Central’s biggest landlord is suing China’s biggest financial train-wreck for unpaid fees from an eight-floor office that was never occupied, according to a report in the South China Morning Post.
A unit of Hongkong Land is suing HNA Group after the aviation-based conglomerate defaults on payments due after it backed out of a lease for 88,000 square feet (8,176 square metres) of space at Three Exchange Square in Hong Kong, according to court documents cited in the media report.
HNA had agreed in 2017 to the lease, worth an estimated HK$12.85 million per month, however, after falling into a self-inflicted financial crisis that forced it into selling at least $44 billion in assets last year, HNA surrendered five floors included in the least last year, after reportedly transferring some of its space to Shenzhen-based China Merchants Bank.
HNA Asked to Clean Up Its Mess in Central
Hongkong Land’s complaint specifies that HNA has failed to make good on a HK$3.65 million payment due on December 1st and a second HK$4.65 million payment due on January 1st, according to a writ cited in the SCMP account.
HNA has fired back in a statement that “the relevant money has been paid in full” while also explaining that payment had been delayed because of a “liquidity problem.” Inquiries by Mingtiandi to HNA representatives seeking comment went unanswered at the time of publication.
When HNA signed a lease for eight floors in the prime commercial tower in 2017 it agreed to occupy the space from June 2018 through May 2027, but due to its financial collapse never actually moved into what were once the offices of BNP Paribas.
The original lease was reported to be at a rate of approximately HK$140 per square foot, making it one of the biggest office deals signed in 2017. However, HNA already was eager to back out of at least part of the lease by June last year.
Hongkong Land and HNA are said to have reached an agreement on early termination of the lease last year, with the unpaid sums potentially owed for legal fees, brokerage fees, costs of reinstating the office to its original condition or other costs related to cancelling the deal prematurely. Inquiries from Mingtiandi to Hongkong Land representatives seeking details of the dispute went unanswered at the time of publication.
“HNA is no longer a functioning conglomerate that just needs to strengthen its balance sheet,” Brock Silvers, founder of Shanghai-based real estate investment advisory firm Kaiyuan Capital told Mingtiandi. “It’s a troubled company nearing insolvency, being run by creditors, and facing possible legal jeopardy. Any HNA-controlled security, including HNA Investment, is now a candidate for suspension.” Officials from HNA’s largest creditor, state-run policy bank China Development Bank are now based in HNA’s offices where they directly oversee the group’s asset disposals, according to a report by Reuters last month.
HNA Selling in NYC and Shanghai But Still Can’t Pay Bills in HK
The Hong Kong lease lawsuit was revealed the same week that HNA disclosed that it had sold a Manhattan office asset for a loss estimated at $41 million, less than two and a half years after buying the 21-storey tower.
The parent company of China’s Hainan Airlines, together with two local partners, sold 850 Third Avenue in New York to New York-based investor Jacob Chetrit and sons for $422 million, with HNA having held a 90 percent stake in the property. The partners had purchased the building in 2016 for $463 million.
Earlier this week HNA was involved in another disposal when it sold 24 floors in the Pufa Tower in Shanghai’s Lujiazui financial district to a joint venture between Singapore’s CapitaLand and AEW for RMB 2.75 billion.