As the financial world warily watches the fate of cash-strapped China Evergrande Group, another big Chinese property developer is facing a ticking clock, too, tied to projects in New York, Los Angeles and Hawaii.
China Oceanwide Holdings’ Hong Kong-based development subsidiary said in regulatory filings this year that if it cannot complete plans to bolster its finances, such as restructuring debts and selling part of its portfolio, it might not be able to continue to “operate as a going concern.”
At the same time, another Oceanwide unit has paused work at a site in San Francisco, leaving a hole in the ground where it hoped to build the city’s second-tallest skyscraper.
Altogether, Oceanwide has spent US$3.5 billion on US investments that are idle or nowhere near finished.
After a series of failed talks with potential partners, the company is trying to extend its loans and free up cash amid mounting turbulence in China’s real-estate scene.
Chinese President Xi Jinping (習近平) is cracking down on debt-fueled property speculation. In the past few weeks, the world has been watching to see if his government — wielding a tight grip on lenders — gives Evergrande a financial lifeline to quell protests from jilted customers and investors.
The outcome of that awkwardly timed drama could influence the willingness of investors and lenders to help Oceanwide salvage projects and avoid potential damage to key US property markets.
“Construction is hard enough to do without an unpredictable partner,” Los Angeles Downtown Central Business Improvement District executive director Nick Griffin said.
His group is concerned about Oceanwide’s unfinished work on a cluster of apartment towers and a hotel adjacent to the Staples Center sports arena. Construction cranes stand idle above the site like hands of broken clocks — an eyesore in a downtown area that, like many central business districts in the US, is struggling to rebound from the COVID-19 pandemic.
Companies do not raise “going concern” risks lightly, in part because it can drive up borrowing costs, hurt efforts to raise capital, or weaken negotiating positions when trying to sell assets or recruit partners.
The Oceanwide subsidiary began including an expanded “going concern” passage in its semi-annual reports in March. It laid out steps, deals and other measures it planned to take to ensure that it would continue meeting obligations.
Subsequent filings this year describe how some attempts to resolve the situation have fizzled, forcing it to continue working on solutions.
A deal reached in March to sell properties on Hawaii’s Oahu Island, where the developer plans an 800-room Atlantis-brand resort, ultimately fell apart because Oceanwide “could not agree to the legal structure and consideration,” the company said.
A US$900 million refinancing plan for the Los Angeles project collapsed in June after due diligence.
However, among measures of comfort, the unit said it has made arrangements for time to work out deals.
Part of the parent company has pledged to meet all of the subsidiary’s financial obligations through August next year, including HK$5.2 billion (US$667.9 million) in an undrawn credit facility, a Sept. 13 filing showed.
The unit is also in talks with creditors to restructure its debts and has received interest from a potential buyer for more than 6.9 hectares of land it owns on Oahu, potentially freeing up cash, the filing showed.
Meanwhile, the business is pursuing other deals — working with commercial real-estate services company Jones Lang LaSalle, for example, as it explores options for the Los Angeles project.
“We’re discussing different forms of cooperation with multiple potential parties, including for new fundraising,” a company representative in Beijing said in a written statement.
Oceanwide is seeking to offload its main office complex in Beijing and has discussed a potential price of about US$3.1 billion.
Howerver, Xi and other Chinese government officials have railed against the excesses of speculators, and over the years, China has cracked down on domestic firms, such as Anbang Insurance and Dalian Wanda Group, that pursued big investments in the US.
With officials’ frustrations back in the headlines this month, Wall Street giant Blackstone broke off a US$3 billion takeover of Soho China Ltd.
The Beijing-based office park developer said it was unable to satisfy unspecified “preconditions” of the deal.
Founded in 1985 by Lu Zhiqiang (盧志強), Oceanwide started as a property developer and developed into one of China’s largest conglomerates, with investments in banking, insurance, energy, media and technology.
Over the past decade, it joined the rush of Chinese investors pouring more than US$235 billion into overseas acquisitions, ranging from trophy hotels to Hollywood film studios.
Oceanwide bought the Los Angeles site in 2013 before pursuing deals in San Francisco, New York and Hawaii over the next three years.
In 2018, the Chinese government imposed offshore capital controls to help stabilize its currency, choking off some funding.
In downtown Los Angeles, Oceanwide pumped US$1.2 billion into three new apartment block towers and the luxury Park Hyatt Hotel, which topped out in 2018 before work stalled.
The San Francisco project — a two-tower hotel, office and residential development — is also stalled. The company’s US$1.3 billion investment has left a gaping hole in the ground near 1st and Mission streets.
Oceanwide in December last year said that it scrapped a US$1.2 billion sale of the project because the pandemic had impeded due diligence.
In New York, on Manhattan’s Lower East Side, Oceanwide has set out plans for a 113-floor skyscraper, but a 1950s brick building still stands on the land at 80 South Street — five years and US$409 million into the effort.
In May, Oceanwide paid US$6 million to extend a US$169 million loan through November, city property records showed.
The company remains current on the payments, said DW Partners chief executive officer David Warren, who granted the loan.
He declined to comment further.
“Based on the assets they hold, I see why they’re facing difficult headwinds,” Newmark Group international capital markets division head Alex Foshay said. “Investors are having a hard time having an optimistic view of where they’re going to be in the next couple of years.”
Still, real-estate professionals say that several developers have the financial strength to complete the developments, including Brookfield Asset Management, Related Group and Hines.
“We’re looking at these as potential opportunities,” Hines chief investment officer Alfonso Munk said. “These are the types of projects in the future that we have the expertise for. The key is accessing them at the right cost basis.”
Representatives for Related and Brookfield declined to comment.
As much as a price, the question is what stake, if any, Oceanwide can retain amid the potential discomfort of working with a Chinese firm during political uncertainty.
“It’s almost entirely a matter of getting the deal terms to the right place,” Griffin said.
The Los Angeles project faces US$366 million of liens from unpaid contractors, the most recent Oceanwide filing showed.
Chinese investors who helped raise US$325 million in exchange for US green cards sued after the US government withheld their visas during the project’s construction shutdown. The case is ongoing.
Oceanwide’s Los Angeles and San Francisco projects skipped their property tax payments for the fiscal year ending June 30 and are racking up late penalties at an 18 percent annual interest rate, online county tax records showed.
“You’d think that they’d not want to bleed out and continue losing money on these projects,” Los Angeles Development Corp chief operating officer Stephen Cheung said. “It’s really a black eye on the region.”
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