Oceanwide battles to hang on to LA megaproject

Embattled China-based developer hints at trying to finish three towers near convention center

National Issue /
Feb.February 07, 2022 07:30 AM

(Photo-illustration by Paul Dilakian/The Real Deal)

Oceanwide wanted the American dream. And it wanted it from coast to coast — Manhattan to L.A. The firm, one of China’s largest real estate developers, even looked to top it off with a high-end resort in Hawaii. 

Its dream looks different these days. The firm is down to its last standing project: the unfinished Oceanwide Plaza in Downtown Los Angeles. It has either lost, or is on the brink of losing, its three other U.S. developments. 

Over the last few months of 2021, Oceanwide tried to rearrange its balance sheet by staving off bond defaults and selling subsidiaries — to little avail.

The firm kicked off this year without its 2.4 million-square-foot Oceanwide Center development in San Francisco, faces foreclosure on its Hawaii resort developments and is in default on debt linked to its planned New York skyscraper. 

The one U.S. asset that Oceanwide has managed to keep on life support is Oceanwide Plaza, its 2 million-square-foot condo, hotel and apartment development that now stands as both a hope and a gap on the city’s skyline. 

Even that seems a stretch these days. The onetime flagship for the developer’s U.S. operations is an unfinished ghost town that occupies a full square block of DTLA, with its three towers stretching from Figueroa to Flower streets, directly across from the Staples Center — newly renamed Crypto.com Arena — and a short walk from the Los Angeles Convention Center.

The developer has nonetheless pegged a December opening for the project about four years later than originally planned. A best-case scenario would make the date, offered in a recent public filing in China, a signal that Oceanwide has made a choice to try to salvage the project, hoping to make good on its $1.2 billion or so in sunk costs. 

Or it could be making an effort simply because it has no other choice — the project is well beyond half finished, a level of progress that makes fundamental design changes prohibitively expensive.

Oceanwide or any prospective owner will be on the hook for plenty, in any case. The developer has stated that it needs another $1.2 billion or so to wrap up construction — money it didn’t have at last check. The firm was down to $2.7 million in cash as of June 30, 2021, when it made its most recent public filing. It was carrying $834.9 million in debt at the time, with around 80 percent of that coming due within a 12-month period. 

A representative for Oceanwide did not respond to a request for comment.

Its current financial straits are part of a larger trend among big China-based commercial real estate developers. 

In Oceanwide’s case, the shortfall appears to lock down the design of Oceanwide Plaza, which in turn offers little hope of avoiding some tough timing. The project’s proximity to the convention center means a major element — its hotel rooms — would join the hard-hit business-travel segment. A relatively large amount of retail space — plans call for 153,000 square feet — appears to be even more ill-timed based on market trends toward e-commerce and a drop in mall traffic amid the pandemic. 

Add all that up and Oceanwide Plaza might be a tough sell even to bargain hunters. That, in turn, could leave the developer little choice but to do whatever it can to hold on while also giving creditors reason to provide more time on upcoming debt deadlines. 

Shedding

Oceanwide has been scrambling for months to try to avoid defaults on various loans. In October, the developer slipped enough to lose control of its unfinished project in San Francisco, where creditors have put it on the sales block.

In January, Oceanwide disclosed that its lender on its Hawaiian resort properties, Zhongpan Holdings, was set to foreclose on the projects, after Oceanwide failed to pay back $160 million in debt. Oceanwide bought a 514-acre parcel near Honolulu for around $98 million and marketed the property for sale last year for around $33 million. 

Then the firm took another hit. It defaulted on a $175 million loan linked to its development site in Manhattan’s South Street Seaport. The company had been willing to sell the site for around $200 million — a $190 million haircut after holding the land for five years. 

Oceanwide has all the while made no disclosures about Oceanwide Plaza in L.A. since 2020, when a refinancing deal fell through and multiple negotiations for a sale stalled. In 2019, Oceanwide hired JLL to market the sale of the development. A year later, Oceanwide disclosed that multiple negotiations had stalled and a refinancing deal fell through. JLL didn’t respond to requests for comment. 

Workout routine

In more recent months, the company has been trying to extend maturities on a number of its U.S. dollar-denominated loans and attempting to push back repayment of $1.07 billion in domestic loans to next year, according to filings with the Shenzhen Stock Exchange. 

The latest sign of an ongoing workout came at the end of November, when the company said it redeemed $134 million worth of U.S. dollar-denominated notes and is in discussions with unnamed major bondholders to postpone interest payments on another $210 million through May of next year, adding it would pay “as soon as possible.” The bonds were originally set to mature this year. 

By extending maturities on the foreign loans, Oceanwide stands a chance of keeping foreign debt holders at bay, avoiding the fate that befell it in San Francisco, where its project was seized as collateral after missed payments.

A wildcard for the company’s balance sheet popped up in June, when Oceanwide sold International Data Group to Blackstone Group in a deal that pegged the media research firm’s enterprise value at $1.3 billion. Reports in China said Oceanwide paid $700 million for the Needham, Massachusetts-based company in 2017 — indicating the investment ran nearly opposite to the direction of its core real estate in recent years.

Though Oceanwide has yet to announce a new financing plan for its L.A. project, whatever cash from the research firm’s sale that might have made its way onto the  developers’ balance sheet and delayed debt maturities could help fund the rest of the project. 

That’s no small order: financial filings from August indicated it would cost a total of $2.3 billion to complete the L.A. project, not to mention the need for a new contractor on the long-stalled development, which has been hamstrung by $200 million in mechanics liens.

Oceanwide claims construction of the main structure is finished, along with 85 percent of all electrical work on the tower. Around 60 percent of the interiors of the other two towers have also been completed. 

Any count points to more than $1 billion to get the project finished.

Grand ambitions 

Oceanwide bought the DTLA site in 2013 for $296 million from Northwood Investors and TMG Partners. Two years later, it announced plans to build the three-tower complex and secured a deal with Hyatt to move a Park Hyatt hotel into the development. 

Construction on the project stalled in 2019, well ahead of the pandemic. The company said at the time that  it needed to restructure capital. Contractors had hit Oceanwide with claims for more than $100 million in unpaid work. 

Right before the start of the pandemic in early 2020, Oceanwide came to an agreement with its main contractor, Lendlease, to resume construction. Oceanwide then missed scheduled payments just three months later. 

Lendlease eventually hit Oceanwide with a lawsuit, resulting in a court declaring a $42 million judgment against Oceanwide in September. The same month, Lendlease exited the project, leaving Oceanwide without a contractor. As of the end of November, Oceanwide still hadn’t paid the judgment, court filings show. Oceanwide will be required to attend another court proceeding to figure out how the firm can pay up.

“It’s hard to discern what they [Oceanwide] are thinking,” said a source familiar with the project.

Trouble on the home front 

Despite staving off default on foreign bonds — including U.S. issues — Oceanwide has failed to pay back a number of domestic bonds in China. The pattern suggests the developer might be more inclined to repay foreign bondholders to save any more assets outside of China from seizure. 

On Dec. 2, the firm disclosed it was unable to pay back $90 million worth of domestic bonds issued by the Bank of Beijing and CSC Securities, due the day prior.

The default was attributed to the pandemic, real estate policy regulation and a “cash flow matching problem,” Oceanwide said in its Dec. 2 filing.

Oceanwide isn’t throwing in the towel on its China-based debt. In a separate filing on Dec. 2, the firm said it was in discussions with Beijing-based Minsheng Securities to extend deadlines to repay $1.07 billion in domestic loans to the end of 2022, instead of 2021. As collateral, the firm pledged to use over 700 million shares of an Oceanwide subsidiary. 

The company had secured the financing from Minsheng from October to December of last year. 

As of June, the firm was only collecting substantial revenue from its developments in China — around $7 million for the six months through June 30. It reported a $73 million loss over the same period.

In its mid-year report, the firm acknowledged that it can’t finish development all on its own with its existing balance sheet — a note that came in the same mid-year report that set an opening date for the DTLA project.

Amid the mix of caution and hope in the report was language that an effort to save the L.A. project is within the realm of possibility.

The developer remains “committed to accomplish all the existing projects under the backdrop of global economic uncertainty [by] exerting our utmost effort in implementing, among other things, the tasks of corporate financing, joint development, disposal of assets and strengthening of control.”

It remains to be seen whether Oceanwide is dreaming.


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