Beijing-based Oceanwide Holdings’ $1 billion trophy development across from the world famous Staples Center in Los Angeles has shut down due to a barrage of lawsuits by unpaid contractors.
Oceanwide Plaza in the third quarter of 2017 was trumpeted by the 1,700 property owners of the Downtown Center Improvement District (DCBID) as the crown jewel of Los Angeles’ transformation “into a vibrant 24/7 destination.” Just two years after city approval, the famed 49-story central tower was set to include 184-room five star Park Hyatt hotel rooms and 164 condos; flanked by two 40-story towers featuring 504 super-luxury condos; and connected by about 200,000 square feet of high-end retail shopping.
The Oceanwide Plaza strategically faces the Staples Center that is rated the sixth “Most-Instagrammed Place in the World” for hosting over 50 mostly sold-out rock concerts, in between hosting NBA Lakers, NBA Clippers and NHL’s Kings home games.
The development plan also features a fabulous 850-foot LED screen tower wrapping and a two-acre sky park with bars and infinity pools facing Staples Center.
But in January 2019, Oceanwide Holdings was targeted in a slew of FBI subpoenas regarding potential bribery, extortion, money laundering, and conspiracy involving LA City Council member Jose Huizar. Other Chinese real estate developers in Los Angeles receiving subpoenas included Shenzhen New World Group that owns the downtown Los Angeles Marriott and the Sheraton Universal hotels, and Shanghai-based Greenland USA that owns the Metropolis Los Angeles and Atlantic Yards in New York.
The Plaza’s lead contractor Lendlease suspended work in February after lawsuits led to nine active liens filed by unpaid subcontractors for a total of $98.6 million.
Oceanwide Holdings blamed Sino-U.S. trade war retaliation for capital restrictions, which made it difficult to get cash out of China. But its major Chinese investors HNA, Fosun International, and Dalian Wanda Group have all been trying to dump assets.
The Plaza project seemed to get restarted over the summer, but Bloomberg reported on Oct. 29 that the Chinese regime’s monetary authorities had imposed the capital controls to stabilize its yuan currency from a major devaluation. Due to the domestic focus, “Chinese direct investment in the U.S. real estate and hospitality sectors plummeted to $377 million last year from a high of $17.3 billion in 2016.”
Oceanwide has been trying to secure a U.S.-based construction loan to finish the framed and half-completed project. But California law grants unpaid subcontractor invoices as priority creditors over any liens from a subsequent lender. Only a non-bank “hard money lender’ charging sky-high interest rates of 7.5-15 percent might accept that type of risk.
The building boom transforming downtown Los Angeles was driven by demand from millennial professionals seeking the hip urban scene. DCBID trumpeted that market-rate apartments in the LA downtown core increased 10-fold over the last two decades, from 2,426 to 27,616 at the start of this year’s third quarter.
But with another 3,296 rental units under construction, the LA Weekly reported rents fell slightly in September to $2,665 per unit. The downtowns’ first decline since 2011 was blamed on a 12 percent rental vacancy rate and a looming new supply from Oceanwide and the other Chinese developers with projects at various stages of completion.
A Beijing spokesman told Bloomberg its LA Plaza project is still under construction and that the company still has access to development loans. But the Oceanwide Plaza subcontractors are contesting the authenticity of a “suspicious” $325 million deed of trust on Oceanwide Plaza that is held by a group representing Chinese EB-5 visa investors that provided green card work permits for creating U.S. jobs.
Bloomberg reported that L.A. Downtown Investment LP, the provider of the EB-5 development funds, only loaned approximately $137 million to Oceanwide. Several Downtown Investment executives were sued in 2017 by the U.S. Securities and Exchange Commission for allegedly defrauding EB-5 investors in another project.
Oceanwide’s China spokesman declined to make any response to Bloomberg’s inquiries regarding EB-5 investor issues.
Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.
Friends Read Free