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Why A Chinese Developer's Default Means Trouble For New York Real Estate
Following the default on major Chinese developer Kaisa this week, and with the continued softness in the Chinese property market, many are asking who's next among the highly-leveraged firms. However, as The Real Deal's Konrad Putzier notes, Kaisa’s default carries significance for New York’s real estate industry. Chinese investors spent $3 billion on New York properties in 2014. Many in New York continue to associate Chinese real estate companies with limitless funds and a never-ending ability to invest... But what if they are wrong?
As the NY Times reported:
Kaisa’s debt problems underscore the slump in China’s property sector, which has been hit by the slowing economy and a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market. Government data released this week showed that average new-home prices fell in February at the fastest pace on record.
Under Kaisa’s current restructuring proposal, about $800 million of bonds originally due in 2018 would instead come due in 2023, and the interest would be cut to 5.2 percent from 8.875 percent.
Things only got worse in March when housing prices dropped to a new record low:
Which puts even more pressure on the so-called megadevelopers...
“Some developers that have overborrowed in the expansion are going to be in trouble,” David Dollar, an economist at the Brookings Institution and former U.S. Treasury emissary to China, told The Real Deal. “We are now going to see some of them default or reschedule their debts.”
As somehow these firms need to find liquidty... and face a massive wall of debt...
Chinese developers currently have $66 billion in dollar (or offshore) bonds outstanding, according to Dealogic data. The recent strengthening of the dollar has made these bonds harder to service, since these firms make the vast majority of their income in Chinese Yuan. It’s no coincidence that Kaisa defaulted on a dollar bond.
Chinese developers that have invested in New York are among the most active issuers of dollar bonds, according to Dealogic data.
Greenland Holdings, which bought a majority stake in Forest City Ratner’s Pacific Park (formerly Atlantic Yards) project in late 2013, issued $2.7 billion in dollar bonds in 2014. Soho China, a stakeholder in the GM building, issued $1 billion in 2012. China Vanke, China’s largest publicly-traded developer, has issued another $1 billion to-date. The firm has partnered with Aby Rosen’s RFR Realty to develop a 61-story condo tower at 610 Lexington Avenue. Finally, Xinyuan Real Estate, whose subsidiary XIN is developing the Oosten condo project in Williamsburg, has issued $475 million in dollar bonds.
And if cashflow coverage gets as tight as expected (and priced in by the firms' bonds), then the following developments may see asset liquidations...
Xinyuan Real Estate NYC investments: Oosten at 429 Kent Avenue
Among Chinese developers active in New York, Xinyuan Real Estate appears to be most vulnerable to a market shock at home. Fitch rates the firm’s bonds as highly speculative (B+) and last August revised its outlook down to negative. “Xinyuan spent substantial amounts on land acquisitions in 1H14 to expand its business scale in 2014, but sales failed to keep pace amid negative sentiment in the sector and its selling,” the agency wrote, explaining the revision. The firm’s debt grew by more than a third in the first half of 2014 alone while earnings fell from 91 cents to 20 cents per share, according to Seeking Alpha.
China Vanke NYC investments: 610 Lexington Avenue (also known as One Hundred East Fifty Third Street)
China Vanke is rated investment grade by Moody’s and Fitch. Despite the slowing market, Vanke managed to increase profits by 8 percent last year and its total debt of 69 million Yuan ($11.1 billion) stood at a manageable 46.7 percent of capitalization (the sum of a company’s debt and equity) in 2014, according to Moody’s.
Greenland Group NYC investments: Pacific Park
Greenland is also rated investment grade, though it received slightly lower ratings than Vanke, and its debt level was much higher at 70 percent of capitalization. Still, Moody’s expects the firm “to manage its debt leverage down from the current level through contracted sales growth.”
Soho China NYC investments: The GM Building at 767 Fifth Avenue, Park Avenue Plaza at 55 East 52nd Street
Soho China appears to be in even better shape than Vanke and Greenland with a debt-to-capitalization ratio of 27.7 percent in 2014. Moody’s gave the firm a rating of Baa1, ahead of Vanke’s Baa2 and Greenland’s Baa3.
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Still - keep buying the $40 million apartments because China's problems are "contained" and there's always a greater fool than you right?
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Chinese just bought the largest group of Myrtle Beach (SC) golfcourses
http://www.myrtlebeachonline.com/news/local/article19310712.html
The Banksters love the Chinese, they are willing to work sooo hard to create real estate, so they come to the banksters who loan them money with interest, and of course they WILL go belly up eventually because, well...
P != P + I (It's mathematically impossible to repay!) That's Principal does NOT equal Principal + Interest
Then of course the bankesters get the collateral (their work) for nothing but FIAT WORTHLESS CASH....
Chinatown meet Jewtown
This oughta be fun! Yer gonna need a kosher wok to pop yer corn 4 this one.
What did the supremacist say to the other supremacist?
There can be only one monkey at the top.
China is using US Treasuries as collateral to buy Manhattan real estate.
Are US banks starting to limit Chinese credit?
Jew bankers better not step on Chinese toes.
"David Dollar an economist"?!
Is this a Sunday joke?
He works with his counterparts Eugene Euro, Yoshi Yen, and Roger Renminbi.
It is Japan all over again.
Tishman Speyer will show them how it is done. They wll be able to borrow again, no worries.
The US already went through this process with the Japanese during the Japanese asset inflation bubble. Banksters will be there wrth fresh fiat to buy everything up pennies on the dollar. Wash rinse do it again. They are banksters. That's what banksters do.
Do they get to keep their shiney new phones?
High yield, meet sucker.
They'll still keep buying in Melbourne and Vancouver though, right?
Yup, just like this:
http://globalnews.ca/news/1955669/vancouver-property-exclusively-markete...
So, if these companies were forced to liquidate their New York assets, wouldn't that mean some American companies stand a chance of snapping them up? This article seems to be saying this is a huge problem, but I'm failing to understand how Americans taking their property back is a problem.
So, even Chinese get haircuts
What is the main difference between car salesmen and bankers?
A car salesman wants you to live to buy another car.
OK all racist jokes aside.
Everyone you talk to in New York QUITE LITERALLY BELIEVES the following:
-That Chinese people go to the casinos JUST SO THAT the government can launder the money it owes china to Chinese representatives through state owned Casinos (New Yorks resort world etc.)
Go into one of these places for yourself and see. . . nothing but rows and rows of chinese people playing baccarat, and as more proof the primary languages on the Casino machines is English and Chinese. . . why those specific languages? think about who these machines were built for!
-That Chinese people in New York get some kind of Chinese Govt Aid package (that the Chinese Govt buys its own citizens houses,cars, buildings, businesses etc.) In New York as a method to export its population.
-That Chinese people don't pay any taxes and that they buy up residential properties, gut them and build like 20 apartments illegally inside a building zoned for 2 ~ 3 families.
-That Chinese people have underground tunnels that link all their real-estate in Ny and that they use the tunnels to launder drugs/money into the state/country from China.
^^
not being racist or stereotypical , these are just common sayings around New York..
But I mean to every legend there is atleast some truth . . . right? I mean . . . how much of New York Realestate was bought up by Chinese "investors" in the past 7 years??? THINK ABOUT IT! something is DEFINETLY GOING ON... there is some kind of plan in action here . . .
They are taking over from inside out. . .
New York is going to fuck over the Chineese the way they did to the japanese back in the '80s.
The Great Wall is in need of refurbishment
"… a series of cooling measures instituted by Beijing to avoid a bubble"
Man oh man, has that ship ever sailed.
Oops, I just bought Xinyuan real estate as it was the cheapest stock out there based on numerous metrics.