The Mess of China’s Over-Leveraged Property Developers Spills into California

Stiffed creditors in China and Singapore seized the halted construction mega-ulcer in San Francisco, the Oceanwide Center.

By Wolf Richter for WOLF STREET.

One of China’s many troubled mega property developers, China Oceanwide Holdings based in Beijing, is swaggering toward dismemberment. And its tentacles reach into the US, with a not-yet started condo tower at Manhattan’s South Street Seaport; the huge three-tower Oceanwide Plaza in Los Angeles, where construction was halted in 2019, amid a tangle of lawsuits and unpaid contractors; and the huge two-tower Oceanwide Center in San Francisco, the biggest ulcer in the center of the City, five years after groundbreaking.

In terms of the San Francisco project, construction was halted on the 54-floor tower in 2019 when it reached grade, amid doubts about its commercial viability. In 2020, construction was halted on the 61-floor tower when it reached grade. The company had run out of money. By early 2021, nearly all the construction equipment was removed.

The whole project with an original budget of $1.6 billion was supposed to contain a Waldorf-Astoria, condos, and tons of office space – when over a quarter of San Francisco’s office space is now available for lease. The project is tangled up in numerous lawsuits and mechanics liens filed by unpaid contractors. The general contractor withdrew from the project (photo by Wolf Richter, May 24, 2021):

Oceanwide has tried to sell the San Francisco project multiple times and even found potentially interested buyers – including Boston Properties, which owns the nearby Salesforce Tower; SPF Capital International, an affiliate of Beijing-based SPF Group; and Hony Capital, a Beijing-based PE firm. But those deals went nowhere.

So this got a lot more complicated. Two offshore entities of China’s Oceanwide Holdings – Oceanwide Holdings International Co. and Oceanwide Holdings International Financial Development Co. – had issued two notes, totaling 2.5 billion Hong Kong dollars ($321 million) to two different firms:

  • HK$1.4 billion to a Singapore entity of Haitong International Financial Services in 2019
  • HK$1.1 billion in notes to Spring Progress Investment Solutions in 2018.

Both notes were backed by collateral consisting of the entities’ shares in China Oceanwide Holdings and shares in the San Francisco Project.

When the notes matured, the entities failed to pay them off. The two creditors have now taken over the collateral, including the San Francisco Oceanwide Center, according to a Shenzhen Stock Exchange filing on Thursday by China Oceanwide Holdings, reported by Reuters.

It remains to be seen what the foundation of a huge project that may be commercially unviable is worth. And it remains to be seen what other claims are against it, on top of the $150 million in mechanics liens. And sorting this out can get very complicated.

“The company is currently actively discussing with the above-mentioned two holders of notes to seek solutions,” China Oceanwide Holdings said in the filing. It would be assessing the impact of the collateral takeover on its operations and finances, it said.

The San Francisco project has had a tumultuous past. The land was acquired in a bankruptcy auction in 2013 by TMG Partners and Northwood Investors for $122 million. They hired architects and produced a design for the project. In 2015, they sold the land and the plans to Oceanwide for $296 million. Construction began in 2016.

At around that time, China tightened capital outflows with a series of measures. In 2019, China imposed new capital controls that targeted investments by Chinese entities in foreign real estate projects – and the Oceanwide projects, which were already out of money, couldn’t get further funding.

At the time, China was also cracking down on its highly-indebted conglomerates, such as HNA, which in early 2021 entered bankruptcy in China, and Anbang, which was taken over by the Chinese state.

In August 2020, the government imposed some limits on corporate borrowing – the “three red lines” — which were aimed at overleveraged property developers to force them to deleverage so that the property market wouldn’t blow up the financial system.

A slew of property developers are now in deep trouble, including the biggie, Evergrande. And authorities appear to be eager to keep them from imploding messily, and instead are dealing with them as they have dealt with the conglomerates: a more or less orderly dismemberment.

China Oceanwide Holdings has been struggling to stay afloat. It sold some assets to raise funds. It did some housecleaning, and its CEO, chairman, and some executives were forced out in July.

Whatever happens with Oceanwide in China, these complications will further bog down the five-year-old cement-and-steel-filled pit in the ground in the center of San Francisco.

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  114 comments for “The Mess of China’s Over-Leveraged Property Developers Spills into California

  1. Gggg Bbbb says:

    Giant Aluminium processor Zhongwang looks the most recent to go bust.
    Who’ll get splattered worst Commodities miners, especially here in Australia, or REIT’s?

    • Djreef says:

      This whole process is going to be brutal.

      • Billybob says:

        “B R U T A L!” …as Gurney Halleck (Josh Brolin) screams about the Harkonnens

        • Phoenix_Ikki says:

          Great remake, too bad we have to wait 2 more years to see the story progress in part 2 then 3…

        • polecat says:

          That’s ok .. as waiting 2 to 3yrs is worth ALL of the rest of the dreck that BIG CELLULOID continues to produce..

  2. Chris Coles says:

    If I were one of the so called “mechanics”, I would be very tempted to place a small temporary office down on the foundations, connect a telephone and smile; possession is nine tenths of ownership.

    • Nick Kelly says:

      I know you are kidding but possession in the case of US RE is by pretty strict law. What is amazing is the amount of the M liens. If there was no one else in line they could almost own the project. Unfortunately the M liens come behind a lot of financial ones, first in line after, of course, taxes, are mortgages.

      • VintageVNvet says:

        Mech a nick liens can be in front of mortgages, even the first mortgage,,,
        It all depends on the timing of the filing of Notice of Lien Rights.
        Have known subs to rush out and dump some old lumber on the site to establish first dibs…
        Taxes OTOH,, as is said, the only things certain in this life are death and taxes,eh?

        • Joe Saba says:

          those notes were to china holding entity and not asset for M liens
          therefore M liens get nbr 1 position(only illegal corrupt property taxes come in 1st

        • Nick Kelly says:

          Yes, the liens are satisfied in the order of their placement. However it would be an odd situation where there wasn’t a mortgage on the prop before the work done by the contractors.
          In this case, for example, no one is going to place a new mortgage on this prop that would come after the Mechanics Liens directly. Every mortgagee searches the title, not every contractor does.

          No doubt in situations less distressed, a vulture finance co might grant a new mortgage, and would pay the liens directly.
          In many circumstances this will require additional property as collateral and much higher rates.

        • CreditGB says:

          Any lawyer would be able to defeat the “dumped materials” scam. Require proof they were ordered, and further, proof they were delivered and on what date. Claims have to be proven, and filed within time limits. Been there, and done that.

  3. Sound of the Suburbs says:

    What is wealth creation?
    Isn’t it rising asset prices?
    Everyone always thinks that with neoclassical economics.

    At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
    The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth.
    1929 – Wakey, wakey time
    The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth, but it didn’t.
    It didn’t then, and it doesn’t now.

    It took them a long time to disentangle the hopelessly confused thinking of neoclassical economics in the 1930s.
    This is when they invented GDP.
    The real wealth creation in the economy is measured by GDP.
    Real wealth creation involves real work, producing new goods and services in the economy.
    That’s where the real wealth in the economy lies.

    They used to think rising asset prices were creating wealth, but after 1929 they realised this was not the case.
    They needed to find out where real wealth was created in the economy and they invented GDP.
    This is why GDP is the thing we want to grow; it is the real wealth being created in the economy.

    Global policymakers do like to learn the hard way.
    Real estate – the wealth is there and then it’s gone.
    1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan, Philippines, Thailand
    2000s – Iceland, Dubai, US (2008), Vietnam
    2010s – Ireland, Spain, Greece, India
    Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.
    It wasn’t real wealth, just a ponzi scheme of inflated asset prices.

    You’re learning the hard way, aren’t you China?
    Everyone does.

    • HowNow says:

      Real property as a Ponzi scheme: thanks, SotS, for the nice summary. What enables this scheme is the way the banking reserve system works. With a bank lending 90% of deposits, then possibly 90% of that newly lent money lent at another bank, again and again, that $100 can become approx. $810+. New money is constantly being created to accommodate this. So inflation is built-in. All property and labor costs are inflated over time. I guess the problems come when valuations become laughable and someone pulls out the rug.

      • Dale says:

        Be advised that the Federal Reserve cancelled *all* reserve requirements on March 15, 2020 (‘beware the ides of March’). So our fractional reserve system has become a zero reserve system. They even deleted their “Excess Reserve” series, as all reserves are now by definition ‘excess’.

        See: “Federal Reserve Actions to Support the Flow of Credit to Households and Businesses”

        With reserves now a thing of the past, should the Federal Reserve change its name to just Federal?

        • Wolf Richter says:

          “Reserves” = banks’ cash put on deposit at the Fed (to earn 0.15% interest). The banks don’t call this cash “reserves”; only the Fed calls it that on its balance sheet. The banks call it “interest earning cash” or similar on their balance sheets.

          There are currently over $4 trillion in bank cash on deposit at the Fed = $4 trillion in “reserves,” on which the banks earn 0.15% in interest.

          The reserve requirement was put in place before the Fed paid banks for reserves, and when reserves were much lower. The original purpose of the reserve requirement was to make sure banks always had some cash to meet demand for cash from their depositors if there is a run on the bank. This is not really an issue today with so much bank cash out there, invested in “reserves,” Treasuries, and other liquid assets.

        • Greg Hamilton says:

          According to John Titus’ research you are correct. He has quite a few videos on the subject and they are eye opening.

    • HowNow says:

      Are you laughing?

    • Old School says:

      One of the best real world measures of real wealth is future income of economy as represented by dividend yield of S&P500 and long term GDP nominal growth rate of economy. It’s around 1.3% yield and 4% long term growth rate. Not so robust.

      • YuShan says:

        But that 4% growth rate is overstated by decades of unsustainable credit expansion, which when it eventually corrects will subtract from growth.

        There is also a problem with these dividend yields (that are ridiculously low already) when they are achieved by borrowing money to hand out. Also this reverses when eventually companies have to repair their balance sheets.

        In the past, we would have recessions every now and then where the excesses were weeded out, but this is not tolerated nowadays. The central banks open the spigots at the slightest downtick. There is lots of tinder now when the fire starts.

        • LK says:

          Apt comparison to the issues plauging California willdfires: a refusal to allow controlled burns to remove the excess fuel that has built up from an absence of fires.

    • CRV says:

      You can strike out modern GDP as a measure of wealth because it can be pumped up by government spending which is nearly always NOT creating anything but bourdons on those who do create.

      • topcat says:

        For those like CRV who wish for tiny or better still, no government, the results are in…..

      • YuShan says:

        There are only two sources of sustainable growth:

        1) Population growth. Of course this does nothing for GDP PER CAPITA, so this source of growth doesn’t make people wealthier

        2) Productivity growth. So working more, working smarter, innovation

        • Old School says:

          Only adjustment I would make is replace population by number of people producing.

        • Wisdom Seeker says:

          Up to a point, Population Growth actually CAN generate net per-capita wealth by allowing more division-of-labor (specialization effects). A town with only one construction-builder is limited by the skillset of that builder. A larger town with 10 builders can have specialists for residential, office, commercial and maybe an architect to boot.

          Sadly much of the world is past that point. Adding more population to a resource-limited environment reduces per-capita wealth and is a big cause of enduring poverty in high-birthrate nations.

        • earthtoan says:

          Productivity does not contribute to growth if the displaced personnel are warehoused on the public dole.

    • Augustus Frost says:

      Real wealth is measured by GDP now?

      That’s really funny. All GDP does is measure the financial value of transactions, whether it creates any wealth or not.

      I start a company and mow your lawn. That’s in GDP. You start a second one and mow mine, that’s in GDP too. If we each mow our own lawn, that’s not GDP.

      Modern GDP measures a lot of transactions that people used to do for themselves, like the example I gave.

      Then there’s paying inflated prices for the same thing others elsewhere get for less, like sick care (aka, “healthcare”) and ridiculously inflated university tuition. Both are an example of increasing poverty, not wealth.

      Next there are supposed “value creation” activities which are actually economic waste, like 70% of the world’s lawyers and compliance with asinine regulations (“consulting”) which shouldn’t even exist, like most of the tax code. Both of these are American “growth” sectors.

      Since GDP does not quantify actual economic production and so much economic activity is the result of borrowing and the result of fake wealth from inflated asset markets, it’s hard to know exactly whether the US and any similar (here’s looking at you, UK) economy is actually becoming wealthier over time.

      But here’s a hint. Increasingly wealthy societies don’t offshore much or most of their manufacturing base and then inflate their living standards through perpetually increasing debt. The merchandise trade deficit has soared and the services trade balance is also heading in the wrong direction.

      What’s this country going to do when both are in massive deficit? Will the US export dollars forever to acquire the things people actually need?

      Add it up and it equals the majority of the population becoming poorer or a lot poorer in the future.

      • kam says:

        Augustus Frost
        And some got filthy rich, feasting mightily on the carcass of the dying USA.
        Wealth created by producing goods never could keep up with the printing of cash by the Fed for it’s friends.
        Jobs, lives, livelihoods, families and the nation were traded like cattle before the slaughter.
        Japan? No. This is the latter days of the Roman Empire.

        • Depth Charge says:

          “And some got filthy rich, feasting mightily on the carcass of the dying USA.”

          The billionaires – Elon Musk, Jeff Bezos, Bill Gates, etc., have stolen the wealth of the middle and lower classes. Yes, STOLEN. These people need to be dealt with.

        • Old School says:

          Depth Charge

          Somebody used their product or services or they would be middle class like the rest of us. Sad but true. Sheep are probably going to get sheared on Tesla, maybe Amazon and Microsoft too. It will take a good panic to see who is worth what.

      • Jos Oskam says:

        @Augustus Frost


        As an engineer I always try to “look behind” the numbers. And for a long time already I have been mystified by the oversimplified messaging around GDP. Like a growing GDP is the be-all and end-all of a healthy economy.

        This nonsense is even spouted nonstop in publications that claim to inform on economic matters. I have not yet been able to ascertain if this is done in good faith (=stupidity) or to sell us all a bag of goods (=evil).

        GDP was first formulated by the American economist Simon Kuznets in 1934. The same Simon Kuznets who stated: “The welfare of a nation can scarcely be inferred from a measurement of national income”.

        However, this tidbit seems to have been effectively memory-holed.

        • YuShan says:

          Yes, it is a weird concept. You can grow GDP by borrowing money to pay people to spit to the moon.

        • cas127 says:

          It is disturbingly harder (though not impossible) to easily get a large number of US physical output stats (million tons steel produced, cattle raised, computers manufactured/assembled, etc.) than it is to get the infinitely less precise/more easily manipulated financial metrics habitually pushed by the MSM-DC nexus (GDP, “unemployment”, etc.).

        • Paddy Jim Baggot MD says:

          prostitution, drug sales, nurder for hire
          would all contribute to ‘GDP’

      • stan65 says:

        Your doing my laundry and me doing yours is indeed nothing but an accounting smoke and mirrors exercise that enables the IRS or HM Customs (depending where you are), to collect the wick and call it all GDP. Apologies to among others French and Germans and Canucks have their own loved acronyms.

        But, what really puzzles me, is that the powers that had sold for a penny the entire manufacturing capability and its future to the likes of China, and now being devoid of such capability, let alone resources which were burned a long time ago, are creating the business of threatening such countries with, whatever.

        No resources, no creation capability, how far will that threat go? Fire off the slugs you got in depots, and then what.

        There is Poland and Ukraine and Lithuania and such, threatening Russia with unpleasant words and hand gestures. What do these numbskulls, egged on by others, dream to achieve, without any economy, resources, manufacture and so on.

      • drifterprof says:

        Augustus – you’ve contributed some excellent posts lately.

        In one of Wolf’s recent posts, I noticed another seemingly screwy thing about the calculation of GNP. Although the value of import goods is subtracted, that is the wholesale prices of the goods.

        I would think that the markups, as the imports make the way through levels of middle-men to retail, are pretty hefty. Those markup profits are counted as GNP. So that part of the gross national product is merely markup profits of middle-men.

        I may be looking at it the wrong way, but profits from selling imports does not seem to be a constructive “domestic product.”

        • taxpayer says:

          Walmart orders the stuff from China, ships it to the US and stores it until I decide to order it. Then they deliver it to me. This is a service provided by a “middle-man” to me and I pay for it. That’s “constructive” as it’s much easier for me than buying direct from China. And it’s largely “domestic” since that’s where the storage and domestic shipping is.

        • drifterprof says:

          Taxpayer: “That’s ‘constructive’ as it’s much easier for me than buying direct from China.”

          Maybe so. but if you bought from U.S. it would be way more constructive. Middle-men are not producing anything. it is a service, not a product. That’s why the term Gross National Product is misleading.

      • intosh says:

        The absurdity with GDP as measure of wealth can’t be repeated enough.

        The typical scheme with healthcare is a good example of that: feed population with cheap junk food -> said population get sick -> more demand for overpriced pills and health treatments = GDP growth.

    • Harry Houndstooth says:

      Sound of the Suburbs-

      Incredible wisdom.

      Harry Houndstooth

    • Wisdom Seeker says:

      Sound of the Suburbs and Augustus – Great Comments!

      Wealth Creation is NOT Rising Asset Prices. (Georgist would correctly add “neither is rent extraction.”)

      GDP is a better measure of economic activity than Asset Prices, but many GDP “transactions” are not necessarily Wealth Creation, and Wealth Creation can take place without GDP-measured transactions.

      (Childcare at home is a great example of activity not measured by GDP… Although, if we can stick “owner’s equivalent rent” in an inflation index, maybe we can also stick “staying-home-parents’ equivalent daycare” in GDP as an imputed service?)

      Time was when nations measured tangible industrial & agricultural outputs – tons of steel, tons of grain… But sadly we also learned that such outputs aren’t necessarily Wealth Creation either. For one thing, the pollution output has to be accurately costed as well. And if the manufactured goods are simply thrown away in a few months, where’s the wealth? And when the factory becomes obsolete that’s a cost too.

      This is a great subject for ongoing discussion and one of the reasons why I love this site…

  4. RP says:

    Sounds similar to the end of the Japanese bubble…big trouble at home and all the grandiose overseas projects and ownerships fell apart as well.

    • Up north says:

      I’m not convinced China’s adventure will end as the Japanese’s… Xi’s mega control of industry and culture etc. If anything get ready for China exporting all sorts of social control and mind control apparatus and tech. The West has no bones left in them: we’ve fallen to wokism, and we will accept their agenda, or will be made to. Whoever controls industry controls minds. No craftsmanship left in the West. Kids have no idea what to earn a salary in a decent way even means here anymore.

      • Up north says:

        Sorry, a few more thoughts…
        To be patriotic in Canada is seen as being a white supremacist or extreme right. Coming to you guys soon down south…
        I’m all for immigration: but I’m not in favor of losing our soul…
        The Chinese know that and they’re playing a long term game. They know how to be patient, we don’t. We are slowly imploding, and we have but ourselves to blame.
        This being said there is still a lot of good in the West…
        For what it’s worth… Have a good Sunday y’all.

        • Augustus Frost says:

          You’re indirectly describing the long term social decay of western culture and civilization.

          It’s the real root cause for the actual economic decline which will be obvious to everyone once the asset mania implodes and the illusion of mass prosperity with perpetually increasing consumption comes to an end.

        • Petunia says:

          I’ve heard some call Canada a Chinese colony and occupied territory. Now the Chinese are moving into Mexico in big numbers, with up to 30K Chinese immigrants there. The immigrants are overseeing the Chinese plants there and bringing goodwill and Chinese culture to Mexico. Can’t wait to see how that turns out over the long run.

          Notice how NAFTA didn’t help any of the countries who signed it.

      • Up north says:

        Sorry, one last comment!
        Xi is ramping up industrial investment and research like hell. Our top industries will I fear get real competition. It feels like if feeding all our dollar stores was almost a strategy to make us feel like China couldn’t build any high value item… Last time I checked my Mac book Air was built in China… They are working like nuts over nuclear fusion etc and many other super high tech and highly theoretical stuff (Chinese a few years back entangled photons over from Earth to a satellite in space!). They are cranking out patents on ai like there’s no tomorrow, And we’re complaining about home Depot ships being stuck at sea from China? Give me a break. The bigger issue is research and development. And we’re losing it, or being stolen (Nortel anyone?) it as has been well documented. Ok I’m done. : ) Best.

        • Nick Kelly says:

          Mac is assembled in China with key components from elsewhere.

          The more they work at nuke fusion, the better. Probably! cuz who knows. We could almost describe it as a mirage, except that we know one place it works, the sun.

          Trivia: the solution to the source of the sun’s energy is relatively recent. As late as the 30’s, when such things as the mass of the electron were known, there was a serious view, not quite a consensus, that it was some kind of chemical combustion. Which meant its max life was 50K years.

          Around that time at a conference a big name, Milliken?,
          said some kind of atomic process must be at work and he also noted that after the ‘combustion’ of hydrogen, a tiny bit of mass seemed to be missing.

      • intosh says:

        Really? “Wokism” is getting the blame now?

    • Djreef says:

      Remember when Die Hard came out right as this thing was coming unraveled. The name of the bank in the building was Japanese. Sumitomo, was it?

      It got to be such a big deal it was even recognized by Hollywood in a back handed sort of way.

  5. hidflect says:

    Two thirds of China’s top developers breach a ‘red line’ on debt

    The party’s just got started. No one talks about how many will become unemployed in China from a collapsing property market. What % of the urban population are dependent on this sector? Emperor Xi must surely be fretting about this. These aren’t peasants in pig muck who can just subsist on rice for the interim. They’re visible and connected electronically.

    • Djreef says:

      This is going to be a worldwide mess.

      • Augustus Frost says:

        Yes, Doug Nolan has been documenting it on Credit Bubble Bulletin for years.

    • Jon says:

      Just remember these red lines are not divine created but by ccp.
      Ccp can easily rescind these red lines if needed

      • Wisdom Seeker says:

        I suspect Chinese culture, due to the authoritarian “political stability comes first” Confucian core, will have a hard time changing red Party Lines, once set.

        CCP unlikely to backtrack until something really big happens.

        US has the opposite problem right now, can’t stick to anything…

  6. David W Young says:

    I think the unfinished foundation should be turned into a modern art piece, titled: “Easy Money at Work” or not. Into a potted plant semi-tropical garden or a money tree garden. History does repeat itself. Literally the tip of the iceberg for Chinese funding project abroad.

    • COWG says:


      I was thinking more along the lines of a 10 billion NFT named…. Wait for it…

      Imaginary Towers…

      • Anthony A. says:

        If Oceanwide is reading this blog, you probably gave them a good way to raise funds to pay this puppy off.

    • LW says:

      Artwork name: Installation: Carbon Sink
      Sponsored by: CCP

  7. CJH says:

    There is another ‘easy money’ problem hiding in the financial closet: Cryptos. Cryptos, if allowed to proliferate, will act as a foreign currency outside the control of monetary sovereign nations. China is waking up to the threat. Being unduly stupid and misinformed, the US will probably learn the hard way.

    • Djreef says:

      This implosion is going to suck everything into it. The damage will take years to sort through.

      • Squeemey says:

        Djreef, I respectfully disagree. Yes, when the “implosion happens, Everything will be sucked into it. Forget any physical or digital assets. Everything! Cash, RE, crypto, etc… all will lose value to a great extent. The value of all will reduced to ashes. But it won’t take years to recover, it will take decades.

        And as long as the powers that exist, the corporate/state conglomerate, and their people continue to write the rules, it will take that much longer.

      • Paddy Jim Baggot says:

        chinese might sell off us ‘assests’
        to pay off obligations at home
        or they could escape china with the money
        or they might be encouraged to jump off a building

    • intosh says:

      “Being unduly stupid and misinformed, the US will probably learn the hard way.”

      Since financiers, fund managers, tech moguls and banksters are now in on this “easy money” scheme, you can bet that it’ll keep inflating for a long while, with authorities turning a blind eye.

      The best case scenario I see for the US is that the crypto bubble collapses, with everything else; worst case for the US is crypto (bitcoin mainly) destroying the USD hegemony.

  8. MiTurn says:

    I’m obviously speaking form a point of ignorance, but with this project being unfinished and being exposed to the elements, can what has been built to-date be salvaged and completed, or must it be torn down? It seems like a lot of innards are being exposed to mother nature, and proximity to salt-laden mist and all that.

    • Anthony A. says:

      Concrete will last, the steel will rust. But that rusty image is very photogenic. It will make for a nice looking NFT.

      • Nick Kelly says:

        If the rebar in concrete is exposed anywhere the rust spreads rapidly all through the concrete. This was all explored after the Miami condo collapse.

        BTW: there is a book, forget title, maybe post later if anyone wants, that says the whole reinforced concrete world is a time bomb. The world fell in love with it about a century ago. The author figures that is close to max, with average shorter. Concrete is porous and moisture eventually reaches the very low quality steel. Life could be doubled with polymer- coated rebar, cheap, or maybe X 3-4 using bronze rebar, not as cheap.

        But who gives a sh%t about stuff after their life time, even though a few percent extra expense just on rebar saves a fortune. The author notes that a bunch of stone buildings and bridges in Europe are centuries old and wonders why we are still building bridges that will might be old at 50 years, when the ones built 50 years ago are crumbling.

        The Miami condos were a bit over 50.

        • stan65 says:

          The key to everything is placement.
          Well constructed concrete lasts 100+ years, crappy one goes bad in 10.
          Miami condo collapse was a mixture of poor design and poor quality material. And I suspect, lax statutory supervision. Know what I mean?

        • stan65 says:

          If you want to see the crappy Miami condo concrete taken to its extreme, you must see buildings in Termini Imerese or Lido di Noto, or Mazarin di Vallo in Sicily.

          Things constructed 20-30 years ago falling apart now because of bad specification and bad placement.

          And for the things that your journals don’t know about, investigate the state of building blocks of same age in same locations. Outside crust still just about visible, but the inside seeping away.

          That is pure inflation. You pay for a kilo of concrete but only get delivered one half.

        • Nick Kelly says:

          Stan: you get a kilo of concrete, unless the customer is illiterate, but what you might not get is the correct amount of cement. This is the expensive ‘glue’ binding the cheap sand and gravel.

          There was an era in Italy, apparently, of mafia involvement in concrete.

        • vegeholic says:

          Apparently, the dome of the Pantheon in Rome is made of “roman concrete” (unreinforced). Still giving good service after 2000 years. I suspect there are some lessons to be learned here, in case anyone is interested.

        • Jack says:

          Nick Kelly

          Much appreciated mate!!!

          I’ll have a good look at this one,
          Being slightly busy, but will read it.

          Thank You

      • Jack says:

        Nick kelly and Stan 65,

        Nick first, yes please post the title once you’ve got it maybe on this thread under these notes, many thanks.

        Stan 65,

        Hehehe , and to think these suckers inherited the lands occupied by the great Roman Empire!!

        The Roman Empire’s buildings, Aqua-ducts and roads are still standing!

        Shame on them really.

        • Nick Kelly says:

          Jack: Concrete Planet by Robert Courland.

          Stan: if failure of a component is life threatening, there has to be at least a hundred percent safety factor. If a concrete column is expected to last 100 years, it should only be guaranteed for 50.

          Also, a 100 years goes by pretty quick for buildings. There will be thousands of buildings in the US with rebar concrete at or near this ‘best before date’.

          Anyway, to quote Courland, if you use poly- coated rebar, which didn’t exist for most of the era, you double its life and if bronze rebar, maybe 500 years?

          If Courland is right, the time bomb goes off in the lifetime of most readers, not in the sense that a thousand buildings fall overnite, but that they have to be evacuated because no engineer will sign off on them.

  9. c smith says:

    “sunk costs” anyone ???

  10. Paulo says:

    Early Thanksgiving for our US compadres.

    Be thankful they are both stopped at grade, and not at 20-30-40 floors.

    Stage 1 tumour arrested at source, double entendre intended. Somebody will buy the sites….one day. Meanwhile, they would make fantastic turnaround bus shelters and links for future commuters, or if you are a techno cornucopian, drive in charging stations with latte kiosks and recycled park benches.

  11. BuySome says:

    Looks to me like the only mess that has spilled into California is the pile of idiots who want to create more New Yoke Cities. At the turn of the century (1900’s), California school civics books used to point out the ugly crowding conditions of the east coast urban garbage while noting that the west leaned toward fresh air, open spaces, and healthy living. Never met anyone who said we need another steel and glass edifice to the power of the banksters. Now the state has gotten exactly what the outsiders have brought like a Chinese plague, all handed to them from a government that is oh so compliant with the rip-off developers who dump more problems than they ever solve. If you suggest we need a new approach to building the future, the control crowd always says “Who’s going to pay for it?”. Well here’s their version of how to fund this decrepit crap world they are dishing out. Go bank-o-rupto, but go big! A reminder to the rats nest…”Please don’t Californicate Oregon”.

    • polecat says:

      “Ah, behold the beautiful ruins ..”

      That pretty much nails much of the overdevelopement in our ‘modern’ civ. Just wait till utilities like water, waste disposal, stable electricity, air handling STOP .. due to knock-on effects of continual monied elite/politico screwups × resource constraints ..

      Won’t that be fun.

  12. Crush the Peasants! says:

    Commercial RE borrowers seem to be held to a much less punitive standard than residential RE borrowers. Tishman Speyer has a history of walking away from RE loans but yet can continue to access credit. It’s default on the NYC Stuyvesant Town loan was a record at the time – over $3 billion as I recall.

    The rich do indeed get richer and the poor get the picture.

    • Nick Kelly says:

      Commercial mortgages are always non- recourse. WR has mentioned about 5 malls given back to lender by largest US outfit, Simon. There is no impairment of their credit because they aren’t in default. What does get impaired is how much will be lent against a mall, which has dropped a lot.
      It used to be a mortgage for half of appraisal was safe. Simon has given back a couple of those.

  13. AdamSmith says:

    Where’s JPOW when you need him/her/it….
    Time for a POW WOW….
    What say you????

    • J-Pow!!! says:

      I have unlimited money!!!!! Unlimited power!!!! As I have said before — I will grow GDP every year!!!! Do not be afraid of hyper inflation!!!! Be afraid of fear itself!!!! Our economy is getting bigger and better every year!!!! And our debt is getting smaller and smaller every year!!!! We are nearing full employment!!!! The stock market is at an all time high!!!! It’s not a bubble!!! And people are so excited about houses!!!! They can’t stop buying them!!!!

  14. Gen Z says:

    It will be interesting how this affects Canada, because the real estate market has been bought up by “Chinese investors” from the Triad gang.

    • Nick Kelly says:

      This ‘Chinese are ‘gangsters’, i.e., Triads’, crap is out of hand. This one is just more explicit.
      Re: foreign purchases of RE in the US; look it up. Do any of these commenters ever do any work, as in research?

      Yes, Chinese were number one in a recent year: about 3 billion+ dollars worth of US RE. But they just barely beat Canada, who were also over 3 billion. And there are only 40 million of us. Do we hear ANY raving about those evil Canucks? Or do our ’round’ eyes’ fit in better?

      The vast majority of US RE was bought by Americans.

      Moving on to Canada: I live in Nanaimo, BC, on Vancouver Island. This has had a wilder frenzy of buying in the last 2-3 years than Vancouver, having just been discovered. Van was already very expensive. To the spec mind, Nanaimo seemed dirt cheap.

      I sold my house in 2014 for 370K. It would now be a million. The buyers were Albertans. There are few Chinese here, probably as many East Indians. Most of the buyers are Canadian. (There are many Chinese in Victoria, with the oldest Chinatown in Canada. Their ancestors came in the hard way, to work in coal mines, putting the RR through the Rockies, and later to save us from English cuisine. No doubt they form a base for new arrivals. Who isn’t tribal?)

      In psychology there is term ‘transference’, referring to the tendency to ascribe to others traits in ourselves. Which ethnicity does not have a rep for loving money and being tight with money? The English say it about the Scots, Irish said it about the English, US Southerners used to say it about Yankees. People love anecdotes about how cheap other people are: one ethnic group in the previous USSR is said by another group to be so cheap they wear slippers to dance so they can hear the music from next door. Apparently for real, an English Lord didn’t dot his i’ s to save ink. For sure real, one of the richest men in Canada, heir to the Thompson fortune, was spotted buying discounted buns in a Hudson Bay basement. But this is seen more as eccentric, not disgusting, because he’s of our ethnicity. Now if he was Jewish…

      Maybe everyone loves money but see it as lust in others .

      The reason Canadians are the main players in their RE frenzy is love of money and FOMO. It’s like a local Klondike Gold Rush.

      • Nick Kelly says:

        I wrote this from memory and may have China’s role as 3 billion confused with its role as buying just over 3% of US RE. Either way, Canada was a close second in that year and owns the most US RE owned by foreigners. Also Mexico is a big player.

  15. Phoenix_Ikki says:

    Probably won’t happen but one can wish that the spillover will motivate all the Chinese investors to dump their vacant investment properties in Socal residential market and start the avalanche of a price adjustment down.

    Like I said probably won’t happen but one can salivate and daydream about the potential downward pressure it can create especially in areas like Irvine or Arcadia..etc

    • SocalJim says:

      After the runup in house prices since 2020, I am shocked the SoCal beach market continues to be strong. If this continues much longer, it will go too far.

      • polecat says:

        Yeah, so far so that So.Cal .. west of the San Andreas, will finally flip right over into the Pacific from all that over-developement, giving it the moniker ‘Atlantis – East of Streisand!’


  16. YuShan says:

    The “funny” thing is: virtually all economists agree that bureaucrats deciding the prices of goods is a bad idea. It always leads to distaster (shortages, oversupply etc).

    Remember the USSR, or recent example: Venezuelan government decided that toilet paper was too expensive, so they mandated a low price. Soon, there was no toilet paper at all because nobody could produce it for that price.

    However, when it comes to the single most important price in the economy: interest rates, suddenly they all think it is OK that a handful of bureaucrats decide what the “correct” rate is!

    When this whole thing collapses, it will be blamed on a “failure of free markets”, while exactly the opposite is true.

    • Wisdom Seeker says:


      Economists don’t mind bureaucrats setting prices when the bureaucrats are Economists.

  17. Rowen says:

    The CPC has made it clear that they want nothing to do with a financialized economy that generates fake wealth. That means deflating the housing bubble, deflating the commodities bubble, and disincentivizing sectors that are a net drain on the majority of its citizens. They’ve identified such industries to include: entertainment-tech, gig economy middlemen, adtech, etc.

    On the flip side, they’re pouring trillions into industries that they consider “real” wealth: energy (both renewables and fossil, so many natgas pipelines all over Central Asia run into China now, 25% of nuclear power under construction is in china), agriculture, semiconductors, communications, EVs, medtech, robotics/automation (eg 24/7 fully automated 5G container ports, remote mining vehicles). And of course, upgrading military power to defend the South China Sea from attack.

    I’m pretty sure China, like Russia, is not worried if its housing bubble ripples around the world; after all, payback for 2008 is a bitch.

    • Phoenix_Ikki says:

      Will be interesting to see how this play out. Xi Jinping is messing with a lot of gravy train and stepping on many toes within the power faction within CCP by trying to intentionally prick the never ending gravy bubble. Don’t think the Jiang Zemin followers are going to sit there and take it since most if not all have a lot riding of never ending up and up of real estate prices. It’s like Spice to them people…

      Wouldn’t be surprise a power struggle will play out in accelerated fashion to unseat Xi and things quick revert back to Jiang’s hyped up amalgamate version of Neoliberalism and pump the market back up again in no time.

      On the other hand, I also see a nightmare scenario in which the current situation will encourage Chinese domestic investors to look outside and flood into US/Canada markets all over again despite the crackdown of outflow capacity from China. They are crafty and I am sure they will find a way…that would only mean the real estate price here will continue to skyrocket and price out locals that need actual housing while their domestic market crash and burn.

      • MonkeyBusiness says:

        With every change, there will be winners and losers. The winners will back Xi so it’s not as if he has no allies. Also, don’t forget the power struggle between Xi and Bo Xi Lai which the former won easily. You seem to think that Xi’s defeat is inevitable? There’s no basis for that.
        As long as a new gravy train can be created out of the mess and everyone gets to participate, this thing can still go on for a while.

      • sam says:

        Xi is large & in charge via “Shanggui” (双规 – an internal disciplinary process conducted by the Central Commission for Discipline Inspection of the Chinese Communist Party (CCP) – and its lower-level affiliates – on members of the Party who are suspected of “violations of discipline,” a charge which usually refers to corruption but can occasionally carry other connotations as well. )

        Jack Ma thought he was connected….events revealed otherwise.

    • Nick Kelly says:

      ‘The CPC has made it clear that they want nothing to do with a financialized economy that generates fake wealth.’

      They’ve decided that NOW, as the largest RE bubble in history that started 20 years ago begins to crash. The RE component of the Chinese economy is estimated at 25 %.

      The CCP is engaged in a massive PR exercise to deflect blame from itself.
      Even in China, a RE development has to have govt approval at some level.

      Defend the South China Sea from attack? The International Court at the Hague has agreed with several countries who oppose China’s claim to their waters. China is the aggressor.

    • intosh says:

      Agreed completely.

      Just another example: CATL and BYD are the world biggest EV battery makers. Both Chinese companies.

  18. Double Bluff says:

    Xi’s afraid to leave his country.

  19. The problem with Real Estate Ponzi is there has to be, at some point, some intrinsic value to the asset.

    This is why Crypto Ponzi is so much better, it can never have intrinsic value and is therefore only constrained by opinion, which is why it has so many feverish boosters.

    Crypto Ponzi can achieve any value imaginable, as long as there are enough people continually blowing into the balloon.

    So why even bother with real estate?

    • Wolf Richter says:

      For the very reasons you specified, there is a floor under real estate (yield and utility). There is no floor under crypto.

      • MonkeyBusiness says:

        Oh come on Wolf, this is too easy. The floor on crypto is zero. That might actually better than when oil was trading in negative territory.

    • Nick Kelly says:

      You can’t rent or live in crypto.

  20. Old School says:

    It’s just so hard to tell what is what in a debt expansion. You have to get rid of the bad investments in a recession or you start just trading Tesla stock or cryptos to each other until the day you can’t get gas for the car or toilet paper costs $100.

  21. SpencerG says:

    Nice picture Wolf! That is the sign of a blogger who goes the extra mile for his readers!

  22. Andrew says:

    The Chinese government comes out of this debacle looking very presidential. They tried to reign in speculative and over leveraged shadow banks and building firms, and they went after the private wealth of CEO’s. The last national government to actually imprison executives for fraud was Iceland.

  23. Randy says:

    Well from personal experience with builders and liens, if you want your money you better be willing to settle for pennies on the dollar. In my case the average has been around $.70 for each dollar owed. So I suspect that’s what will take place there contractors will settle for pennies on the dollar. It usually covers cost but no profit for the contractors and in my case i worked for free. The only loss was my labor. That’s the cost of doing business in the land of nightmares(oh that is supposed to be dreams).

    • Nick Kelly says:

      If you’ve been recovering 70 % you are doing fantastic!
      Your number suggests the project was finished, had income? and owners had to clear liens to refi.

      I predict these liens will not see a cent. Looks like 300 million in front of them on projects that might appraise at half.

  24. Roger says:

    Sounds like this was a Ponzi scheme from the very beginning.

    Unfortunately the laws in California for contractors are very bad in how they allow for prepayments etc.

    My guess is they wanted to have enough work going to secure the loans and then redirect that money elsewhere.

    You can get the contractors all started with minor deposits and promises of payment with contractor laws not allowing for more than a 10% down payment.

    Then they get the banks on the hook for 2.5 billion just for the one project.

    Any lender doing their due diligence would arrive in Los Angeles, San Francisco or New York and see all the project labor agreements with the Unions, the planning being done, a ginned up architect firm and never question anything.

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