An affiliate of Chinese developer Hongkun is likely going to lose its marquee property overlooking the Hudson River.
Lender Parkview Financial recently initiated a foreclosure on an equity stake in Hongkun’s planned 282-unit condo development in Weehawken, New Jersey. An auction is set for the end of June.
But a different lender may end up taking over the property. In an unusual move, Parkview is putting its $66.7 million loan up for sale, while simultaneously pursuing the UCC foreclosure.
Newmark’s Brock Cannon, who is marketing the loan sale, said the move will allow another investor to buy the distressed loan and then foreclose on the property’s equity. The new investor can use the amount the Hongkun affiliate owes Parkview on the existing loan — something known as a credit bid — in the auction.
“You generally don’t get a lot of interest in UCC foreclosures, because lenders can credit bid,” Cannon said.
It may sound like financial jargon, but the deal could have a significant impact on foreclosures if it’s widely applied. A UCC foreclosure allows a lender to bypass the traditional court process by foreclosing on an equity stake in the project, rather than the property as a whole. The caveat: The foreclosures have to be marketed as sales to other parties and sold through an auction. Lenders have a clear advantage in these auctions because they can essentially bid at a discount by using their existing debt.
But in this case, another investor can buy the loan and pursue the UCC foreclosure. This would also reduce the time needed to foreclose, since the new investor can continue with the existing foreclosure process initiated by Parkview.
“As the lender, you are getting the clock started,” said Cannon. “You are condensing the timeframe.”
The loans’ purchaser would acquire the equity in a 3.65-acre waterfront site with fully approved plans.
Hongkun USA bought the site for about $75 million in 2019, securing some of its financing through the federal EB-5 program, before receiving a $61 million loan in December 2020 from Parkview, a Los Angeles-based REIT. The loan had a costly interest rate of 9 percent plus LIBOR, according to marketing materials.
The developer planned to go vertical with an amenity-rich high-rise, marketing it to Manhattan workers seeking cheaper rent, more space and a shorter commute than from some parts of Brooklyn. The project was among the final components of Port Imperial, a planned mega-development that will bring 2.8 million square feet, 1,500 condo units and 45,000 square feet of ground-level retail to the Hudson waterfront.
But Hongkun’s plan hit a snag around the time Chinese regulators began cracking down on excessive borrowing by the country’s real estate developers. Its loan matured in December 2021 and has now accumulated $5.5 million in fees and default interest, according to marketing materials for the sale.
Hongkun and its affiliated companies’ demise appears to stem from a mix of factors. As of December, the company’s Chinese homebuilding affiliate lacked sufficient cash on hand to meet its upcoming debt payments and had limited access to the capital markets, according to a Fitch Ratings report.
Hongkun USA’s parent company, Hongkun Group, has $7.7 billion in assets, according to its website. Its projects include the NBA Center in Tianjin, China.