Chinese developer Hongkun faces foreclosure on luxury NJ condo
Parkview Financial pursues UCC sale on planned 282-unit development in Weehawken
A luxury condo project overlooking the Hudson is headed to auction in the latest example of a Chinese developer facing distress in the U.S. amid tighter oversight back home.
Lender Parkview Financial has initiated a UCC foreclosure sale for the equity interests in a 282-unit development in Weehawken, New Jersey, planned by the American affiliate of Beijing-based Hongkun Group.
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 last year from Parkview, a Los Angeles-based REIT.
The developer had planned to go vertical with an amenity-rich high-rise, which it would market to Manhattan workers who could have a cheaper cost of living and more space with a short commute. The project was to be one of the final components of a megadevelopment known as Port Imperial, which is planned to span 2.8 million square feet and include 1,500 condo units and 45,000 square feet of ground-level retail.
But Hongkun’s plan ran into trouble around the time Chinese regulators began cracking down on excessive borrowing and poor liquidity ratios of the country’s real estate developers.
Megadevelopers such as Oceanwide Holdings have been forced to sell or abandon real estate projects in the U.S. in order to comply with new debt controls. China’s property market has also weakened, harming developers’ revenues.
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 obligations and had limited access to capital market funding, according to a Fitch Ratings report.
A federal lawsuit filed in February by another of Hongkun USA’s lenders, New Asia International, reveals additional possible reasons for the firm’s troubles.
The suit alleges that a Hongkun representative said the company’s owner had been detained in China in connection with a criminal matter and that control of the company had been handed down to the owner’s son. The suit also said that Beijing Hongkun Weiye Real Estate Development, the Chinese homebuilding affiliate, had defaulted on its privately issued debt. The suit was terminated in April.
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.
Brock Cannon of Newmark is spearheading the marketing of the UCC foreclosure sale, which is set for June 29. Matthew Mannion of Mannion Auctions is the auctioneer.
A UCC foreclosure allows a lender to lay claim to the interests in a property while bypassing the court process. In order to foreclose, the lender has to put the equity interests up for sale in an auction that is “commercially reasonable.” Often, the lender wins the auction with a credit bid using its existing debt.
Neither Hongkun nor Parkview returned requests for comment.