Custom Edit may work in two modes:
1) Freely: the items can be moved manually to any Z position.
2) Linked with a Surface. You only can move the items on X/Y, the Z value is taken from the Surface.
To work in mode 2), you must assign the terrace in the "Surface" rollout, and turn on Surface->Custom Edit->"Link to Surface". This is the default mode, so probably it doesn't work because you have not any surface assigned in Forest.