Los Angeles-based Oaktree Capital Management has seized a second Evergrande property in China as part of an unprecedented push to recover $1 billion in unpaid debt.
Oaktree has seized a massive “Venice” apartment complex on the Yellow Sea coast near Shanghai that had defaulted on a $400-million secured loan, according to the Financial Times.
This came after Oaktree, which manages $166 billion in assets, seized a large plot of land in Hong Kong called “Project Castle,” where China Evergrande Group had hoped to build a Versailles-like mansion. The loan to that project came to around $600 million.
Oaktree is a distressed debt specialist, and the firm’s aggressive moves to foreclose on two secured loans represents a rare intrusion into a domestic crisis in China–this one caused by the world’s biggest collapse of a property developer.
Oaktree’s control of both properties means the bedraggled Chinese real estate firm can’t sell them to raise funds to restructure $300 billion in debt. The financial health of the world’s most indebted developer spiraled down last year, prompting a series of defaults across China’s real estate industry that for decades fueled its growing economy.
The Venice project defaulted on a secured loan provided by Oaktree late last year, two people with knowledge of the details told the Financial Times. One of them said the loan was around $400 million.
The total loans Oaktree made to Evergrande came to around $1 billion, according to a person close to the asset manager. In a letter to investors, Oaktree said both Evergrande loans came to around 60 to 70 per cent of the asset’s total value.
The default allowed Oaktree to take control of the Venice project’s equity, restart construction and begin selling its apartments, the person said.
Legal claims by foreign companies on Chinese assets have been unclear. But the Oaktree move has brought no sign of any challenge from Beijing.
Venice is among hundreds of developments launched by Evergrande, which borrowed heavily on international markets and in China to fund its expansion. It then teetered last year amid construction delays, litigation and the pressures of its vast debts.
The company invested the equivalent of $4.7 billion in the Venice project since it broke ground a decade ago. The project now markets 294 apartments, and has 66 million square feet of residential space.
Oaktree co-founder Howard Marks, a former disciple of “junk bond king” Michael Milken, is known as one of the keenest investors in distressed securities.
In December 2020, the billionaire head of the Downtown-based firm, now a unit of Brookfield Properties, and his wife Nancy paid $26.2 million for a 11,500-square-foot mansion in Holmby Hills. Last fall, the company bought a retail condo in New York’s SoHo for $34 million.
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[FT] – Dana Bartholomew