Chinese developer struggles in Brooklyn, other U.S. projects
Sources say Greenland underestimated how long it would take to build, sell apartments
China’s Greenland Holding Group is selling part of a major Brooklyn real-estate project, the latest sign that Chinese developers and investors are having a rough time in the U.S. property market.
The state-owned developer said last week it is selling three parcels of land on its sprawling Pacific Park Brooklyn project to TF Cornerstone and to the Brodsky Organization, though all three companies declined to discuss the price. Greenland said the recent sales would help move the stalled 15-building project forward.
The deal comes as the mixeduse development’s initial revenue, which has been generated primarily by apartment sales, is falling short of early projections, according to people familiar with the matter. A Greenland spokeswoman didn’t respond to requests for comment on revenue.
Chinese real-estate firms, insurers and other investors barreled into the U.S. property market a few years ago, buying up hotels, office buildings and financing new developments. But Beijing’s recent restrictions on capital outflows, regulatory pressures, and rising debt levels have compelled many Chinese to sell their properties.
Anbang Insurance Group Co., which owns the Waldorf Astoria hotel in New York, is marketing a portfolio of about 15 other luxury hotels. Dalian Wanda Group is currently in talks with Triple Five Worldwide Group of Companies to sell its Beverly Hills development site, which Wanda paid $420 million for in 2014.
HNA Group Co. has sold several office buildings in the U.S. and is in talks to sell its Manhattan building near Trump Tower.
Overall, Chinese were net sellers of more than $1 billion of U.S. real estate in the second quarter, the first time they sold more than they bought since 2008, according to Real Capital Analytics.
Chinese investors swept into the New York market when it was “frothy,” pushing prices and sales volume to peak levels in 2014 and 2015, said Adelaide Polsinelli, vice chair of the commercial investment sales and leasing division at real-estate services firm Compass.
They wanted to buy, build and sell in a fast four to five-year time frame, she said. Now, they are facing a surge in residential construction, rising interest rates, less favorable U.S. tax laws and tightened restrictions on capital
outflows.
“They were overly optimistic, and the market didn’t cooperate with their timing,” Ms. Polsinelli said. “At the end of the day, we’re in a cycle, and we’re facing down, not up.”
Unlike some Chinese investors who have sold U.S. holdings, Greenland isn’t pulling out of Pacific Park but bringing in new partners.
The project has four completed buildings, a mix of luxury condo units and affordable rental apartments, with roof decks, fitness centers and some ground floor retail space the developers are trying to lease. Construction on the fifth tower is expected to start in the spring.
Greenland was more adventurous than other Chinese investors,
venturing out of the betterknown Manhattan neighborhoods and into the less developed territory of Brooklyn. The Chinese developer’s subsidiary, Greenland USA, initially bought a 70% stake in the Brooklyn project in 2014 with a subsidiary of Forest City Realty Trust, Inc., as its 30% partner, forming a joint venture, Greenland Forest City Partners.
But market conditions turned against Brooklyn, forcing landlords to offer periods of free rent and other concessions. In August, the share of new leases in the borough with landlord concessions more than doubled from the previous year, rising to 42.1%, according to a report prepared by appraiser Jonathan Miller, president and CEO of Miller Samuel Inc., in partnership with brokerage Douglas Elliman. The percentage of concessions for rentals in new developments was 74.9%, far more than the 32.6% for existing apartments.
Greenland also underestimated how long it would take to build and sell apartments in the U.S., say people familiar with the matter. As the market shifted, Greenland and Forest City disagreed over how quickly to build Pacific Park.
Forest City wanted to slow down the pace given anticipated softness in the residential market. In November 2016, Forest City said it revised the project schedule to delay vertical development and took a $299.3 million write-down for the project in its third quarter 2016 earnings.
In June, Forest City and Greenland restructured the venture so that Greenland now owns 95% of the venture, up from 70%, with Forest City’s ownership down to 5% from 30%.
At the same time that Greenland hit a rough patch in Brooklyn, its headquarters in Shanghai said it was cutting back on financial support to the company’s U.S. projects, said a person familiar with the matter.
Greenland projects on the West Coast have also struggled. Greenland bought a downtown Los Angeles Metropolis project in 2013, but it has found limited demand for high-rise condos, a relatively new product in downtown LA. Sales have been disappointing, and Greenland has placed one of the Metropolis towers and its Hotel Indigo up for sale.
In June, Greenland sold its development site in South San Francisco following failed attempts to change entitlements at the site to include housing. The company said that the buyer, Kilroy Realty Corp, has more expertise in building and operating biotech offices and labs.