Meet the Chinese investor in Related’s Grand Avenue megaproject

The nearly $300M investment is CORE fund’s first US deal

Dec.December 15, 2016 06:30 PM
CORE president and general manager Ren Hongpeng (credit: CORE website), and a rendering of the Grand Ave project (credit: LA County Board of Supervisors)

When the budget for Related Companies’ massive Frank Gehry-designed Grand Avenue project jumped by more than $200 million to $950 million this year, the team behind the project sought an equity partner to fill the hole in its capital stack.

In November, it was reported that the equity infusion for the project — which Related is developing as part of a public-private partnership involving city and county agencies — had come from China, though Related declined to identify the investor by name.

When the backer was announced Wednesday, it did little to satisfy the real estate industry’s curiosity. With no track record in the U.S., the revelation that CORE — short for CCCG Overseas Real Estate — was the firm behind the deal raised more questions than it answered.

“The name CORE is unknown to industry insiders, but it’s a government-owned entity,” a source familiar with the Grand Avenue transaction told The Real Deal, stressing that most Chinese investment has government ties. “The trail leads to the usual sources of capital.”

However, CORE — which operates out of Singapore and Beijing — may not remain unknown for long. Indeed, CORE’s parent companies, the state-owned construction giant China Communications Construction Group (CCCG) and the affiliated China Communications Construction Company (CCCC), created CORE just over a year ago with the aspiration to make it China’s largest overseas real estate developer, according to the CCCG’s mission statement on its website. CORE’s CEO, Liu Qitao, is also the chairman of CCCG.

CCCG is the world’s fifth-largest general contractor, governed directly by China’s State-owned Asset Supervision and Administration Commission of the State Council (SASAC), according to reports. Credit ratings agency Moody’s assigned a first-time A3 rating to its biggest subsidiary in 2015, primarily because it is likely to receive strong support from the Chinese government.

In 2014, CCCG acquired a 28.6 percent stake in Greentown Real Estate, one of China’s biggest domestic real estate developers. CORE was established the next year, in September 2015, to lead CCCG’s international real estate expansion, with a war chest of $500 million to deploy by 2017, according to its website.

The deal with Related marks the “beginning of a long-term partnership for future collaboration in the American real estate market,” CCCG deputy manager Zhen Shaohua said on the company’s website. CORE will be involved as an equity partner solely, a source told TRD, not as a developer.

In a statement released Wednesday, CORE’s president Ren Hongpeng said the opportunity to partner with a household name such as Related was a major draw for his company.

“This is our first major real estate investment in the United States and Related’s experience, expertise, and reputation were a key driver in our decision to invest in this marquee opportunity,” he said.

Internationally, CORE is working on a host of megaprojects across Africa, Australia, and Asia, including Daan Mogot, a 12,000 home development that spans nearly 6 million square feet in West Jakarta, Indonesia.

The origins of CORE’s parent companies date back to the late Qing dynasty in 1905, when Emperor Guangxu ordered the establishment of an engineering bureau. That bureau, which has had various names, became CCCC in 2003. Over the years, the various incarnations of the company have built critical infrastructure in emerging markets around the world and in China. Its work has included dredging projects in the South China Sea, which allowed the Chinese government to build military bases with runways and ports in waters disputed by the Philippines.

But CORE inherits a spotty legacy from its parent, CCCC. In 2011, CCCC and all of its subsidiaries were debarred from bidding on projects by the World Bank, because one of its predecessors, China Road and Bridge Group, was debarred for fraudulent practices discovered by auditors on a Philippines road project in 2009. The debarment is subject to review in 2017. CORE, as a subsidiary of CCCC, is also subject to sanctions, World Bank spokesperson Dina Elnaggar confirmed to TRD by email.

CORE is just the latest Chinese investor to infuse capital into the L.A. market.

Others include China Life Insurance, the Gemdale Corporation, Wanda, JE Group and Singpoli. Overall, Asian investment in global commercial real estate reached nearly $27 billion in the first half of the year, 60 percent of which came from China, according to CBRE.

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