The $1.7 billion deal between one of the biggest homebuilders in the United States, China Development Bank and Chinese Railway Construction Corp to build nearly 12,500 homes in San Francisco has fallen apart.

Sources familiar with the deal to build housing on the former Hunters Point Naval Shipyard in San Francisco said the deal collapsed because the Chinese partners were asking for more control over the developments than Lennar Corp expected.

"We are continuing to move forward with development of Hunters Point Shipyard and are expecting to start home construction this summer. At the same time, lenders continue to have significant interest in financing the shipyard and Treasure Island, which they believe are extremely attractive projects," a Lennar spokesman said Monday.

Both the Chinese bank and the rail company have yet to comment. China Development Bank on Monday named Hu Huaibang, former chairman of the Bank of Communications, as its new chairman.

The fallout came after recent announcements of development collaborations between California and China. In February, Tishman Speyer Properties LP, owner of New York's Rockefeller Center, and China Vanke Co Ltd announced a deal to develop luxury condominiums in the South of Market neighborhood of San Francisco.

And state Governor Jerry Brown, on a trade mission to Beijing, announced last week a $1.5 billion deal with a different Chinese partner to build a massive residential project near Oakland's Jack London Square.

Negotiations over the $1.7 billion deal began and proceeded when Chen Yuan, now vice-chairman of China's top political advisory body, served as chairman of China Development Bank. San Francisco Mayor Ed Lee had kept a positive attitude about the deal before his recent China trip and said the city was trying to wrap up the final details with its Chinese partners up until early last week.

"We are trying to get them used to working with American processes and labor. I'm sure it's as challenging for them as it is for us, but I think we had a good talk," he said before his trip.

But the deal was dead last Thursday, just after Lee returned from his one-week travels in China. Sources said Lee did mention the importance of the deal when he met with high-level Chinese officials, though Lee was not aware of the finer details in negotiations.

This isn't the first time that negotiations to develop the former US naval base have collapsed. Conversations from both sites have been delayed for years by the lack of a private lender, though the San Francisco city government committed hundreds of millions of dollars in bond financing.

Another major factor might give other developers and investors cold feet about developing on the shipyard.

"Levels of a nuclear byproduct on Treasure Island are up to three times higher than the Navy had previously disclosed," according to a report commissioned by the Berkeley-based Center for Investigative Reporting. "High levels of cesium-137, a byproduct of nuclear fission that has been linked to cancer, were found in soil samples collected by Bay Citizen reporters."

Sources said Lennar will still open its doors to other potential partners, including Chinese investors.

"Doing a transaction of this size is difficult when all the parties are in one country let alone in two countries who have not had a history of completing real estate transactions as complicated as Hunters Point and Treasure Island," said Skip Whitney, a partner at West Coast commercial real estate firm Kidder Mathews. "I am in hopes that Americans will not be discouraged about doing business with China and more Chinese investors will look to invest in San Francisco and the Bay Area."

Chang Jun contributed to this story.

chenjia@chinadailyusa.com

(China Daily 04/16/2013 page13)