Sunday Summary: Could China’s Real Estate Problems Become Ours?

Because two major developers — Country Garden Holdings and Zhongzhi Enterprise Group — are currently in the middle of an extremely ugly meltdown.

Shares of Country Garden — which, as of last year, owned some 2.2 billion square feet of real estate in China — have fallen some 70 percent in the last eight months, and the company is set to be delisted from the the Hong Kong-based Hang Seng Index tomorrow.

Things are not good for Zhongzhi, either. As of July, Zhongrong International Trust (which is controlled by Zhongzhi) stopped making payments on many of its trust products, according to Reuters. (Oh, by the way, Zhongrong controls some $98.6 billion in assets. So, yeah. Kind of a big deal.)

“The property sector is in a downturn that is just going to be very hard to come out of, so it’s going to impact economic growth in China,” Alfredo Montufar-Helu, who runs the China Center for Economics and Business of the Conference Board in Beijing, told Commercial Observer last week. “The real estate sector is estimated to account for 25 to 30 percent of total GDP in China.”

The big question is: What’s the collateral damage? How many American banks and other companies are exposed and by how much?

As of the middle of last month, BlackRock, for one, held $358.5 million of dollar-denominated bonds issued by Country Garden. JPMorgan Chase and UBS Group both hold Country Garden dollar bonds, but it’s a little murky how much, or if they dropped these bonds after their most recent August financial disclosures.

“Is this a ‘Lehman situation’?” asked Dennis Unkovic, a partner at law firm Meyer, Unkovic & Scott. “Not yet. But it could be. It depends on where it goes from here.” 

Oy.

Let’s talk about something else

We’d tell you to go to the nearest marijuana dispensary to at least take your mind off such woes, but we wouldn’t want to advise our readers to do anything against the law… and, as many readers surely know, the vast majority of recreational cannabis shops around New York are operated illegally. (As of February there were 400 illegal shops in Manhattan alone.)

This feels like a big, big waste given that the city could be making so much more tax revenue if they hurried things along.

According to a new report from the Independent Budget Office, Gotham could be netting up to $43 million for every fiscal year — and that’s not even mentioning the $950 million in sales expected to be drummed up. (And every city likes tax revenue. Look at Los Angeles. They just raised $150 million on Measure ULA, which they’re expected to spend on affordable housing development, emergency rental assistance and eviction defense.)

Better to get something to eat, instead. In last week’s Sunday Summary we marked the merciful end to beach season by talking about all the restaurants that were popping up in Miami. It looks like there are even more goodies being prepped down there.

First, celebrity chef /Ukraine booster/Power DC star José Andrés announced a new branch of Zaytinya (which already has outposts in New York and Washington) at the Ritz-Carlton South Beach, which should be opening by the end of the year.

Second, one of the most beloved of all New York foodie institutions — Roberta’s — is opening up a beachhead at 72 Park, the new 22-story luxe condo at 580 72nd Street in North Beach. (And, for those who see a hip, shiny restaurant as a good investment, did we mention that the L.A.-based Black Lion Investment Group has put the homes of Brickell hot spot Gekko and Edgewater’s Amara at Paraiso on the market for around $55 million?)

But questions of nourishment are being settled not just in Florida. In our nation’s capital, Roaming Rooster, the chicken sandwich shop which has a dozen locations around the region since it opened its first brick-and-mortar location five years ago, just pecked out a lease at Woodmore Towne Centre in Glenarden, Md.

We were also talking in the last newsletter about grocery stores. Well, they’re still turning out deals, too.

Exhibit A: The Fresh Grocer, a New Jersey-based chain with some 20 locations, has just nabbed 21,000 square feet for its first New York location at 523 Fulton Street in Brooklyn.

Exhibit B: The Phoenix-based Sprouts Farmers Market (an organic grocer) just signed a 24,770-square-foot lease at Leesberg, Va.’s Battlefield Shopping Center.

Ch-ch-ch-changes

There appeared to be an appetite for shopping centers last week, as multiple properties changed hands.

Apollo Global Management (APO) shelled out $56 million to David Martin’s Terra for the 135,000-square-foot Pembroke Pines shopping center in South Florida.

And, in Northern Virginia, Ideal Realty Group in partnership with Rock Creek Property Group and the Sigmund Property Group put up $52.8 million for four shopping centers – Center Plaza, Mapledale Plaza, Forestdale Plaza and Glendale Plaza — each in excess of 90,000 square feet.

But shopping centers are a little more understandable these days than they were a couple of years ago. We’re still reeling from Fortress’ mysterious purchase of $1 billion worth of office real estate loans from Capital One last month. (Well, it was once $1 billion worth. Lord only knows what Fortress paid for it.) CO’s Cathy Cunningham and Andrew Coen tried to piece through that purchase on last week’s podcast.

Oh, and speaking of changes, CO got a chance to speak to Kristi Smith, the Howard Hughes Corporation’s new head of its Maryland region, who is poised to lead the company’s $5 billion redevelopment of Downtown Columbia.

Enjoy your Labor Day tomorrow — see you next week!