Friday, July 12, 2019

Tropical American Tree Farms Update, 2019: A Guest Post

Cear-cutting of part of the teak farm


Squatter home built from TATF timber

"She does not or did not, know the Brunners and cannot speculate if TATF was a fraud. The Brunners certainly did benefit from the money of the investors over the many years. But to her knowledge, the Brunners never received any money from the harvesting of the teak wood. 

The majority of the teak has been harvested- but not by the Brunners. 

The government of Costa Rica has turned a completely blind eye to the illegal invasión and stealing of this wood and land - bought and paid for by foreign investors dollars. Many of the locals, who worked and benefited for years from TATF money are the same ones now stealing the trees and the land. Please be assured that these are not needy people. Sadly the locals are also invading the primary forests and destroying land the Brunners had left in conservation.

This is in complete violation of environmental laws in Costa Rica."

Tuesday, June 18, 2019

Appraisal in Quebec: A Lesson on the difference between “Aggregate retail value” and “Market value”


Tuesday, March 19, 2019

Financial Trouble at Oceanwide Plaza and the Effect of Chinese Capital Controls on Certain North American Real Estate Markets

Some Hong Kong appraisal firms subcontract North American appraisal work to me. The work is for financial reporting purposes, as the property owners are publicly traded firms, and I have gotten used to the writing reports in compliance with the Hong Kong Institute of Surveyors.

On January 28 I was asked to bid on an appraisal of Oceanwide Plaza being built across from Staples Center, a leading sports and concert venue in Los Angeles.  Oceanwide Plaza had just topped out with three towers of 40 or more stories. This was said to be a $1 billion project.

I was surprised by this request because just the previous week, Lendlease, the Australian general contractor, had rocked the LA real estate world by announcing that it had halted construction on Oceanwide Plaza. The interior remains to be built. There were rumors that the lender had pulled out of the project, but no explanation of why. 

In November 2018 the FBI served a search warrant to China Oceanwide Holdings in an investigation of local public officials and Chinese developers regarding bribery, extortion , money laundering and kickbacks relating to 4 prominent Chinese real estate developers, including China Oceanwide and Greenland Group (developer of the new Metropolis condominium/hotel project nearby). No charges have been filed against China Oceanwide or the others.

A press release from China Oceanwide explained the need for capital restructuring and that construction would resume in February. With my own eyes I saw the project still stalled as of March 18, 2019.

Here are some hypothetical explanations for the continued shutdown:

1.       Chinese capital controls, instituted two years ago, are preventing the necessary funds from leaving China. The purpose of the new regulations was to reduce “irrational outbound investment and to improve the development of China’s overseas investment.” China has been attempting to crack down on capital flight resulting from a slowing economy and downward pressures on the exchange rate. These same controls have caused other Chinese developers to place their North American assets for sale. Greenland, developer of a similar project called Metropolis, a few blocks north of Oceanwide Plaza, has placed one of their three residential towers plus their Indigo hotel for sale. There seems to be a pattern here of Chinese developers now placing their properties for sale, as Dalian Wanda sold its unbuilt One Beverly Hills project (valued at $444 million) last November, and Oceanwide itself placing its unbuilt 80 South Street project in Manhattan for sale for $300 million after buying it for $390 million 3 years ago. Meanwhile, the Chinese government has seized the insolvent Anbang Insurance Goup and will be selling off its U.S. hotel assets, acquired for $7.45 billion during 2014 to 2016, which includes the Waldorf Astoria Hotel in New York, which itself cost $1.95 billion.

2.       Lack of buyers. As local realtors speak of the residential sales slowdown at the Metropolis, the same forces may be working against Oceanwide Plaza. One realtor said that 60% of the residential sales at the Metropolis were to Chinese buyers who did not intend to occupy their units. A Chinese-American bank even asked me to appraise one of the units as a rental property, and I told them that if 60% of the units are placed for rent at the same time, there is no way of estimating how far market rent would fall. Downtown Los Angeles already has a 17% residential vacancy rate, the highest vacancy rate since the 1990s. Capital controls could be affecting these Chinese buyers, too. Some say their main reason for purchase was to remove capital from China, either because they do not trust their own government or perhaps to place ill-gotten gains away from capture.

More news came out in February about $62.5 million in mechanic’s liens on Oceanwide Plaza, but more intriguing was some private correspondence from general contractor Lendlease to some of its subcontractors, stating that Oceanwide “had failed to maintain the minimum contractually required payments for both your and our work”, yet Lendlease, with an $814 million construction contract, had not filed any mechanic’s lien yet.

Looking at the bigger picture, the Chinese capital controls law passed two years ago will be starting to affect certain North American real estate markets, such as Los Angeles, San Francisco, Vancouver and New York, which have been highly boosted by Chinese investment. The Chinese government measures net capital flow to the United States, which has been profoundly positive for a few years, but in the last quarter of 2018, the net capital flow was a huge $54.6 billion outflow of capital back to China. Forbes Magazine estimates that China has lost $3.8 trillion to capital flight during the last decade. They want their money back. One expert estimated that the ratio of outbound Chinese capital (back to China) to inbound capital is about 10 to 1.

As for the outcome of Oceanwide Plaza, there are various scenarios:

1.       A white knight lender from outside China will provide necessary funds to finish this well-located project,

2.       The property will need to be auctioned off to a more solvent owner,

3.       Or in the worst case, if building and safety laws were allowed to be violated, Oceanwide Plaza could end up being 3 decaying 40+ story hulks sullying the downtown L.A. skyline.

I told the Hong Kong appraisal firm that they should ask to be paid in advance, which is not the custom in this type of financial reporting work. They replied, "Noted, with thanks".

Thursday, December 20, 2018

Revisiting Jinbao Place and Beijing's Luxury Retail District

Jinbao Street is a premier luxury shopping street in Beijing, like Rodeo Drive in Beverly Hills. In its two-block stretch there are three 4 or 5-star hotels and Bentley, Ferrari, Maserati and Mercedes dealerships. In my return this time, I found an Aston-Martin dealership in the lobby of my hotel, The Regent.

Jinbao (translated as “golden treasure”) Street is the best-known destination for Beijing’s wealthiest shoppers.

Seven years ago, I reported on a struggling three-year-old, 40,000 square meter (430,000 square foot) luxury mall known as Jinbao Place which stood largely vacant on this otherwise busy street. Above the second floor in this seven-stories-above-grade mall, almost all the space was vacant. The seventh floor, the restaurant floor, had only a roast duck restaurant.

At that time, I thought the problem was that most luxury retailers had already saturated the Dongdan district that contains Jinbao Street and the famed Wangfujing pedestrian mall, anchored by the newly renovated Beijing APM mall, formerly known as the Sun Dong An plaza. There seemed to be an Omega watch store on almost every block.

What a difference seven years makes, though. I found the Jinbao Place mall to be at stabilized occupancy. I counted three vacancies and a good number of shoppers. This time I dined at a Japanese restaurant, noticing that their lobster dinner was priced at 2500 yuan (about $350).

The famed Wangfujing pedestrian mall, a few blocks west, was at full occupancy, as was the APM mall. This location seems to be at the epicenter of Beijing wealth. The only thing I can witness in several visits to Beijing is its continuing prosperity.

So I was wrong about this one in 2011.

Wednesday, November 14, 2018

Update on the Eminent Domain Case in Seoul

The dependent variable that the valuation algorithm solves for is the price per square meter of land area, not building area, because land in Seoul is worth far more than most buildings on it due to the shortage of land.
Notice that almost every input variable is a dummy variable. Dummy variables are binary variables with the value of 1 or 0, depending upon the presence or absence of a particular condition, such as being “adjacent to a narrow road”.
There are only two quantifiable input variables in this model: the land area and the distance to railways or highway. Missing from this model are so many quantifiable variables such as distance to subway stations, distance to shopping, distance to schools, quality of schools, floor area ratio (ratio of building area to land area), and land slope.

The Korean client’s lawsuit against the private taking ultimately lost in Korean courts, but the treaty between the U.S. and the Republic of Korea mandates an international arbitration for a U.S. citizen.  We expect to be heard at the International Arbitration Centre in Hong Kong.

Sunday, October 21, 2018

Why I Don’t Appraise in Antarctica