San Francisco Commercial Real Estate News: One of the World’s Largest Developers Hunts in SF

Exclusive: One of the World’s biggest developers hunts for mega projects in Oakland, S.F.
Source: San Francisco Business Times
Reporter: Cory Weinberg
Date Posted: June 30, 2015

One of the world’s largest real estate developers, Shanghai-based Greenland Holding Group, is in talks to invest and build in the Bay Area for the first time, the company’s U.S. head told the San Francisco Business Times.

commercial real estate

I-Fei Chang, who is overseeing $6 billion worth of development for Greenland’s Los Angeles-based subsidiary, is looking for opportunities to park billions more. She said she travels to the Bay Area “biweekly” to meet with local companies and city officials about building the company’s third U.S. project here.

A development deal would draw even more Chinese capital to Bay Area real estate and introduce to the region an investor that has so far been elusive. But for a foreign company only looking at mammoth deals, finding the right project can be a headache.

“We do have something (in the Bay Area) in mind. We are busy paddling,” she told the Business Times at a National Association of Real Estate Editors conference in Miami. “It’s like a duck — you keep calm on the surface of the water but the feet are quite busy paddling in the water.”

“It always takes time. We wish it could be quicker,” added Chang, a native of Taiwan and a graduate of Yale University. “It just really depends on the accessibility of the projects that we’d have the opportunity to invest.”

Greenland Holding claims to be world’s largest property developer by floor space under construction (250 million square feet) and by sales revenue ($40 billion), the Wall Street Journal reported.

The company, which is owned by the Chinese government, took a pass on investing in Lennar Urban’s $8 billion Hunters Point Shipyard project. It instead bought a majority stake in Forest City’s $4.9 billion Pacific Park Brooklyn project next to Barclays Center. Last year, Greenland broke ground on the $1-billion downtown Los Angeles hotel, condominium and shopping complex called Metropolis, which it bought in 2013.

Greenland USA then took another stab at investing in San Francisco. Late last year, the company lost out to Shanghai-based Oceanwide Holdings in buying the First and Mission Streets property– which will span 2 million square feet of office, condominium and hotel space by 2019.

Greenland Holding has invested about $20 billion in overseas development projects since 2013, including developments in London, Sydney and Toronto. The company has more than $55 billion in global assets, according to a report by Knight Frank. Chinese builders have looked toward the western world mostly because their own residential market has cooled significantly. The Chinese government has also recently relaxed limits on outbound investments.

Investment hurdles

Greenland USA is looking to develop large mixed-use projects like their deals in Brooklyn and Los Angeles, Chang said. That separates Greenland from other Chinese developers like Vanke, the Lumina condo complex joint venture partner, and R&F Properties, the 555 Fulton St. developer, who have focused on solely residential projects.

Chang wouldn’t say how deep current development talks are. She also spoke at length about investing in areas of cities that are undergoing “transformation” and in need of middle-class housing. But she also lamented rising construction and labor costs as the U.S. real estate market heats up.

She said construction costs have risen by 20 percent on Greenland’s two current U.S. projects since the company got involved.

“We have the stomach, and we envision there’s so much space that’s under transformation quickly,” she said. “But we still want to break even with what we build… We also see some prices that are overheated and those prices go sky high. That concerns us.”

Rob Hielscher, the Western U.S. head of JLL’s International Capital Group, said a many development projects make financial sense in San Francisco, but finding large-scale development opportunities can be a struggle, particularly with the city’s Proposition M office space cap limiting the amount of office space that developers can deliver in San Francisco.

“The bigger issue is the lack of large-scale development opportunities that are currently available for groups like Greenland to purchase or invest in” he said.

Some of the biggest mixed-use projects in San Francisco’s development pipeline include Forest City’s 5M and Pier 70 projects, the Giants’ Mission Rock and Kilroy Realty Corp.’s Flower Mart. Only the Giants’ project has priority to squeeze under the office space cap.

The only mixed-use proposals of over 1 million square feet in Oakland is the Brooklyn Basin waterfront project, which attracted investment from China’s Zarsion Holdings two years ago, and East Oakland’s Coliseum City, which is fraught with political risk.

But if it does find the right deal, Greenland’s global clout will likely give it a leg up over other Chinese investors that may be less recognizable to U.S. builders, Hielscher said. “They’re a name brand that many domestic groups would want to work with,” Hielscher said.

Ready for Oakland?

Zhang Yuliang, Greenland Holding Group’s chairman, told reporters in December, that “we’d increase our investment in cities where there is potential for growth, in the big cities.”

In the Bay Area, that doesn’t just mean San Francisco. Rachel Flynn, Oakland’s planning director, and Darlene Chiu Bryant, head of the San Francisco-backed nonprofit China SF, confirmed that Greenland has met with officials from both cities about development opportunities recently.

“They seemed really interested in our city, but nothing seems imminent,” Flynn said, who added that the city told Greenland about its upcoming downtown specific plan that should clear hurdles for development. “It will be interesting to see what they end up focusing on.”

Chang seemed high on Oakland. She brushed off a question about what made her enthusiastic about a city that struggles to attract big investors because of a reputation for crime and poor government, as well as its uncertain payoff on building highrises.

Instead, she extolled Oakland’s short commute to San Francisco on BART, the proximity to the University of California at Berkeley, and the city’s waterfront.

“There’s no crime in the city if you have believers who want to believe they’re pioneers.” she said. “Why can’t we have more housing projects for the middle class that includes an easy commute? Oakland is just like a Brooklyn for us on the Pacific side.”

“It’s all about what we can do for your city and how we can have that partnership,” she added.

Interview with I-Fei Chang

What is Greenland’s mission?

It’s our mission to not only bring over Chinese capital but expertise of large-scale, mixed-use urban experience that we have in China and from our development experience in the U.K., Canada, Malaysia. We hope to invest and reach out to the community to understand the city’s vision. Our long-term partner is the city and community, to be there a long time.

Why did you land in Brooklyn and Los Angeles first? Why not the Bay Area?

Those two markets, we just were lucky to have the opportunity to select the right project at the right time — two important economic-driver kind of projects . Of course, we’d love to have the opportunity to enter the northern gate of California, to be in the Bay Area. It just really depends on the accessibility of the projects that we’d have the opportunity to invest.

You earlier called Los Angeles, not San Francisco, the “capital of the Pacific.” Why is that?

Just the population, the diversity. It’s an entertainment center. But you have the wineries.

Who is your target residential customer in the U.S.?

Two million people buy from us in China. But here it’s most important to provide urban living experiences, to develop mixed-use projects in U.S. cities. Our target customer would be U.S.-based, young professional or early retiree. They just want to enjoy urban living so we provide the facility, the garden, the daycare center, the school and the public green space to get an apartment, hotel or office; that kind of mixed-use project, a one-stop solution.

Are you finding it more difficult to locate and find opportunities in the states?

We need to meet our business cycle. What’s driving this overheated market that we are cautious of is land price and construction costs. After we obtained these two projects, construction costs rose 20 percent. And the target sales prices of the unit, we have to be cautious about what will be the next opportunity for us to choose. What will be middle-class income, and what is the price they can support if they want condominiums?

Are those opportunities even existing at this point?

Our strategy is certainly for one way to approach private owners and explain to them our vision here, our sense of urgency to make a change here. We reach out to city officials, planners, economic directors, and so on, to see if publicly-owned land can be obtained and have a public-private partnerships.

But how do you get to middle-class housing solutions? In the Bay Area, we have a lack of supply. Market rates are out of reach for the middle class, and those units fund below-market-rate units that middle-class families don’t qualify for.

There are multiple ways. I know architects and developers in Japan and Russia. In Russia, the land is dirt cheap. The land is controlled by the government, so the developers just lease, so the cost is very cheap. It (brings down) the construction costs. The government just needs to be very smart to find some developer with an injection of cash into the government land. There are various ways to utilize urban land.

Link to article: Greenland Holding