New York developer Gary Barnett has nearly completed construction on one of the most expensive condominium towers in history. Now he is looking to China to back an even larger and taller tower a block away.
Mr. Barnett, founder of Extell Development Co., is in early talks with the state-owned Export-Import Bank of China for a loan of about $1 billion to build the soaring condo and hotel skyscraper just south of Manhattan’s Central Park, according to people familiar with the discussions.
If completed, such a deal would likely be the largest loan for a U.S. real-estate construction project since the property downturn and would give the Chinese bank—which has a mission of promoting Chinese investments globally—its first foothold in a U.S. real-estate project.
The high-profile building is poised to be the tallest residential tower in the country. With a building-permit application calling for a 1,550-foot-high structure, it would surpass the Empire State Building, a commercial skyscraper, in height. Its architect was the lead designer of the world’s tallest building, the Burj Khalifa in Dubai, and retailer Nordstrom Inc. has agreed to put its flagship department store at the base of the building.
The talks still could fizzle. Two prior deals for large U.S. projects that involved state-run Chinese banks collapsed in more advanced stages of discussion, including a giant housing development in San Francisco that involved home builder Lennar Corp. A person familiar with Export-Import Bank’s thinking said, “the project is in a good location,” but the bank will have to do its own due diligence to determine whether it is “a good project.”
Any decision may need to take into account the credit squeeze in Chinese interbank lending. That market, where banks lend to one another, has seen rates soar since early this month, pushing up banks’ funding costs and causing some to raise lending rates. Export-Import Bank was among a host of large Chinese financial institutions to reduce the size of their planned bond offerings in the past two weeks, as the cash squeeze hit investors’ demand for such securities. As a result, Chinese banks are expected to become more vigilant in lending money, say Chinese banking executives and analysts.
Still, real-estate professionals in China say more U.S. loans are expected by state-owned lenders like Export-Import Bank, which have been on the hunt for North American investments in the past few years. Chinese banks’ U.S. branches held $5.3 billion in loans in the first quarter of 2013, up from just $1.5 billion in the first quarter of 2010, according to Trepp LLC. Typically, Export-Import Bank and others, like the China Development Bank, offer relatively low-cost financing for projects that involve Chinese contractors or investors, thereby furthering Chinese investment overseas.
Generally, “the Chinese bank will provide the financing on very favorable terms,” said Joel Rothstein, an attorney at Paul Hastings LLP who has worked on deals similar to that being proposed for the New York tower. “At the same time, ‘China Inc.’ is supported and promoted, as Chinese contractors and construction-material suppliers win high-profile international assignments.”
In 2010, Export-Import Bank agreed to finance $2.5 billion of the cost to build a $3.4 billion hotel, casino and resort project in the Bahamas, in which the China State Construction Engineering Corp. serves as the contractor—fitting with the bank’s mission to help Chinese companies overseas.
The project is under construction. Export-Import Bank has also financed an energy project in Texas.
In the same manner, the U.S. subsidiary of the construction company is in talks to be the co-general-contractor on Mr. Barnett’s New York tower, along with Lend Lease Group, should the bank loan go forward, the people familiar with the deal said.
China State Construction Engineering Corp., China’s largest construction company by revenue, is known for building many of prominent public works in China, such as the Olympic swim center in Beijing dubbed the Water Cube. In the past few years, it has tried to expand its U.S. business, working on local infrastructure projects and now on real estate.
Mr. Barnett’s turn to the Chinese comes as U.S.-based banks and other lenders are still skittish about making giant construction loans. Financing of $1 billion would likely require multiple banks agreeing to take a piece of the loan.
The New York condo market for new towers aimed at the ultrarich has been especially hot, with contracts flying out the door at new projects, and at prices well above 2007 peak levels. That comes even as the rest of the New York market has been slower to see a rebound. The rise in planned new towers has been driven in part by a rush of foreign buyers who see the apartments as stable investments. Numerous slim, tall towers aimed to price above $3,000 per square foot are planned.
“The upper end of the upper end is where you’re seeing this froth,” said Jonathan Miller, chief executive of appraisal firm Miller Samuel Inc. “In many ways, it’s become a new housing category.”
The developers of 432 Park Ave., a 1,396-foot tower under construction, say they have signed a contract to sell a $95 million unit, which would be a record sales price for a New York apartment.
In lower Manhattan, an 820-foot tower in TriBeCa under construction has already seen contracts signed for more than 80% of its units.
“We never dreamed it would sell as quickly as it did,” said Daniel Neidich, chief executive of Dune Real Estate Partners, one of the builders of the tower, named 56 Leonard.
Mr. Barnett, in particular, has been a beneficiary of the trend. His under-construction, 1,004-foot tower, One57, is slated to open later this year. Activity has been brisk—more than 70% is sold—and two condos are in contract to sell for more than $90 million each, including one to a group led by investor William Ackman, people familiar with the sales say. Total listing prices for the 92 units top $2 billion, and even 50-square-foot storage spaces go for as much as $200,000.