Australian developer Lendlease Group has paused work on an A$1.9 billion (UA$1.23 billion) office and apartment complex in San Francisco in the troubled West Coast real estate market, it said on Monday, after reporting a drop in annual core profit.
California's commercial real estate market is one of the hardest hit globally as home working culls demand for office space just as rising rates crunch property values and lift debt servicing costs.
Office entry in San Francisco was 58 per cent below the pre-pandemic baseline, the lowest globally, according to a May report by Jones Lang LaSalle.
Lendlease paused the 47-storey Hayes Point project in central San Francisco, its largest investment in the Americas, earlier this year, looking to line up tenants or find a co-investor, Global Chief Executive Tony Lombardo told reporters on a call following full year earnings.
"We've got A$260 million currently invested in the project. It was a decision over the last couple of months to pause but with really making sure we de-risk it appropriately before we're prepared to put further capital into that," Lombardo said.
Lend Lease's shares fell as much as 5.2 per cent and last traded down 3.9 per cent in a broader market that was down 0.7 per cent.
Lendlease owns, invests in or manages real estate globally, including an A$33 billion office portfolio.
The developer reported a statutory loss after tax of A$232 million, weighed by a decline in property valuations and a one-off A$295 provision to fix safety issues in some UK buildings including flammable cladding.
Property valuations fell roughly seven per cent, down A$175 million, across the portfolio, with the office segment down around nine per cent.
Core operating profit after tax, which excludes valuation changes and one-off items, was A$257 million, down seven per cent year on year.
Funds under management grew nine per cent to A$48.3 billion. ($1 = 1.5430 Australian dollars) - Reuters
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