UPDATE: Feb. 10, 2019: Contractors hired to perform work on the $1 billion Oceanwide Plaza project in downtown Los Angeles have filed more than $62 million of mechanic’s liens since June 29, according to Curbed Los Angeles. Construction stopped last month, with owner Oceanwide Holdings stating that it was restructuring the project’s financing.
The biggest claim is from Webcor Construction, which is allegedly owed nearly $53 million. Another contractor told Curbed that it had received partial payment toward an $877,471 lien.
Oceanwide is also in the midst of a $1.6 billion project in San Francisco, the mixed-use Oceanwide Center. A joint venture between Swinerton Builders and Webcor is building the project, while AECOM Tishman is serving as construction manager.
Construction is still ongoing there, and, according to a Feb. 1 update from Swinerton|Webcor, crews have been working on site utilities, foundations and round-the-clock excavation. There have been no reports of work stoppages, but, according to the San Francisco Chronicle, developers could be looking for a loan or new capital partner there as well.
Dive Brief:
- Construction on the $1 billion Oceanwide Plaza mixed-use development in Los Angeles has stopped, according to the Los Angeles Times.
- General contractor Lendlease recently canceled a scheduled inspection of the project, according to a Department of Building and Safety official, with word that the construction company was halting work on the project. Lendlease gave no additional information. Chinese owner Oceanwide Holdings told the Times that interior construction was temporarily suspended while it set to recapitalize the project and that building would restart again in mid-February — which would push the project’s completion into next year.
- The stoppage comes at the same time as the Federal Bureau of Investigation's inquiry into a possible nefarious connection between large, downtown Los Angeles projects, foreign investors and city officials. The FBI’s investigation has touched on the Oceanwide project, but there is no evidence of wrongdoing on the part of the developer.
Dive Insight:
The restriction on the flow of capital from China has also been tossed around as a reason that Oceanwide stopped construction, barring its explanation about refinancing. The push by the Chinese government for Chinese-owned companies to keep their money at home in order to help shore up the country’s economy reportedly is also the reason for renovation delays at the Waldorf Astoria in New York City, a property owned by troubled Chinese company Anbang Insurance Group.
Contractors have a few options when there is an interruption in the owner’s cash flow or if the money simply runs dry, but they largely depend on how long it will be between payments and how much money is owed the contractor when the stoppage begins.
If the owner has to refinance or raise additional funds, and that can happen by the time the next contractor payments are due, then it’s possible that work can go on uninterrupted. However, if the owner's ability to obtain new financing is uncertain or if it will take months, not many contractors have the wherewithal to keep spending money on labor and materials without a guarantee of timely reimbursement. Even construction companies that have significant amounts of cash on hand won’t want to keep paying into a project that might not be financially viable.
One remedy that contractors have when working on private projects, depending on state statutes, is a mechanics lien, which places an encumbrance on the project property. The owner can’t sell or refinance without making good on past due contractor bills. If the owner continues to withhold payment, contractors can often sue to foreclose on the property.
