A subsidiary of Chinese developer Hongkun is likely to lose its marquee property overlooking the Hudson River.
Lender Parkview Financial recently launched a foreclosure on a stake in Hongkun’s 282-unit condominium development project in Weehawken, New Jersey. An auction is scheduled for the end of June.
But a different lender may end up taking over the property. In an unusual move, Parkview is putting its $66.7 million loan up for sale, while simultaneously pursuing the UCC foreclosure.
Brock Cannon of Newmark, who is marketing the sale of the loan, said the move will allow another investor to buy the distressed loan and then grab the equity in the property. The new investor can use the amount the Hongkun subsidiary owes Parkview on the existing loan – called a credit offer – in the auction.
“You don’t usually get a lot of interest in UCC foreclosures because lenders can credit the offer,” Cannon said.
It may sound like financial jargon, but the deal could have a significant impact on foreclosures if widely implemented. A UCC foreclosure allows a lender to circumvent the traditional court process by seizing an interest in the project, rather than the property as a whole. The caveat: Foreclosures should be marketed as sales to other parties and sold at auction. Lenders have a clear advantage in these auctions because they can essentially bid at a discount using their existing debt.
But in this case, another investor can buy the loan and continue with the UCC foreclosure. It would also reduce the time required to foreclose, since the new investor can continue the existing foreclosure process initiated by Parkview.
“As a lender, you start the clock,” Cannon said. “You condense the calendar.”
The buyer of the loans would acquire the equity of a 3.65 acre waterfront site with fully approved plans.
Hongkun USA bought the site for around $75 million in 2019, securing part of its funding through the federal EB-5 program, before receiving a $61 million loan in December 2020 from Parkview, a Los-based REIT Angeles. The loan had an expensive interest rate of 9% plus LIBOR, according to marketing materials.
The developer planned to go vertical with an amenity-rich skyscraper, marketing it to Manhattan workers looking for cheaper rent, more space and a shorter commute than parts of Brooklyn. . The project was among the final elements of Port Imperial, a planned mega-development that will bring 2.8 million square feet, 1,500 condo units and 45,000 square feet of ground floor retail to the waterfront area of ‘Hudson.
But Hongkun’s plan hit a snag as Chinese regulators began cracking down on excessive borrowing by property developers in the country. His loan matured in December 2021 and has now racked up $5.5 million in late fees and interest, according to marketing materials from the sale.
The demise of Hongkun and its affiliates appears to stem from a combination of factors. According to a report by Fitch Ratings, in December the company’s Chinese residential construction subsidiary lacked sufficient cash to meet upcoming debt repayments and had limited access to capital markets.
Hongkun USA’s parent company, Hongkun Group, has $7.7 billion in assets, according to its website. His projects include the NBA Center in Tianjin, China.