Construction of Oceanwide Plaza, a $1-billion real estate development in downtown Los Angeles, remains stalled amid questions about whether the Beijing-based developer can find the funds to complete it.
Work on the mixed-use complex near Staples Center stopped late last month, bringing widespread attention to the rare sight of a three-skyscraper construction site devoid of activity when it should be swarming with hard-hatted laborers.
The project is being built by Oceanwide Holdings, a publicly traded international conglomerate that reported revenue of $2.37 billion in 2017 but was pronounced to have a “negative” financial outlook by ratings firm Standard & Poor’s last October.
Oceanwide said in a statement Jan. 24 that the holdup was due to a recapitalization of the project and that work would resume by the middle of February. Work is still stalled, however, and Oceanwide declined to comment further Friday.
The company has been hit with more than $50 million in mechanic’s lien claims by contractors who say they are owed money by Oceanwide. In January, Oceanwide cited financing challenges as the reason for the cessation of construction.
“In an effort to prioritize construction activity, and while we restructure capital for the project, interior construction at Oceanwide Plaza is temporarily on hold,” Oceanwide said in its January statement.
The general manager of the city Department of Building and Safety, Frank Bush, said last month that his agency had received a call from Lendlease, the general contractor on the project, saying it was canceling an inspection that had been scheduled for that day.
“They said they were stopping work on the project at this time, and had no further explanation,” said Bush, who noted at the time that the shutdown had nothing to do with any inspections or permitting issues involving his agency.
Oceanwide has large real estate developments planned in Hawaii and New York that haven’t gotten underway. Work is, however, continuing on Oceanwide Center, a two-skyscraper condo, hotel and office complex in San Francisco launched in 2016, according to its construction manager Aecom Tishman.
The Los Angeles development, which started in 2015, is well underway and was expected to be completed this year. The three towers, which are to house more than 500 luxury condos and a Park Hyatt hotel, have already reached their peak heights of as much as 55 stories. Work was taking place inside the structures when construction stopped, though they are still partially exposed to the elements.
The halt of a Chinese-backed real estate project raised concerns that it may be related to Chinese government policies restricting the flow of money out of the country. The policies, put in place in 2016, sent shock waves through real estate circles because China has become a major investor and developer in the U.S.
“We have not been seeing as much new investment as we were seeing before” the government crackdown on overseas investment, said Stephen Cheung, president of World Trade Center Los Angeles, which promotes local businesses overseas and seeks to attract foreign investment to the region.
Tariffs imposed by the Trump administration are “a compounding factor” hindering Chinese investment in the U.S., he said. “The two factors together are making it worse.”
The Oceanwide shutdown, however, “surprised us all a little bit,” Cheung said, because multinational conglomerates like Oceanwide have other ways of funding U.S. projects besides taking money out of China, such as selling assets in other countries.
“I am hoping that this is an isolated incident, not a general trend,” Cheung said. “If it is, that will be very problematic for us.”
The 504 luxury condos at Oceanwide Plaza represent a substantial block of for-sale housing. They would hit the market in the wake of another big Chinese-backed condo and hotel development downtown called Metropolis that will have more than 1,500 units upon completion.
The developers of both projects expected to sell many of their units to Chinese citizens looking for overseas investments, but the Chinese government’s squeeze on cash leaving the country has affected condo sales in Los Angeles.
Metropolis developer Greenland USA “relied on a lot of overseas buyers” to purchase units in the first of its three towers that was completed in 2017, said Maranda Blanton of Compass Development, which will oversee marketing of the units for sale at Oceanwide Plaza.
“Now Greenland has had to really start focusing on the local market,” she said, which includes Southern Californians and some Chinese and Korean nationals who already have money in the U.S.
It’s unclear whether that shift has been a financial strain, but Greenland late last year put its third, unfinished Metropolis condo tower on the market while construction continues. Completion is expected this fall.
Other examples of Chinese pullbacks are evident, including the sale in November by Dalian Wanda Group of a prized parcel on Wilshire Boulevard in Beverly Hills, where the large privately held company had planned to build a $1.2-billion condo and hotel complex.
Oceanwide’s challenges in the U.S. may extend beyond Chinese government financial restrictions and reflect internal issues. Even though the company reported rising earnings in the first half of last year, Oceanwide has “large short-term debt,” S&P Global ratings said, and faces substantial pressure to refinance and roll over loans.
“We continue to view Oceanwide's capital structure as unsustainable and vulnerable to adverse market conditions or operational slippages, despite no specific default scenario envisaged,” the ratings firm said in October.
Indeed, Oceanwide, in its pledge to continue construction, said last month that the halt was “solely based” on internal factors.
Despite the pullback in Chinese capital and buyers, Blanton said the downtown condo market remains strong. Greenland is selling about five or six units per month at an average of more than $1,100 per square foot — more than $200 above the typical resale price per foot of a downtown condo. She predicted there would be demand for units in Oceanwide Plaza.
“We get numerous calls a day from people looking for information,” she said, including prospective buyers from Russia, the United Kingdom and Mexico. Interest has also come from people who live in Orange and San Diego counties considering a downtown L.A. pied a terre.
Los Angeles real estate consultant Martha Welborne of HR&A Advisors played a role in the nearly 20-year process to get the $1-billion Grand mixed-use project on Bunker Hill designed by architect Frank Gehry underway last year.
She said that if Oceanwide is unable to complete its project, another builder is likely to buy and finish it.