HNA Group is transferring ownership of its interest in a $3.6 billion New York trophy project as liquidity problems continue to challenge one of China’s most debt-laden conglomerates.
Under the terms of the deal set out in a filing to the Shenzhen stock exchange, the cash-starved parent company of Hainan Airlines is selling its 92.86 percent interest in a fund holding a stake in Tishman Speyer’s the Spiral to HNA Investment Group for a total consideration of RMB 1.4 billion ($200 million).
HNA Investment, which was formerly the developer Yeland and now acts as HNA’s financial investment platform, will be paying RMB 1.3 billion in cash and taking over responsibility for a RMB 100 million loan facility, in order to claim the rights to the Hengxing Juyuan investment vehicle.
The Hainan-based company’s decision to restructure its investment in the Tishman Speyer project comes two years after the group agreed to invest a total of $372 million in the landmark commercial development, including a $166 million initial payment.
Asset Transfer Could Signal Larger Deal
The 306 metre (1,005 foot) tall tower, which is expected to be completed in Manhattan’s Hudson Yards during 2022, has received a loan of $1.8 billion from Blackstone Mortgage Trust, while other backers are reported to include Dutch pension fund BpfBouw.
Set to provide 2.85 million square feet of net lettable area, the Spiral has already secured investment manager AllianceBernstein and pharmaceutical giant Pfizer as anchor tenants under 20-year lease agreements. The two companies are taking up a combined area of one million square feet, accounting for nearly 36 percent of the 65-storey tower’s rental space.
According to Brock Silvers, a managing director with Adamas Asset Management in Hong Kong, the transfer of HNA’s stake in the Spire project to HNA Investment Group appears to be driven by balance sheet needs rather than strategic considerations.
“It wouldn’t surprise if the move was prelude to some sort of larger exit, which could be best for all parties,” the veteran real estate investor said.
“HNA’s overall financial situation remains dire, and the company has experienced a tumultuous but reasonably successful 2019,” Silvers added. “Debt levels are nonetheless still extremely problematic, and the company continues to shed assets, whether of its own volition or at Beijing’s instigation.”
Prior to this latest transaction, HNA investment already directly owned a 7.07 percent stake in the the fund, as well as an additional 0.07 percent held through a wholly owned subsidiary. Following the acquisition, the company will hold 100 percent of the investment vehicle.
Adding to the Trail of Investment Fail
HNA Group is restructuring its investment in the US project as the company continues a nearly two year fire sale.
Just three months ago, HNA put a pair of hotels up for sale – one in Shanghai and another in Hainan – for a combined RMB 2.7 billion.
That move came after it sold its remaining 75.10 percent stake in a Beijing commercial complex to a subsidiary of China Vanke for a total consideration of RMB 1.3 billion.
Just a month before that, lenders to HNA’s Hong Kong-listed subsidiary CWT International Ltd, put the company’s Singapore-based metals trading and logistics units up for sale after the company defaulted on a HK$1.4 billion ($179 million) loan in April.
Some of HNA’s compatriots and competitors that had helped the murkily managed conglomerate lead a wave of mainland outbound investment from 2014 through 2017 have suffered from similar struggles.
Just over one week ago, Beijing-based Oceanwide Holdings was forced to suspend construction of a 605 foot tower in San Francisco. The company says that progress on the project is stalled indefinitely as it searches for ways to cut construction costs on what would have been one of the city’s largest new developments.
Oceanwide had halted construction on its $1 billion Los Angeles project in January of this year.
In August of this year a company funded by Guangzhou R&F Properties’ co-founder Zhang Li, had a pair of developments in San Jose, California reclaimed by the city, after the developer failed to hit contractually designated project milestones, according to local media reports.