Beijing-Based Hony Capital to Buy San Francisco’s Oceanwide Center for $1.2B

Oceanwide Center Hony Capital Foster and Partners San Francisco Bay Area Salesforce Tower TMG Partners Northwood Investors

By Vladimir Bosanac & Meghan Hall

Following a protracted sales process, Oceanwide Center, a stalled, one million square foot development project in San Francisco, could soon have a new buyer. According to a statement by Oceanwide Holdings earlier today, the company has signed a framework agreement with Beijing-based Hony Capital to sell its two subsidiaries, Oceanwide Center LLC and 88 First Street SF LLC, for $1.2 billion. The entity purchasing the development is Hony Capital Mezzanine Fund 2019 Limited, which is registered in the Cayman Islands.

The close date is expected to be within 15 days of the due diligence period, which is scheduled for June 30th, 2020. This date may have to be moved due to the recent Coronavirus pandemic, and the two parties would agree on an extension. The seller is allowed to continue its marketing of the asset for sale until the end of the due diligence period.

The final price of the deal is still to be determined, and it is contingent upon a number of milestones, including one tied to the internal rate of return, according to the statement. 

Oceanwide Center began construction in 2016, and the plans call for a 910-foot tower, located at 50 First Street designed by the world-renown, London-based Forster and Partners. The tower would be only slightly smaller than Salesforce Tower in height, making it the second tallest building in San Francisco. Another tower, rising 605 feet, would also be built. Together, the project includes one million square feet of office space, 265 residential units and a 169-key Waldorf Astoria Hotel.

Oceanwide Center is currently one of the largest office projects in the construction pipeline, and its sale will no doubt be one of the largest in San Francisco, and the Bay Area this year. A sale of this size in San Francisco itself has not happened in years; Boston Properties purchased the Embarcadero Center in 1998 for $1.22 billion, while 555 California Street sold for around $1 billion in 2005 to the Trump Organization and a number of Hong Kong investors. 

Oceanwide Holdings originally purchased the project site five years ago from TMG Partners and Northwood Investors for $296 million, and the latest transaction is significant not only due to its size, but because the property is still under construction. Through the development of the First and Mission Street sites, Oceanwide had hoped to deepen it U.S. real estate presence, according to an initial press release on ChinaSF’s website. ChinaSF is a nonprofit part of the San Francisco Office of Economic and Workforce Development, which strives to connect Chinese companies looking to invest in San Francisco to local organizations.

Originally, completion was slated for 2023. However, the project’s construction has been largely beleaguered, and Oceanwide announced in October it was stopping development, siting changing local market conditions and economic uncertainty. In November, reports indicated that Oceanwide intended to sell the development, as well as another Los Angeles-based project site.

Initial budget estimates for the project were around $1.6 billion; however, industry reports stated that Oceanwide Holdings has invested $900 million in the project, and an additional $1 billion may be needed to deliver the development to the market.

Hony Capital is a Chinese private equity firm, owned by Legend Holdings, according to the company’s web site and Wikipedia page post. Hony has around US$10 billion under management, and it invests in overseas consumer brands in order to create value by expanding their presence in China.

Hony Capital has invested in the areas of pharmaceutical and healthcare, consumption and catering, culture and media, environmental protection and new energy, as well as high-end manufacturing. Hony’s portfolio companies include China Shijiazhuang Pharmaceutical Group (CSPC), Zoomlion, Shanghai City Investment Holdings, Shanghai Jin Jiang International, ENN, PizzaExpress (UK), STX (US), WeWork (US), and others.

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