Forest City Realty Trust earlier this month said it took a $307.6 million impairment charge for Pacific Park Brooklyn, developed with
Some Chinese real-estate developers are lowering their profit expectations on U.S. projects or shelving them entirely as frothy prices and rocky partnerships force them to rethink their strategies in the American market.
Swelling supply of high-end New York condominiums could result in losses for some Chinese developers, analysts said. A push to partner with U.S. developers on other projects, meanwhile, has brought unexpected legal spats and other delays.
“I see a danger in the real-estate market in the U.S.,” said John Liang, Xinyuan Real Estate’s managing director of U.S. operations. “With its seven- to eight-year cycle, you get a sense now that it’s peaking.”
“Right now the prices are really high,” said Zhang Xin, chief executive of Soho China, whose family invested in a stake in Manhattan’s General Motors Building in 2013. “I would be very cautious if I were to make a large investment in New York’s real estate today.”
The headwinds come at a time when Beijing once again is planning to tighten its rules on Chinese investment capital leaving the country.
The Chinese State Council is expected to soon announce new reviews of foreign acquisitions of $10 billion or more and property investments by state-owned firms of more than $1 billion, according to people with direct knowledge of the matter and documents reviewed by The Wall Street Journal.
Chinese firms already are reassessing their projects in the U.S.
Beijing-based CL Investment Group, previously known as CheerLand Investment Group, in October shelved a plan to convert a 19th-century office building into a luxury condominium in New York’s Gramercy Park amid concerns the local market had too much supply coming on-stream.
CL Investment, which has three other high-end residential projects in Manhattan, plans to keep the office space as part of efforts to diversify, according to a person with knowledge of the matter.
In Brooklyn, N.Y., a deal between Shanghai-based, state-owned conglomerate Greenland Holding Group and Forest City Realty Trust on a 22-acre, 15-building mixed-use project in various stages of construction is facing stiff headwinds.
Forest City earlier this month said it took a $307.6 million impairment charge for the project, called Pacific Park Brooklyn, and said it plans “to delay future vertical development.”
“We revised the schedule due to a number of factors, including almost unprecedented concentrations of new rental supply in downtown Brooklyn, which will take time for the market to absorb,” said Forest City CEO David LaRue.
A spokesman for Greenland USA denied there will be delays and said it is “meeting the goals and targets that were established when we invested in 2014.”
Total Chinese direct investment in U.S. real-estate and hospitality assets is nearly $12.6 billion, accounting for nearly a fifth of total Chinese investment in the U.S. since 1990, according to a recent report from the Rhodium Group and the National Committee on U.S.-China Relations. Most of the activity has taken place since 2010 and is concentrated in areas such as New York, Los Angeles and San Francisco.
Big deals still are getting done. Shanghai Municipal Investment, which built China’s tallest building, Shanghai Tower, and other big projects, said in August it is joining forces with New York-based Extell Development Co. on the $3 billion Central Park Tower, another luxury apartment project.
Some Chinese developers choose high-profile projects to build brand awareness or gain knowledge of the U.S. market over the long term more than to record big profits in the short term.
Anbang Insurance Group is planning to convert some hotel rooms in the Waldorf Astoria, which it purchased in 2015 for $1.95 billion, into condominiums. In filings to the New York City Department of Buildings earlier this month, the insurer proposed plans for 321 condominium units, removing and replacing stairs, new ceilings, floors, partitions and doors.
“Some look at investments such as Anbang’s spate of hotel acquisitions in 2015 and 2016 and question the pricing and cyclical timing. However, for some investors, the associated globalization and portfolio diversification benefits can outweigh the reduced return potential caused by a high purchase price,” said the Asia Society and Rosen Consulting Group in a recent report.
But some Chinese developers hoping to replicate their domestic success in the U.S. are seeing those projects get bogged down in delays and legal challenges.
In Los Angeles, Wanda Group, a Chinese entertainment and real-estate conglomerate, in recent months has battled with another hotel owner in Beverly Hills who is building a competing luxury hotel and condominium project nearby.
Wanda’s project, One Beverly Hills, is a mixed-use project that includes a 134-room luxury boutique hotel with 193 luxury residential units in two thin buildings along the western edge of the property.
Oasis West Realty, owner of the Beverly Hilton, is currently developing the Waldorf Astoria Hotel and Waldorf Astoria Residences adjacent to the Hilton and across the road from One Beverly Hills.
Oasis West, which is headed by Beny Alagem, earlier wanted Wanda to change the location of One Beverly Hills’ loading dock and then later sought residents’ approval in a ballot initiative to combine his planned two-building project into one high-rise building and a park.
Voters rejected Mr. Alagem’s initiative earlier this month.
“Wanda took the unprecedented step to spend a million dollars on an aggressive campaign to misinform the residents on the real facts of our project which had nothing to do with their own proposal,” said Marie Garvey, a spokeswoman for Oasis West Realty, owner of the Beverly Hilton. Campaign expenditure filings showed that Wanda and its local partners spent $984,061 as of Oct. 29 to defeat the ballot.
The local Wanda office had spent considerable time and resources to have its project reviewed by the city, residents and the business community and “the trouble with the Hilton initiative is that it was not subject to any of that review,” said Rohan a’Beckett, deputy general manager of Wanda Beverly Hills Properties.
“The city review process of the One Beverly Hills project was not affected at all by the Hilton initiative. There is no relationship between these two timelines, they were entirely separate events, which just so happened to coincide,” said Mr. a’Beckett.
In New York, Shenzhen-based China Vanke Co. faced a setback earlier this year after a joint venture with two local developers, Slate Property Group and Adam America Real Estate, to build luxury apartments on 45 Rivington St. stalled.
The consortium in February paid $116 million for the project to Allure Group, which had managed to remove a controversial deed restriction that would have allowed the former nonprofit nursing home to be converted into for-profit apartments.
An outcry over the transaction prompted investigations by the New York City comptroller, Department of Investigation, federal prosecutors and the state attorney general into the circumstances that led to the deed change.
The project is now at a standstill. “There are a number of complications that could arise in any development project, and from time to time they affect us, but it’s really just the nature of the business as a whole, not anything specific to a developer being headquartered in a particular country,” said Kai-yan Lee, managing director at Vanke Holdings U.S.A.
Vanke has 13 other residential projects in the U.S. that are progressing normally.
The joint venture investors said they look forward to moving ahead as soon as the city concludes its review. “We have every confidence that the project will be a great addition to the Lower East Side community,” said a representative for the joint venture, Rivington Street Investors.
Construction remains a local game where success requires expertise in complex building approvals and dealing with people in the trades, said Joel Rothstein, a partner at law firm Sidley Austin LLP, who specializes in cross-border real-estate transactions.
“It’s the same in China, where few foreigners had made inroads in property development,” said Mr. Rothstein. “Success in one country does not guarantee success in the other.”