Lennar Corp. (LEN) is close to signing a
term sheet with China Development Bank for a $1.7 billion loan
package that would revive two stalled real estate projects in
San Francisco, Mayor Edwin Lee said.
“We’re a couple months away” from agreeing on financial
terms, Lee said in an Aug. 1 interview at San Francisco City
Hall, his first public comments on the loan. “This is very
important to our city, and we’re not letting it go.”
The funds may be used for a variety of real estate uses at
San Francisco’s Hunters Point and Treasure Island development
sites, including such infrastructure as roads and shoreline
stabilization, said a person familiar with the projects who
wasn’t authorized to speak publicly. The deal may lead to more
U.S. property investment by Chinese banks, according to Lee.
Redeveloping the former U.S. Navy bases would create two
new neighborhoods in a city strapped for housing. Plans approved
by San Francisco’s board of supervisors call for 10,500 homes at
Hunters Point and 8,000 residences on Treasure Island, along
with commercial buildings, job-training centers, parks, trails
and open space, Lee said.
Lennar, the Miami-based majority investor in the groups
that control each development, has been bogged down in a search
for infrastructure financing.
Kofi Bonner, president of Lennar Urban, who is overseeing
the projects, declined to comment on a possible loan deal. Feng
Qihua, spokeswoman for Beijing-based China Development Bank,
didn’t respond to requests for comment.
ChinaSF Help
Lennar, the third-largest U.S. homebuilder by revenue, has
benefited from work done on its behalf by ChinaSF, an arm of the
San Francisco Chamber of Commerce, according to Lee. The group
has met with China Development Bank officials in Beijing to
promote the city’s economic growth, including surging property
investment and office occupancy.
“Lennar utilized some of our contacts, and I strongly
backed them up,” he said. “It’s very fortunate because, at the
same time, China has been looking at making long-term
infrastructure investments.”
Chinese investors “aren’t interested in Treasury bonds
anymore,” and see U.S. infrastructure investment as providing
higher long-term returns, said Darlene Chiu Bryant, ChinaSF’s
executive director, who travels regularly to China for the city.
A San Francisco commercial real estate boom that began in
2010 with increased leasing by technology firms may lead to more
than $5.3 billion in office-building sales by the end of the
year, the most since the market peaked in 2007 at $8.6 billion,
according to a CBRE Group Inc. estimate. The downtown office
vacancy rate fell to 9.6 percent in the second quarter from 13
percent a year earlier, said broker Cassidy Turley.
Land Improvements
Financing sources for U.S. roads and other land
improvements have been scarce following the 2008 financial
crisis that left pensions and private-equity firms with steep
losses, said John Burns, a housing consultant. The elimination
of California’s redevelopment agencies removed another funding
source, he said.
“The fact that Lennar had to go to China shows how
difficult it has been,” said Burns, chairman of John Burns Real
Estate Consulting LLC, based in Irvine, California. “The
redevelopment agencies would have been the typical way to
finance in California, but buyers of those bonds got stuck and
aren’t interested in buying more.”
China is preparing to invest $1.2 trillion of equity in
developed markets for “real economy assets,” including
commercial property, in the next 10 years, said Thilo Hanemann
of Rhodium Group LLC, a New York-based firm that tracks global
equity flows.
China Railway
The San Francisco loan would be linked to a contract of as
much as $1.7 billion for China Railway Construction Corp., known
as CRCC, according to Chiu Bryant. The debt deal, in principle,
would provide funds to kick-start infrastructure development at
Hunters Point and Treasure Island, and give CRCC a managing role
in both projects, she said. The actual construction work would
be done by local building trades, whose members would get paid
from loan proceeds, Chiu Bryant said.
Final terms are up to Lennar and China Development Bank,
she said.
China’s global ambitions include exposing its builders to
Western markets where they can gain engineering know-how and
practical experience in a “sophisticated regulatory
environment,” Hanemann said. That’s different from
the one-party rule and directed economy at home, he said.
A Chinese firm has already made its mark close to the
Lennar sites. Shanghai Zhenhua Heavy Industries Co. (900947) fabricated a
new 526-foot (160-meter) tower and 2,047-foot eastern span of
the San Francisco Bay Bridge, between Yerba Buena Island,
adjacent to Treasure Island, and the city of Oakland. That
project is scheduled for completion next year.
Infrastructure Funding
California cities need funding for roads and public
transit, and may find a ready source in China Development Bank,
said Tong Li, a senior economist at the Milken Institute in
Santa Monica, California.
“The bank would expand into a mature U.S. market that’s
resilient in the long run, and these types of housing projects
would add jobs to the local economy,” Li said in a telephone
interview. “San Francisco and Silicon Valley are outperforming
the rest of California, and infrastructure has become one of
CDB’s main business lines.”
Regional job growth is a lure for Chinese investors seeking
perceived safe havens in the U.S., Li said. The metropolitan
areas of San Francisco and San Jose, which includes Silicon
Valley, added about 60,000 new positions in the last year, said
Stephen Levy, director at the Center for the Continuing Study of
the California Economy in Palo Alto.
Lennar Partners
Lennar’s co-investors in Hunters Point include Hillwood
Development Co. and Scala Real Estate Partners LP, both based in
Dallas. That consortium, along with Stockbridge Capital Group,
Kenwood Investments and Wilson Meany, all based in San
Francisco, are investors in Treasure Island. FivePoint
Communities Inc., based in Aliso Viejo, California, is the
managing developer for both projects.
The potential China Development Bank loan is an example of
Lennar’s “well-chosen, well-timed ventures,” Vicki Bryan,
senior bond analyst at New York-based Gimme Credit LLC, wrote in
a July 5 research note. Lennar was the only builder rated
“improving” by Gimme Credit, with Bryan praising Lennar for
its “prudent strategy” and ability to manage costs.
“This is the exact right time to start projects like
Hunters Point and Treasure Island,” Burns, the housing
consultant, said in a telephone interview. “There is widespread
recognition that they’re ready for development.”
Rising Values
Home prices in San Francisco jumped 3.9 percent in May from
the previous month, the third straight gain in the SP/Case-
Shiller home-price index for the area. The median price for
houses and condominiums in the city surpassed $700,000 for the
first time since August 2008, according to San Diego-based
research firm DataQuick. The housing upswing may last for seven
to eight years, Burns said.
The Hunters Point and Treasure Island funding “fits so
nicely with what Chinese banks are trying to do,” said Lee, San
Francisco’s first Asian-American mayor, who was elected in
November after serving as acting mayor for most of 2011. “The
Chinese would have not entered into final term sheet
negotiations if it weren’t a very good deal.”
To contact the reporter on this story:
Dan Levy in San Francisco at
dlevy13@bloomberg.net
To contact the editor responsible for this story:
Kara Wetzel at
kwetzel@bloomberg.net
Aug. 3 (Bloomberg) – San Francisco Mayor Edwin Lee talks with Bloomberg’s Dan Levy about the possibility that China will invest in the city’s infrastructure.
Lennar Corp. is close to signing a term sheet agreement with China Development Bank Corp. for a $1.7 billion loan package that would revive two stalled real estate developments, Lee says. The funds may be used at San Francisco’s Treasure Island and Hunters Point developments, according to a person familiar with the projects. (Source: Bloomberg)
Article source: http://www.signonsandiego.com/news/2011/jan/21/bank-owned-hotels-san-diego-rise/
