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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