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China in Talks With U.S. Home Builder

Dinny McMahon and Robbie Whelan

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June 25, 2012

Lennar Corp., LEN +5.15% one of the U.S.'s largest home builders, is in talks with the China Development Bank for approximately $1.7 billion in capital to jump-start two long-delayed San Francisco projects that would transform two former naval bases into large-scale housing developments, according to people familiar with the discussions.

The negotiations aren't final and the financing arrangement could still fall through. But if completed, the deal would reflect a changing dynamic between the U.S. and Chinese economies, as an American company turns to China for help funding a long-delayed and partially publicly funded project that otherwise wouldn't get done.

Chinese state money is in talks with the U.S's largest home builder to provide $1.7 billion to kick-start two housing projects in the U.S. The WSJ's Isabella Steger talks with reporter Dinny McMahon about the potential deal.

The developments, Treasure Island and Hunters Point Shipyard, also have the potential to alter San Francisco's housing market by providing nearly 20,000 new homes, a sports arena and millions of square feet of office and retail space in a market that is land-constrained and has had limited new construction. The city has committed hundreds of millions of dollars, in the form of tax-increment bonds, to the projects, which in total are expected to cost $10.5 billion over the next few decades.

In recent years, Chinese state money—in large part provided by CDB and its counterpart the Export-Import Bank of China—has been pivotal in funding major infrastructure and resource projects around the world, but the bulk of that activity has been in developing countries in Africa, South America and Asia.

That has resulted in the construction of dams, airports, railways, highways and sports arenas that otherwise wouldn't get built, primarily in developing countries. Funding is typically conditional upon Chinese developers and contractors being used to build the projects. And in order to keep costs down, and in many cases to ensure the necessary expertise, at least a portion of the workforce is flown in from China.

This would be difficult or impossible in San Francisco, where local regulations and deals cut with local governments generally require developers to use local labor and pay prevailing wages.

The CDB and the Lennar partnership have been in discussions to include China Railway Construction Corp., 1186.HK +0.16% a state-run contractor, in the development of Treasure Island and Hunters Point, according to people familiar with the matter. While it is unclear what CRCC's role would be, the company could serve as an adviser or in an consulting role, or could possibly even invest in a local construction company that employs U.S. workers, these people said.


With Chinese firms increasingly eyeing opportunities in the U.S. and other developed markets, CDB will likely find itself being approached to fund more deals in the U.S. People familiar with the negotiations said CDB was using the Treasure Island and Hunters Point projects—which both include "green" building and affordable housing components that are of interest to Chinese builders—as a test case to become familiar with what's required for doing such deals in the U.S.

Miami-based Lennar, the third-largest U.S. home builder measured by the number of houses built, has a large presence in California, and is well known for its ability to put together complex financial deals, usually involving land.

Associated Press

A military history mural in a building on Treasure Island, where Lennar hopes to build up to 8,000 homes.

In 2007, at the height of the real-estate bubble, Lennar sold its stake in a complicated land venture known as LandSource to California's public pension system, for $660 million cash. The following year, LandSource filed for bankruptcy amid massive nationwide losses in real-estate values, and Lennar bought back much of the land in the venture for pennies on the dollar.

In 2009, Emile Haddad, Lennar's former chief investment officer and the person behind the LandSource deal, launched a land-development company, with Lennar as his majority investor, known as FivePoint Communities. FivePoint became the master developer for four big real-estate projects in California, including Hunters Point and Treasure Island.

"We have created a company that basically is in charge of [some] of the largest mixed-use land opportunities in the state of California," Mr. Haddad said in a 2011 interview. "We are creating the biggest urban development in San Francisco history."

Mr. Haddad declined to comment on Monday. A Lennar spokesman also declined to comment.

A shipyard since 1870, Hunters Point was an important shipbuilding site during World War II, after it was taken over by the Navy. In the years following the war, the area around the shipyard continued to grow as a community of mainly low-income African-American families, some of whom worked on the docks.

In 1999, long after the shipyard's closure, Lennar was selected to redevelop the site. The Hunters Point plan, which took over a decade to arrive at its final version, calls for 12,500 homes, a hotel, 3.5 million square feet of research-development and commercial space, and 800,000 square feet of retail space. Lennar, which is joining with a subsidiary of Estein and Associates USA, Ross Perot Jr.'s Hillwood Development Co. and Scala Real Estate Partners, is also planning to build an arena at nearby Candlestick Point.

The City of San Francisco

A rendering of the Treasure Island project.

About 2,500 people currently live on Treasure Island, a man-made island in the middle of San Francisco Bay that dates back to the late 1930s and is connected to San Francisco and Oakland by the Bay Bridge. In 1939 it was the site of the Golden Gate International Exposition, and later, the Navy operated a base there that was a major shipping-out point for sailors headed to the Pacific.

Lennar is joining with Wilson Meany, a San Francisco developer, along with Stockbridge Capital Group, Hillwood, Scala, Estein and Kenwood Investments, a real-estate fund founded by former Democratic lobbyist Darius Anderson, to build the Treasure Island project, which includes up to 8,000 homes, a 500-room hotel and about 300,000 square feet of commercial space.

On adjacent Yerba Buena Island, Lennar has plans for roughly 210 homes.

"We think it's one of the greatest opportunities certainly in the city," said Michael Tymoff, project director for the Treasure Island Development Authority, the city body overseeing the project. Mr. Tymoff declined to comment on a potential funding deal with China, saying he didn't know the details of Lennar's negotiations.

Negotiations between CDB and the Lennar partnership have been led by Kofi Bonner, a former deputy mayor of San Francisco who heads Lennar Urban, a Lennar division based in San Francisco. Mr. Bonner, along with the partnership's attorneys and Christopher Meany, a managing partner of Wilson Meany, have traveled to China over the past year to negotiate the deal, according to people familiar with the situation. Mr. Bonner, Mr. Meany and a representative for Stockbridge declined to comment.

CDB is one of three banks that are explicitly tasked with meeting policy goals of the Chinese government. While CDB's primary mandate is to support China's domestic development, with foreign currency-denominated lending accounting for only 21% of outstanding loans at the end of 2011, it is also tasked with supporting the development of China's interests overseas.

With Beijing traditionally having kept tight control over foreign exchange, CDB—and to a lesser extent the Export-Import Bank of China, a fellow policy bank—have dominated the funding of overseas projects and investments of Chinese firms.

According to a report earlier this year from the Inter-American Dialogue, a Washington-based think tank, CDB accounts for 82% of publicly disclosed lending to Latin America by Chinese banks since 2005.

The potential deal pales in size to the $20 billion loans CDB made to Venezuela in 2010 and the $25 billion it agreed to lend to Russian oil producer Rosneft and Russian pipeline firm Transneft in 2009.

Write to Dinny McMahon at and Robbie Whelan at

A version of this article appeared June 26, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Chinese Target U.S. Homes.