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Fast Money & Foreign Objects
Shanghai Firm’s $9.4 Million Purchase in Detroit Met With Lawsuits, Burst Pipe
ENLARGE
The David Stott building in Detroit, which was purchased by Shanghai-based DongDu International for $9.4 million. PHOTO: JAMES MACMILLEN
By
ESTHER FUNG
Updated March 24, 2015 9:16 p.m. ET
11 COMMENTS
DETROIT—China has poured more than $40 billion into real estate across the world over the past seven years. But in a number of places, Chinese investors are running into snagspeculiar to local markets.
In London, a Chinese developer’s £500 million ($768 million) proposal to rebuild the historical Crystal Palace in Crystal Palace Park crumbled after it missed a deadline for filing plans. In Australia, the government ordered a Chinese conglomerate to sell a $31 million house it recently bought, citing restrictions against foreign buyers.
Detroit is home to one of the knottiest cases.
A Shanghai developer two years ago paid $9.4 million for the landmark David Stott Building as part of a bet on a Motor City renaissance. Today, the building is empty, and the developer has gone to court with former tenants including a bar and a yoga studio. In February, a frozen pipe burst and filled the bottom two floors with 450,000 gallons of water, prompting the last tenant to leave, according to the remaining tenants and the developer.
PROPERTY REPORT
China is snapping up properties abroad as developers look to diversify away from the sluggish Chinese property market and wealthy Chinese look to shift their money out of the country. In some places, like the U.S., property investment also is a quick route to residency status.
Most of these investments appear to have gone smoothly. Research firm Real Capital Analytics says only four of 173 Chinese foreign-property acquisitions it follows have become distressed, largely because the buyers are well-capitalized. Rhodium Group, a research firm that tracks Chinese investment abroad, says the wave of Chinese property buying abroad accelerated only about two years ago and so far lacks a track record.
ENLARGE
Luxury home Villa del Mare is at the center of a dispute between Australia’s government and a Chinese real-estate unit. PHOTO: NEWS CORP AUSTRALIA
Still, many developers, investors and others in real estate question whether the influx of Chinese developers has been too swift, said Urban Land Institute, a nonprofit research group based in Washington. The group in a recent report cited potential complications for deals including legal and cultural differences, the potential for overpaying for land and a preference for selling apartments to Chinese buyers before they are completed.
“In the U.S., there are more layers of complexities that can’t be as easily resolved with a discussion with government officials,” said Joel Rothstein, a partner at law firm Paul Hastings, who has helped Chinese firms structure property deals abroad.
ENLARGE
A Chinese company’s proposed redevelopment of Crystal Palace in London is seen in this illustration. PHOTO:VIA BLOOMBERG
The purchase of Detroit’s David Stott Building represented a bet by Dongdu International that a city hit hard by a slump in the auto industry would rebound. DongDu also purchased the long-vacant 14-story Detroit Free Press Building for $4.2 million and the 10-story Capitol Park Lofts, which sits on the site of Michigan’s original Capitol Building, for nearly $2.8 million.
On a recent visit to the David Stott Building, two gray pipes snaked down over the building’s front entrance. The martini glass on the cocktail bar’s neon sign had long since gone dark.
The 38-story Art Deco building, named for a local flour miller and opened in 1929, lost tenants in recent decades amid Detroit’s long economic slump. When DongDu purchased it in October 2013, it had been owned by Emre Uralli and his wife, Lynn Kassotis Uralli, who remained the owner of SkyBar, a cocktail bar on the 33rd floor that had premises on the ground floor and basement as well. At the time the building had nine tenants, according to DongDu.
Two months after DongDu took control, the Detroit Fire Department shut down Skybar’s operations on the 33rd floor, saying the business’s temporary occupancy certificate had lapsed. Ms. Kassotis Uralli sued DongDu, alleging the Chinese company was obligated to obtain the certificate.
“We are not responsible” for obtaining a certificate, said Ken Creighton, vice president at DongDu’s asset-management arm. DongDu later countersued Skybar for allegedly not paying rent and to evict Skybar. Ms. Kassotis Uralli says DongDu rejected her January 2014 rent so she put it in an escrow account.
Detroit Yoga, another tenant, closed its studio in January 2014 and sued DongDu for various issues. A local court dismissed the case in February.
Last month, a burst pipe flooded the basement and knocked out the mechanical and electrical systems. Philip Lauri, a director at an advertising firm occupying the 28th story, said he and his staff had to move out. “I’m uncertain if we are able to move back,” said Mr. Lauri.
“We are working to ensure that Philip and his team suffer as little as possible through the inconvenience of the flood in accordance with the provisions in his existing lease,” said Mr. Creighton.
—Eliot Brown and Lisa Schwartz in New York contributed to this article.
Corrections & Amplifications:
A Chinese developer’s proposal to rebuild the historic Crystal Palace in Crystal Palace Park crumbled after it missed a deadline for filing plans. An earlier version of this article incorrectly stated that the Crystal Palace would be rebuilt in Hyde Park.
http://www.wsj.com/articles/chinese-developer-finds-rough-road-in-motor-city-1427211170?mod=e2fb
read about the burst pipe on curbed, I'd say people are rightfully upset
The David Stott building in Detroit, which was purchased by Shanghai-based DongDu International for $9.4 million. PHOTO: JAMES MACMILLEN
By
ESTHER FUNG
Updated March 24, 2015 9:16 p.m. ET
11 COMMENTS
DETROIT—China has poured more than $40 billion into real estate across the world over the past seven years. But in a number of places, Chinese investors are running into snagspeculiar to local markets.
In London, a Chinese developer’s £500 million ($768 million) proposal to rebuild the historical Crystal Palace in Crystal Palace Park crumbled after it missed a deadline for filing plans. In Australia, the government ordered a Chinese conglomerate to sell a $31 million house it recently bought, citing restrictions against foreign buyers.
Detroit is home to one of the knottiest cases.
A Shanghai developer two years ago paid $9.4 million for the landmark David Stott Building as part of a bet on a Motor City renaissance. Today, the building is empty, and the developer has gone to court with former tenants including a bar and a yoga studio. In February, a frozen pipe burst and filled the bottom two floors with 450,000 gallons of water, prompting the last tenant to leave, according to the remaining tenants and the developer.
PROPERTY REPORT
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- For Chinese Builders in U.S., Devil in the Details
- Australia Orders Chinese Company to Sell Sydney Mansion
China is snapping up properties abroad as developers look to diversify away from the sluggish Chinese property market and wealthy Chinese look to shift their money out of the country. In some places, like the U.S., property investment also is a quick route to residency status.
Most of these investments appear to have gone smoothly. Research firm Real Capital Analytics says only four of 173 Chinese foreign-property acquisitions it follows have become distressed, largely because the buyers are well-capitalized. Rhodium Group, a research firm that tracks Chinese investment abroad, says the wave of Chinese property buying abroad accelerated only about two years ago and so far lacks a track record.
Luxury home Villa del Mare is at the center of a dispute between Australia’s government and a Chinese real-estate unit. PHOTO: NEWS CORP AUSTRALIA
Still, many developers, investors and others in real estate question whether the influx of Chinese developers has been too swift, said Urban Land Institute, a nonprofit research group based in Washington. The group in a recent report cited potential complications for deals including legal and cultural differences, the potential for overpaying for land and a preference for selling apartments to Chinese buyers before they are completed.
“In the U.S., there are more layers of complexities that can’t be as easily resolved with a discussion with government officials,” said Joel Rothstein, a partner at law firm Paul Hastings, who has helped Chinese firms structure property deals abroad.
A Chinese company’s proposed redevelopment of Crystal Palace in London is seen in this illustration. PHOTO:VIA BLOOMBERG
The purchase of Detroit’s David Stott Building represented a bet by Dongdu International that a city hit hard by a slump in the auto industry would rebound. DongDu also purchased the long-vacant 14-story Detroit Free Press Building for $4.2 million and the 10-story Capitol Park Lofts, which sits on the site of Michigan’s original Capitol Building, for nearly $2.8 million.
On a recent visit to the David Stott Building, two gray pipes snaked down over the building’s front entrance. The martini glass on the cocktail bar’s neon sign had long since gone dark.
The 38-story Art Deco building, named for a local flour miller and opened in 1929, lost tenants in recent decades amid Detroit’s long economic slump. When DongDu purchased it in October 2013, it had been owned by Emre Uralli and his wife, Lynn Kassotis Uralli, who remained the owner of SkyBar, a cocktail bar on the 33rd floor that had premises on the ground floor and basement as well. At the time the building had nine tenants, according to DongDu.
Two months after DongDu took control, the Detroit Fire Department shut down Skybar’s operations on the 33rd floor, saying the business’s temporary occupancy certificate had lapsed. Ms. Kassotis Uralli sued DongDu, alleging the Chinese company was obligated to obtain the certificate.
“We are not responsible” for obtaining a certificate, said Ken Creighton, vice president at DongDu’s asset-management arm. DongDu later countersued Skybar for allegedly not paying rent and to evict Skybar. Ms. Kassotis Uralli says DongDu rejected her January 2014 rent so she put it in an escrow account.
Detroit Yoga, another tenant, closed its studio in January 2014 and sued DongDu for various issues. A local court dismissed the case in February.
Last month, a burst pipe flooded the basement and knocked out the mechanical and electrical systems. Philip Lauri, a director at an advertising firm occupying the 28th story, said he and his staff had to move out. “I’m uncertain if we are able to move back,” said Mr. Lauri.
“We are working to ensure that Philip and his team suffer as little as possible through the inconvenience of the flood in accordance with the provisions in his existing lease,” said Mr. Creighton.
—Eliot Brown and Lisa Schwartz in New York contributed to this article.
Corrections & Amplifications:
A Chinese developer’s proposal to rebuild the historic Crystal Palace in Crystal Palace Park crumbled after it missed a deadline for filing plans. An earlier version of this article incorrectly stated that the Crystal Palace would be rebuilt in Hyde Park.
http://www.wsj.com/articles/chinese-developer-finds-rough-road-in-motor-city-1427211170?mod=e2fb
read about the burst pipe on curbed, I'd say people are rightfully upset