The Firesale Begins: China's HNA Starts Liquidating Billions In US Real Estate

Yesterday we explained  that one of the reasons why Deutsche Bank stock had tumbled to the lowest level since 2016, is because its top shareholder, China's largest and most distressed conglomerate, HNA Group, had reportedly defaulted on a wealth management product sold on Phoenix Finance according to the local press reports. While HNA's critical liquidity troubles have been duly noted here and have been widely known, the fact that the company was on the verge (or beyond) of default, and would be forced to liquidate its assets imminently, is what sparked the selling cascade in Deutsche Bank shares, as investors scrambled to frontrun the selling of the German lender which is one of HNA's biggest investments.

Now, one day later, we find that while Deutsche Bank may be spared for now - if not for long - billions in US real estate will not be, and in a scene right out of the Wall Street movie Margin Call, HNA has decided to be if not smartest, nor cheat, it will be the first, and has begun its firesale of US properties.

According to Bloomberg, HNA is marketing commercial properties in New York, Chicago, San Francisco and Minneapolis valued at a total of $4 billion as the indebted Chinese conglomerate seeks to stave off a liquidity crunch. The marketing document lists six office properties that are 94.1% leased, and one New York hotel, the 165-room Cassa, with a total value of $4 billion.

One of the flagship properties on the block is the landmark office building at 245 Park Ave., according to a marketing document seen by Bloomberg.

HNA bought that skyscraper less than a year ago for $2.21 billion, one of the highest prices ever paid for a New York office building. The company also is looking to sell 850 Third Ave. in Manhattan and 123 Mission St. in San Francisco, according to the document. The properties are being marketed by an affiliate of brokerage HFF.

This is just the beginning as HNA’s massive debtload - which if recent Chinese reports are accurate the company has started defaulting on - is driving the company to sell assets worldwide.

According to Real Capital Analytics estimates, HNA owns more than $14 billion in real estate properties globally. The problem is that the company has a lot more more debt. As of the end of June, HNA had 185.2 billion yuan ($29.3 billion) of short-term debt -- more than its cash and earnings can cover. The company's total debt is nearly 600 billion yuan or just under US$100 billion. Which means that the HNA firesale is just beginning, and once the company sells the liquid real estate, it will move on to everything else, including its stake in all these companies, whose shares it has already pledged as collateral.

So keep a close eye on Deutsche Bank stock: while HNA may have promised John Cryan it won't sell any time soon, companies tend to quickly change their mind when bankruptcy court beckons.

Finally, the far bigger question is whether the launch of HNA's firesale will present a tipping point in the US commercial (or residential) real estate market. After all, when what until recently was one of the biggest marginal buyers becomes a seller, it's usually time to get out and wait for the bottom.

 

Comments

Antifaschistische Quantify Feb 8, 2018 12:13 PM Permalink

If you know Chinese (and I know a LOT of them)...I've never met one...not a single one, who did not believe with all their heart that you could EVER lose buying real estate.   You may as well just bow out of the bidding if they want a house, because if they pay 10% over fair-value, then...their property is worth it.  Eventually, 10% + 10% + 10% starts to add up...and they don't care.

In reply to by Quantify

mailll undercover brother Feb 8, 2018 11:50 AM Permalink

I thought it was over for now, unless the conspiracy is true for a planned crash...seems like a controlled crash.

Pastor Lindsey Williams, although he is full of it now, used to get good information from his elite butty, Ken Frohm.  And he told Williams that "China is the big one" and they are going to crash everything (Ken was part of this elite group that controls the world finances and oil).  He never elaborated though to Williams as to what he meant.  So maybe China will be blamed for a major crash if it happens.  By the way, Ken Frohm is dead now and Williams is now wrong on everything. When Ken was alive, a lot of the stuff he said actually did happen.

In reply to by undercover brother

Antifaschistische mailll Feb 8, 2018 12:07 PM Permalink

I can't wait for the Chinese oligarchs and all their family members, cousins, kids of cousins, kids of kids, etc...to start liquidating their property in Southern California...and how is it, that the National Realtors Association has such influence that we will sell a house to ANYONE regardless of their citizenship status?   I'd be okay with it, if they earned money the old fashioned way.  But since they basically earned their money by monopoly hand outs from the Communist party, who use slave + 10% wages, while their family comes to San Marino to pay cash for 4 multi-million dollar homes....just pisses me off

In reply to by mailll

syzygysus Feb 8, 2018 11:29 AM Permalink

I have a mansion, forget the price Ain't never been there, they tell me it's nice I live in hotels, tear out the walls I have accountants pay for it all They say I'm crazy but I have a good time I'm just looking for clues at the scene of the crime Life's been good to me so far My Maserati does one-eighty-five I lost my license, now I don't drive I have a limo, ride in the back I lock the doors in case I'm attacked I make hit records, my fans they can't wait They write me letters, tell me I'm great So I got me an office, gold records on the wall Just leave a message, maybe I'll call Lucky I'm sane after all I've been through (Everybody say I'm cool) (He's cool) I can't complain but sometimes I still do Life's been good to me so far I go to parties, sometimes until four It's hard to leave when you can't find the door It's tough to handle this fortune and fame Everybody's so different, I haven't changed They say I'm lazy but it takes all my time (Everybody say oh, yeah) (Oh, yeah) I keep on going, guess I'll never know why Life's been good to me so far Yeah, yeah, yeah "Life's Been Good" Joe Walsh

Emergency Ward Feb 8, 2018 11:30 AM Permalink

Seems like just yesterday when the new economic Land of the Rising Sun, Japan, was buying up all the US real estate, only to get whipsawed a few years down the line.

conraddobler Feb 8, 2018 11:57 AM Permalink

Commercial real estate in my opinion, is going to become a sink hole before any bounce.

It's got the perfect storm bearing down on it.

Technology shrinking workforces.

Remote work capabilities at all time high.

Amazon / tech crushing retail spaces.

Interest rates rising.

There will be a crater three hundred miles wide before this is over.