Malaysia's Timber Giant and the US Sub-Prime Crash
|Our Correspondent||Sep 4, 2010|
Samling Global Ltd., the giant logging company controlled by the timber tycoon Yaw Teck Seng and favored with numerous timber licenses by Sarawak's Chief Minister, Abdul Taib Mahmud, played an extraordinary and unlikely role in the US housing bubble and crash, according to research by the Sarawak Report, an NGO based in East Malaysia.
The biggest of Samling's once far-flung real estate operations in the US was a planned bedroom development called Mountain House, east of the San Francisco Bay Area near the Altamont Pass. Currently, sheep graze on the once-projected Mountain House golf course. It has been called the most underwater community in the United States, with 90 percent of its properties, almost all held by sub-prime borrowers, worth less than they paid for them. The biggest loser appears to be the California Public Employees Retirement System, which at last report was US$926 million in the red on Mountain House although it hopes eventually the market will turn and allow it to recoup its US$1.2 billion investment
With crucial help from Taib in the form of timber permits in Sarawak, Samling has evolved into a global giant, harvesting 2.3 million cubic meters of timber annually in Malaysia, Guyana, New Zealand and China. It is vertically integrated, from cutting timber at one end to producing flooring products, kitchen systems, doors and furniture on the other, according to Samling's website. And, taking vertical integration even further, it became one of the biggest real estate builders in the United States.
Samling's involvement in the global financial meltdown was the culmination of years of massive investment in real estate across the United States, according to the Sarawak Report, which has turned out an astonishingly detailed series of reports on Taib's dealings and particularly his connections to Samling. This investment came out of the profit from logging in Sarawak under heavily criticized permits granted by Taib, the NGO reported.
Samling Global was condemned in late August by the Norwegian Government as an 'unethical' company, involved in "illegal logging and "environmental devastation" in Sarawak. As reported in Asia Sentinel, the Sarawak Report provided a wealth of detail on how a Yaw family subsidiary, CSY Investments, had passed two multi-million dollar mansions to the Taib family in Seattle, Washington, in what appeared to be an unrecorded property transfer linked to a US$1 dollar quitclaim deal.
CSY Investments, originally headquartered in Roseville, California, formed just part of a multi-billion dollar web of Yaw-owned companies in the United States, primarily involved in property development. These companies were subsidiaries and affiliates of SunChase Holdings Inc, a California registered company incorporated in 1988 by Chee Siew Yaw, a son of the Samling boss.
With Chee Siew Yaw as its original president and chief executive, SunChase Holdings has been involved in a number of massive land-deals across the USA, including "the largest real estate partnership ever formed with the US government", according to its own publicity.
The registered shareholder of SunChase Holdings was, until recently, Universe Limited, a Liberian company, which according to an investigation by the US Securities and Exchange Commission (SEC), was "controlled by Hiew Tek Seng and the Yaw family, all citizens of Malaysia." The companies and subsidiaries linked to SunChase Holdings are now mainly operated out of Phoenix, Arizona.
SunChase Holdings has clearly been exceptional among US developer corporations in possessing an extraordinary level of shareholder capital from the very beginning. Straight after graduating from California State University, Sacramento, with a BSc in Real Estate, Land Use and Finance in 1986, the youthful Chee S Yaw immediately demonstrated his access to enormous sums for investment.
One his first subsidiary ventures was Trimark Communities LLC, set up in July 1988, with himself as president. This became the company behind the disastrous Mountain House town project. Documents released by San Joaquin County show that between 1990 and 1992 Trimark bought over 70 percent of the 7.8 square mile site outright and began seeking approval for an approximately half billion dollar development project comprising the largest housing scheme in California.
Approval was finally granted after two decades of lobbying and in the face of lawsuits filed by the State Department of Fish and Game over environmental concerns. Meanwhile, SunChase had impressed the authorities with numerous other grandiose projects in which it played the main investor. The company claims it specializes in building "large-scale, master-planned communities."
It appears to have immediately gone after assets left high and dry in the late 1980s Savings & Loan crisis, in which 747 S&Ls – known as thrifts elsewhere in the world -- failed in the United States. The federal government paid US$124.6 billion to clean up the mess, with the bill borne by US taxpayers. The Resolution Trust Corporation was set up to dispose of the assets of the failed lending institutions.
A Federal Audit Report issued in 1999s confirms, "In April 1993, the Resolution Trust Corporation selected SunChase Holdings, Inc, as the winning bidder for five of the six pools of assets offered in the National Land Fund I initiative."
Indeed, SunChase currently boasts: "The company is proud of its heritage as the managing general partner in the National Land Fund, the largest real estate partnership ever formed with the US Government."
Mountain House was a Yaw family project. Started in 2001, Mountain House was originally advertised as "The Town of Tomorrow" and "The American Dream Made Reality" with houses selling for more than $800,000, mainly through sub-prime mortgages. But in the aftermath of the crash, the partly-built project has been abandoned by the original developer. The prices of these houses are now half what they were in 2006, leaving buyers in a repossession nightmare.
Mountain House finally gained planning permission on the basis that it promised to create a sustainable, self-contained new town that would create sufficient jobs for its inhabitants. The original San Joaquin County Master Plan promised affordable housing to meet the Bay Area housing crisis, together with retail and business outlets. Indeed, the promotional material by Trimark Communities clearly targeted the aspirations of middle-class Californians looking for grander accommodation in an area of housing shortages.
The company promised traditional-style, detached houses built around 14 separate 'village' settings, each with a school, leisure centre, open spaces and a commercial heart for business enterprises. Although the San Joaquin authorities had understood that houses would be priced around an affordable US$200,000, the demand for grander homes and the availability of dubious lending mechanisms and sub-prime loans meant that prices before the crash in 2007 were topping four times that amount.
Within weeks of the crash, all that had changed. 16,000 houses were supposed be built, providing accommodation for 44,000 people, in the most ambitious development project in California for decades, but as the lending market collapsed, the Yaw family pulled out. Trimark Communities was dissolved in California and Chee Siew Yaw returned to the Far East, claiming that he had divested all his US interests in 2006. As a result, Mountain House has been left partly constructed and famous for being the repossession capital of the USA.
The main losers in the disaster have been the thousands of buyers who lost their their homes and CalPERS, which had invested heavily in the project on behalf of its future pensioners. Those who have remained in Mountain House have found themselves paying huge mortgages on low-value properties in a part-built town. According to one description:
"Landscaped lawns face fields of weeds. Sheep graze on the future golf course. While two schools [of a promised 14] have been built and a third is under way, there's just one retail business, a convenience store. The closest supermarket is five miles away. A multimillion-dollar bridge — designed to link the southern and northern halves of town — has been fenced off. It's our bridge to nowhere."
So, like the indigenous people of Sarawak, the people of Mountain House are now living with the devastation wrought by Samling. According to one, "all they did was build as many houses as they could as quickly as possible to cash in on profit before the bubble burst."
Finally – Sterling Pacific Assets
Interesting questions still surround the transfer of the Yaw holdings in the US. Following Chee S Yaw's pronounced divestment of his US assets, SunChase Holdings was transferred to the current ownership of Sterling Pacific Assets.
Sterling Pacific Assets was already part of the SunChase Group and had previously been described as "an affiliated professional services company" in SunChase promotional material. The 100 percent shareholder of Sterling Pacific Assets of is one of SunChase's own company directors, William A. Pope, who joined the Management Team in 1990, two years after the Yaw family established the company. Nevertheless, the SunChase website currently implies that it was he who formed the company.
Notably, in spite of the takeover, SunChase Holdings Inc is still run out of the same offices and by the same management team established by Chee Siew Yaw before his abrupt departure in 2006. The circumstances that enabled a member of the management team to buy out such an enormous multi-billion dollar company remain unclear. Questions thus remain over whether the Yaw family in fact retains an interest in SunChase Holdings in the US.
Other Asia Sentinel articles about Sarawak Chief Minister Abdul Taib Mahmud can be found here: