’s where the story should end; a man named Hamburger anchored the Sinking Tower, saved the day, and went golfing with his buddies Eagles McGee and Guns Washington. If that were the case, however, this would hardly make for an article worth writing.

The great irony of San Francisco’s sinking skyscraper is the developer’s commitment to sinking more funds into keeping it alive. The sunk cost fallacy is defined as “the phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.”

Mr. Hamburger’s perimeter fix didn’t work. In fact, during the first week of his remediation effort, the Millennium Tower immediately demonstrated an increased rate of foundation settlement and lean. After four months, when the situation continued to deteriorate, they paused the installation of the piles to reassess their approach.

Delays, cost overruns, and other issues with the remediation quickly added another $50M to the cost of the project. To add insult to injury, the design of the perimeter fix was drastically altered from 52 piles to only 18. As it turns out, 18 piles were all that were ever necessary in this proposed solution from the get-go. It appears that Hamburger had only chosen 52 piles because they could be spaced around the building with 6ft between them - enough room for the contractor to work with, and a solution that looked good on drawings. In other words, it was entirely arbitrary. In fact, Hamburger even admitted in a court hearing that his original design for the perimeter fix was never optimized. Apparently, no one on the engineering team or the various highly competent committees overseeing the project ever stopped to ask “why” a certain component or feature was proposed.

Even with the costly revisions, the perimeter fix was still never going to work. In fact, there was a well-known public letter addressed to the city from engineers Lawrence Karp & Joshua Kardon that demonstrated exactly how this proposed fix would exacerbate the problem two whole years before the remediation project began. They explained that in order to drill the new piles, more groundwater would need to be pumped out of the ground, further weakening the soil and escalating the rate of sinking. Ostensibly, this letter was never reviewed or seriously considered. Pearls before swine.

Going Down with the Ship

As of today, the building is still sinking. The perimeter fix did slightly correct the lean, though it was far less effective than modeled. This small achievement was quickly dwarfed by the discovery that the concrete foundation mat was beginning to buckle, or ‘dish’, and the sinking, though reduced, had shifted towards the center of the structure as opposed to one corner.

So far, almost every prediction that Karp & Kardon made about the perimeter fix contributing to the settlement problem has come true - except one: that in the event of an earthquake (a geographical certainty in San Francisco), the Millennium Tower could become totally structurally compromised. This is due to the settlement occurring asymmetrically. Because the sinking is uneven, it is likely to escalate over time, as the tower exerts its load disproportionately on one specific area. This is what is known as a divergent condition. If the tilt & sinking isn’t addressed, or if the Millennium Tower is hit by a sudden earthquake - the tower could begin accelerating past the point-of-no-return and experience unsalvageable dynamic failure.

The Hamburglar, of course, has informed the public otherwise. According to him, the Millennium Tower is safer than ever before and the remediation project was a success. Despite none of his other predictions coming true, the public is expected to believe Mr. Hamburger here. Surely he can’t be wrong again?

Even if the fix did work, and the Millennium Tower has finally found solid ground, it’s already too late. The sinking hole in the developer's pocketbook is already as deep as the literal sinking of their building.
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In 2013, the Millennium Tower had sold its final unit, generating revenue of $750M - a 25% return on investment over the $600M in development costs. By the time of writing this, the $150M remediation project has transformed the Tower into a zero-sum game. Between the ongoing lawsuits, numerous fines, cratering unit prices, skyrocketing maintenance, and exorbitant repair costs due to structural strain, it is obvious that the Millennium Tower has become a devastating financial loss.

While the tower continues to sink deeper and deeper into the mud, the owners of the building continue to burn money at an astonishing pace. The only winner, at the end of the day, appears to be Ronald Hamburger. He gets to put aside a little of that cash before the rest of it is doused in the proverbial gasoline of his futile endeavors.

Perhaps, from very early on, the Millennium Tower should have been placed on demolition row.
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