Mon, Nov 04, 2019 - Page 7 News List

LA’s US$1bn trophy tower halted as China pulls back

A China-based developer that had hoped to bankroll the entire project with funds from home is now scrambling to secure loans in California after Beijing clamped down on capital flight

By Edvard Pettersson  /  Bloomberg

Illustration: Yusha

It is meant to be one of the crown jewels of downtown Los Angeles’ urban renaissance, but now it is in limbo — plagued by lawsuits from subcontractors and victim of a trade dispute between China and the US, and a Beijing crackdown on credit and capital flight.

Construction has largely stalled at the three towers of Oceanwide Plaza across from Staples Center, where the NBA’s Lakers and Clippers and the NHL’s Kings play their home games.

On a recent Friday afternoon, no workers or vehicles entered the construction site, which takes up a city block and towers over Figueroa Street. A few security guards manning an entrance insisted that work was going on, yet no activity was visible from the outside.

The developer, Beijing-based Oceanwide Holdings, offered few details on the future of the US$1 billion-plus project — other than to insist that it has financing and work is continuing.

The lawsuits by unpaid subcontractors, on the other hand, give a glimpse of the developer’s struggle to come up with needed money to finish the project.

As the trade dispute approaches its second anniversary in January, Beijing is making it tougher to shift money abroad, having imposed capital controls last year to help stabilize its currency. Those restrictions have meant that Chinese direct investment in the US real-estate and hospitality sectors last year plummeted to US$377 million from a high of US$17.3 billion in 2016, according to data from Rhodium Group.

“It appears they wanted to self-fund the entire project,” Dale Ortmann, an attorney representing two of the Oceanwide subcontractors, said of the China-based company. “Now, with the changes in Chinese government policy, the owner is trying to find a traditional construction loan while in the middle of construction.”

And that is tough. Under California law, all subcontractors’ claims over unpaid invoices, no matter when they performed work on the project, will have priority over any liens a subsequent lender might have, said Adam Salis, a lawyer in Mission Viejo, California, who specializes in real estate.

That is why construction lenders usually will only get involved before work has started on a project.

With economic growth slowing last year, China tightened restrictions on capital outflows after Chinese companies had gone on a years-long global buying and building spree. Over-leveraged conglomerates, such as Dalian Wanda Group and Anbang Insurance Group, were forced to liquidate overseas real-estate worth billions of US dollars, and developers were no longer able to finance their projects abroad with money from home.

“The capital outflow control has been strictly enforced by the Chinese government so far this year due to the intensifying US-China trade war,” said Patrick Wong (黃智亮), a Bloomberg Intelligence analyst based in Hong Kong.

Oceanwide Plaza is part of a building boom that has been transforming downtown Los Angeles in the past few years. Whereas for decades the city’s historic core had been a ghost town at night — home to mostly destitute transients and a few artists and urban pioneers, the 21st century has brought in an influx of young professionals seeking an alternative to the suburban, car-dependent Southern California lifestyle.

The number of market-rate apartments has increased by more than 10-fold, from 2,426 before 1999 to 27,616 as of the second quarter of this year, with another 3,296 under construction, according to data from the Downtown Center Business Improvement District.

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