Greenland is China’s No. 7 property developer. Since its parent company is mired in debt, will Brooklyn’s unfinished construction projects rely on the Shanghai government for relief?
The debt crisis in China’s real estate industry may spread to the United States. The New York real estate magazine “The Real Deal” published an article on June 1, citing the unfinished construction project Pacific Park Complex in Brooklyn as an example, and said that the project of green space in the United States is now “threatened by the Chinese debt disaster.”
When Xi Jinping officially took the helm of the CCP in 2013, many Chinese state-owned enterprises, driven by the CCP’s “One Belt, One Road” and “Chinese enterprises going global” strategy, rushed into industries such as oil, fuel, and entertainment in the United States. Greenland is one of the state-owned enterprises in the real estate industry that realized the important strategy of the CCP’s “global layout.”
From aggressive global presence to high debt
The Real Deal reported that after 2013, the CCP eliminated the red line for private companies to invest abroad. This means that Chinese companies are the most aggressive (aspiring to win) foreign buyers in the U.S. real estate market. But they don’t necessarily know the local market or how local design and construction work.
The article also said that companies that most Americans don’t know, such as Greenland’s parent company – Greenland Group, and China Oceanwide, China Vanke and Anbang Insurance Group, are buying some of the most expensive buildings and in growth locations in the U.S.
For example, in 2014, Greenland acquired a 70% stake in New York’s Forest City Ratner, investing $6.3 billion to build the Pacific Park project in Brooklyn, which is hailed as the largest real estate complex in New York in last 30 years. Two years later, Greenland Group raised its stake to 95%.
A former Greenland U.S. employee said that Chinese companies are successful in their own markets, and they all have the same mentality: build, build, build, and build the big [buildings]. These assets cost them too much money.
This former employee also said the company unwisely wanted to build all three Metropolitan towers at the same time, rather than in stages. U.S. developers typically build in stages.
Nonetheless, Greenland’s chairman estimated in 2013 that Pacific Plaza would be completed in eight years. Nine years have come and gone and it’s still not finished – they obviously underestimated the complexity of completing the project.
Greenland America declined to comment on the progress of its project, with a representative saying: “We look forward to continuing to deliver on our commitments and help build great communities.”
In this regard, Norman Oder, a freelance journalist who has been closely following the project, pointed out on his blog: Greenland is still reluctant to provide any schedule for the completion of the Atlantic Plaza project by May 2025, including those promised affordable housing. A fact that contradicts the speaker’s words.
Find Funds and Buyers
The problem now is debt pressure. According to the Financial Times, Greenland is one of many Chinese real estate companies struggling to repay debt after the CCP introduced policies to curb excessive borrowing. Its parent company is struggling in China, defaulting on or deferring debt, and credit ratings are plummeting — S&P Global Ratings downgraded Greenland to CC level in June, one notch below the Junk Bond threshold.
S&P’s action will limit Greenland’s ability to invest in overseas projects. Overly indebted Chinese developers building empires on leverage will find it difficult to borrow money. Now it’s just a matter of finding funds and buyers to raise money by selling assets. For example, Hotel Indigo, a subsidiary of American Greenland, opened in downtown Los Angeles less than a year ago and is now selling for $41.4 million. Previously, Greenland sold two apartment buildings in its Atlantic Plaza project in Brooklyn for $315 million.
The Real Deal said that the developer’s original business plan was to rely on buyers from China in addition to the EB-5 Immigrant Investor Visa Program to attract Chinese investment. Greenland and China Oceanwide also rely on Chinese buyers of luxury condos and rent to luxury stores such as Gucci and Prada to attract Chinese shoppers. But with U.S-China tensions and the outbreak of virus, construction of U.S.-China projects has stalled, luxury condo purchases have slowed down, and Congress has begun reviewing the EB-5 program. Financing has not been easy.
The article concluded by saying that many Chinese developers, including U.S. Greenland, are partially owned by the CCP, which means it will depend on local officials to rescue them. But the Shanghai government is also short of money, because real estate development has stalled, and the land transfer funds that originally contributed to the local government’s finances have dried up. So can the future of Brooklyn’s Pacific Plaza, including those promised affordable housing, depend on relief from the Shanghai government?