Amidst a string of setbacks, scale-downs and sell-offs by Chinese firms in international real estate markets, Greenland Group’s U.S. joint venture is reportedly shopping a “very significant” equity stake in Pacific Park, its blockbuster Brooklyn development project.
Greenland Forest City Partners, the joint venture between Greenland Group and Forest City Ratner, is looking to sell a stake in Pacific Park that would include major condominium complexes and a 750,000 square-foot tower, according to a report by New York industry journal, The Real Deal.
JV Decides to Shop Stake in $5 Bil Project
Greenland Group, a Shanghai-based SOE and one of China’s largest developers, acquired a 70 percent stake in the Pacific Park project in 2014. That deal marked Greenland’s second major acquisition in the U.S., following the 2013 purchase of the Metropolis in downtown Los Angeles for $1 billion. The Pacific Park project (formerly known as Atlantic Yards) was valued at $4-5 billion, with the two sides agreeing to co-develop the site through a joint venture company.
Pacific Park broke ground in December 2014, with Mayor Bill de Blasio praising the stipulations for affordable housing units and Greenland Chairman Zhang Yuliang pledging to double the company’s overseas revenue in 2015. But the Real Deal now reports that Greenland Forest City Partners is shopping the major equity stake in order to recapitalize its investment in the project.
The move is consistent with Forest City’s transition to a real estate investment trust (REIT) this January, a change that incentivized it to shed some higher-risk and slower-moving development projects. REITs tend to favor the steady cash flow of managing office or retail locations over dicier investments in early-stage residential developments.
Chinese Developers Trimming Back Their Overseas Deals
But the rumored sell-off also comes as the latest high-profile reversal by a Chinese firm charging headlong into complex international development projects. Even before Anbang belly-flopped with its failed acquisition of Starwood, in recent months Greenland Group, Dalian Wanda and Country Home and Garden have all abandoned or substantially scaled back international projects due to local opposition.
Just last month Greenland Group pulled out of a 1,100 unit development in Melbourne, likely due to substantial local opposition to the project. Dalian Wanda is reportedly trying to sell off a Spanish development following government opposition to Wanda’s plans for tearing down and rebuilding an iconic structure.
And last year Country Garden was forced to scale back plans for its sweeping Malaysian development called Forest City (no relation to Greenland’s JV partner). The original project called for four new islands on reclaimed land between Malaysia and Singapore, but was downsized by 25 percent following complaints from Singapore and local fishermen over massive fish die-offs.
Wanda’s Wang Jianlin once called these face-losing stumbles the “tuition” that Chinese firms must pay for their education in international development markets. In 2013, Wang predicted that half of these early ventures abroad would fail.
Forest City and Greenland Both Changing Direction
The marketing of the stake in Pacific Park is by no means a sure fire indicator that the project or its developers are in dire straits. In recent months Forest City has shed a number of assets that don’t mesh well with its new identity as a REIT. Last November Forest City sold off a $158 million development project they had purchased and razed just a year earlier. And in December the group offloaded its stake in the Brooklyn Nets and the Barclays Center where the team played. That arena was included in the Pacific Park project but not in the deal with Greenland.
Earlier this year, Greenland and Forest City also presented community groups with plans to build Brooklyn’s largest office tower, a turn from riskier residential toward commercial property better suited for an REIT.
But the decision to sell major equity in one of Greenland’s flagship U.S. projects raises questions about the financial prospects for the project, as well as Greenland’s long-standing advantage derived from cheap capital at state-owned banks. Last year Greenland began dabbling in online finance, raising RMB 200 million in just 30 minutes through Alibaba’s Ant Financial platform and Ping An wealth management products.
With the Pacific Park stake now floating to potential investors, we may soon learn if Greenland’s tuition payments have finally come due.