China Oceanwide Halts Construction on $1B Los Angeles Project

Developer China Oceanwide Holdings has halted construction on a $1 billion mixed-use project in Los Angeles that was previously scheduled to be completed this year, according to an account in the Los Angeles Times, citing a statement by the Beijing-based developer.

The delay in work on Oceanwide Plaza, which is designed to include 504 homes, 184 hotel rooms and 153,000 square feet (14,214 square metres) of retail space, was said by the developer to be driven by a need to recapitalise the project, and raises doubts at a time when Chinese investors are selling off billions of dollars in overseas real estate assets.

China Oceanwide, which last week announced the sale of a pair of projects in Shanghai and Beijing for a combined $1.85 billion, has said that construction on Oceanwide Plaza should recommence in the middle of February. However, the project is one of several Los Angeles investments by Chinese developers that could be influenced by an ongoing corruption probe.

Developer Needs to “Restructure Capital” for LA Project

“In an effort to prioritize construction activity, and while we restructure capital for the project, interior construction at Oceanwide Plaza is temporarily on hold,” Oceanwide said in a statement cited by the LA Times.

The company went on to say that it had already invested $1 billion in equity into the development, and together with contractor Lendlease, would recommence construction in the middle of next month, after the company has upped its investment, with the project to be completed in 2020.

Under the terms of its sale of the Beijing and Shanghai projects to Sunac China announced last week, Oceanwide is set to receive the first two instalments of the $1.85 in proceeds from the disposal sale during February, a timeline which could coincide with it recapitalising Oceanwide Plaza.

Oceanwide had topped out the project in April of last year, and the company said at the time that the property would be completed in 2019. Sales of homes in Oceanwide Plaza’s residential component are also planned to start this year.

In a separate account, the Associated Press reported that executives at Lendlease had notified the Los Angeles Department of Building and Safety that work was stopping on Oceanwide Plaza, a three tower project that reaches as high as 55 storeys.

Oceanwide Caught in LA Scandal

The delay in construction for Oceanwide Plaza was reported less than two weeks after news accounts revealed that Oceanwide had been linked to a corruption scandal involving Chinese developers and Los Angeles city officials.

China Oceanwide Holdings, along with Shanghai’s Greenland Group, Shenzhen Hazens, and Shenzhen New World Group were all named in a search warrant filed by the FBI and approved in US federal court last November, seeking access to email accounts belonging to Ray Chan, the former head of the Los Angeles Department of Building and Safety under Mayor Eric Garcetti.

The FBI probe, which did not allege wrongdoing by Oceanwide or any of the other developers, was looking into the possibility of bribery, kickbacks, extortion, and money laundering related to approvals granted to the Chinese developers for real estate projects in California’s largest city. The investigation is ongoing, and Oceanwide indicated that its project delay was caused by financial issues.

Chinese Developers Drop Out of US Market

Oceanwide’s apparent need to look for fresh cash for its Los Angeles project has parallels in an abrupt reversal of capital outflows from the mainland into global real estate markets, including the US.

In November of last year China’s largest commercial developer, Dalian Wanda, sold off its own Los Angeles project, selling the undeveloped eight acre (32,375 square metre) One Beverly Hills site along Wilshire Boulevard for a reported $420 million. That disposal came more than four years after Wanda bought the project, and over one year after the builder was targetted by Chinese president Xi Jinping in a crackdown on outbound capital flows.

In the third quarter of 2018, Chinese investors acquired just three properties in the US worth a combined $119 million, according to a report by Cushman & Wakefield, while during the same three month period, mainland firms sold real estate assets worth $1.2 billion.

Oceanwide in Cash Crunch

Oceanwide appears to be having a liquidity crunch domestically, as well as in its US projects, where it has invested in real estate deals in Hawaii, San Francisco and New York, as well as Los Angeles.

In a research note published on January 22^nd, credit rating agency S&P Global Ratings noted that Oceanwide has $400 million in senior notes coming due in May of this year. As of September of 2018 the company has RMB 130 billion in total debt, with more than RMB 50 billion maturing within 12 months.