Lennar Corp. (LEN) is proceeding with its Hunters Point project in San Francisco even as talks with China Development Bank Corp. for $1.7 billion in financing for the site and the nearby Treasure Island have broken off.
“We are continuing to move forward with development of Hunters Point Shipyard and are expecting to start home construction this summer,” the Miami-based homebuilder said in an e-mailed statement. “Lenders continue to have significant interest in financing The Shipyard and Treasure Island, which they believe are extremely attractive projects.”
Ten months have passed since Lennar signed a memorandum with Beijing-based China Development Bank for a five-year loan to develop the Hunters Point and Treasure Island sites, where plans call for more than 18,000 homes, along with commercial buildings, job-training centers, parks, trails and open space. The loan talks haven’t progressed for more than a month, said two people with direct knowledge of the matter, who asked not to be identified because the discussions are private.
A U.S. tax law requiring foreign banks to report certain information about their American assets or else pay a levy was a sticking point that contributed to discussions breaking off, according to a separate person.
Another issue was a stipulation that Lennar must award China Railway Construction Corp. a contract to build roads and bridges for the project as a precondition for the loan. China Railway Construction didn’t agree on a contract because it’s concerned the payment being offered will result in it posting a loss on the project, the two people said.
Kofi Bonner, the Lennar executive who is overseeing the projects, didn’t respond to an e-mail seeking comment on the status of the discussions. The San Francisco Chronicle reported yesterday that talks on the loan had collapsed.
Construction on the first homes at Hunters Point is expected to begin in June, Emile Haddad, chief executive officer of FivePoint Communities Inc., which is managing the the San Francisco projects’ development for Lennar, said in a March 26 interview. Haddad declined to comment today when he was reached by phone in China, where he is traveling on a trade mission with California Governor Jerry Brown.
Redeveloping the former U.S. Navy bases would create two new neighborhoods in a city strapped for housing. San Francisco Bay area home prices jumped almost 25 percent in February from a year earlier, research firm Dataquick reported last month.
Since the China talks began, pension funds have become more willing to invest in housing developments, banks have been more willing to lend and homebuilders have had an easier time raising debt and equity as the housing market has recovered, said John Burns, chairman of Irvine, California-based John Burns Real Estate Consulting. Lennar may still face a challenge in finding a deal for such a large development, he said.
“I’ve seen capital come back but not for projects like that yet,” Burns said. “That’s a lot of money.”