How much are three abandoned, partially built luxury towers in Downtown Los Angeles worth?
That’s the question raised by L.A. Downtown Investment, an EB-5 investment firm that sunk millions into the graffitied eyesore known as Oceanwide Plaza at Figueroa, Flower, 11th and 12th streets, Bisnow reported. It says the project is worth far less than its developer contends.
The firm representing the foreign investors in the EB-5 program say its developer, China-based Oceanwide Holdings, overestimates the value of the unfinished hotel and condo towers by relying on an outdated appraisal.
Its attorneys suggest a sale price should account for a property left to weather the elements for more than four years and would likely cost $1 billion to complete.
L.A. Downtown Investment, one among many investors involved in litigation over the unfinished hotel and condo project, has teamed up with one creditor to argue in court filings that the project estimate comes from a 2017 CBRE appraisal.
They say the seven-year-old appraisal doesn’t reflect the project’s nearly five-year construction halt, the time it has stood vacant or the cost of white-washing the graffiti, according to the filing.
“The debtor’s views on value are grossly overstated,” L.A. Downtown Investment said last week in a complaint filed in bankruptcy court.
In June, L.A. Downtown Investment filed a notice of default with L.A. County, stating the Beijing-based developer had defaulted on an EB-5 loan tied to the project. Oceanwide owed $157.4 million under the loan, according to the notice, which also stated a sale could be scheduled after Aug. 8.
Lendlease and subcontractor Webcor have sued the EB-5 lenders and Oceanwide in an effort to gain lien priority over the EB-5 lenders, meaning in the event of a foreclosure or bankruptcy, the contractors would get paid first.
Lendlease also wants the court to invalidate the EB-5 group’s loan altogether, claiming fraud and misrepresentation.
L.A. Downtown Investment was previously run by Edward Chen, who was charged by the U.S. Securities & Exchange Commission in 2017 for allegedly stealing $12.5 million from investors. A federal court ordered Chen to pay back $24 million.
Lendlease, the general contractor for the Oceanwide Plaza project, joined other creditors owed for their work to push the China-based developer of Oceanwide Plaza into bankruptcy last month.
Contractors and investors have also sued over money they say they’re owed on the project. The developer’s parent company, Beijing-based China Oceanwide Holdings Group, faces liquidation.
Oceanwide Holdings acknowledges it owes at least $370 million, including a $170 million loan from L.A. Downtown Investment, $185 million owed to Lendlease and $15 million owed to the L.A. County Tax Collector, according to court filings reviewed by Bisnow.
The CBRE appraisal, updated in 2021, estimated the “as-is” value of the project at $313 million — less than the amount owed on the project.
That same appraisal estimated that the value of the luxury project, once complete, would be $1.4 billion, and that the cost to complete the project could be $1.2 billion.
“A prospective buyer would be hard put to pay anything close to $200 million for the project in its ‘as is’ condition, let alone the $370 million that the debtor says presently encumbers the property,” the updated appraisal said.
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The discussion of the project’s value came into play as Oceanwide argued that it needs debtor-in-possession financing, funding that is only available to bankrupt companies, according to Bisnow.
“The debtor is in desperate need of funds to pay for continued maintenance and preservation of the property, including funds to safeguard the property, insurance coverage for the property, and payroll for employees,” Oceanwide said, asking the court to approve such financing.
Those who are owed by Oceanwide, including the county and L.A. Downtown Investment, have expressed concerns about the financing and seek assurances that nothing will hold up a sale of the property, which could allow them to get paid.
— Dana Bartholomew