Once again, local leaders are out forging pragmatic solutions to issues that are ideologically stuck at national level.
If there is a silver lining from our economic roller coaster, it’s that crisis often begets innovation, even in areas like real estate financing.
News reports from Beijing indicate that the China Development Bank is negotiating to finance a massive urban redevelopment project in San Francisco. This deal appears to be the first significant funding of a private U.S. investment by the CDB. We think it’s a promising sign of things to come.
The Bayview Hunters Point/Candlestick Point project is innovative on a number of fronts: social policy, technology, urban design, real estate and finance. By turning an old military base into an urban research-and-development campus that anchors an entirely new community, the project promises to create a virtuous cycle of innovation that can form the basis for lasting prosperity.
Yet equally transformative is the proposed funding and finance package for the nearly $3 billion project.
The CDB is interested in contributing $1.7 billion for Hunters Point and the separate-but-related Treasure Island redevelopment. It was only after exhausting its attempts to get funding from domestic sources that the developer, Lennar Corporation and partners, undertook negotiations with the CDB.
For the Chinese, an investment like this is attractive, in part, to diversify their holdings. While there is no precedent for this kind of Chinese investment in the United States, there are plenty of examples in other countries.
Barriers to Chinese investment in American infrastructure, however, are not inconsequential. Mutual concerns generally center on firms, workers, quality, and standards. For example, Chinese workers (not domestic workers) are often employed on their infrastructure projects in Africa and the Middle East, and contractors understandably come with a different culture around labor and production standards. From the Chinese perspective, there are concerns about America‘s lack of public-sector expertise in partnerships of this nature and trepidation over American national security policies that they consider protectionist.
Yet, the Hunters Point project shows there is significant potential for reciprocated benefit if reservations can be overcome and deals structured in ways that address the genuine needs of both sides.
Commentary
The Future of U.S. Redevelopment Financing: China?
July 18, 2012