China and the World

Nothing but the best

Anbang comes out of the shadows as it swoops for New York hotel icon

The Waldorf Astoria is pictured at 301 Park Avenue in New York

Soon to be under Chinese ownership?

The Waldorf Astoria is a venue that has shaped Sino-US relations for years, doing so most recently last month. That’s because the iconic Manhattan hotel was the venue at which hundreds of investors queued up to hear Jack Ma pitch Alibaba’s IPO story.

It’s other landmark moments? In 1974, Henry Kissinger first met Deng Xiaoping there. And during her triumphal tour in 1943, Madame Chiang Kai-shek also checked in.

In fact, the hotel’s connections with China date back even further. In 1896 Li Hongzhang visited New York and crowds flocked to the Waldorf for a glimpse of imperial China’s most influential politician. Journalists covered his week-long stay in minute detail, with the New York Times even suggesting that he had transformed it into a “Chinese inn”.

“The dishes they have cooked have created more curiosity and consternation then the presence of the great Viceroy himself,” the newspaper reported. (Li and his accompanying cooks have even been credited with inspiring chop suey, a popular Chinese-American dish.)

But China’s politicians may feel even more at home when staying at the Waldorf in the future. Why? The Chinese may soon own it.

Earlier this month the hotelier Hilton said that it is in the process of selling the Waldorf to Chinese insurer Anbang for $1.95 billion. The deal is the largest-ever for a US hotel and the biggest American real estate purchase by a Chinese buyer.

Is it a fair price? The Wall Street Journal points out that Anbang is paying $1.4 million a room, less than recent transactions for the nearby Plaza and Carlyle hotels. But the deal is also about 33 times operational earnings for the year through June. That valuation is higher than for most listed American hoteliers, although the Journal reckons “a premium is surely deserved for the impeccably located Waldorf”.

Chinese insurers have been snapping up foreign real estate since regulators first permitted them to increase their investments in commercial properties in developed markets in 2012. (The insurers are now allowed to invest up to 30% of their assets in bricks and mortar.) Ping An Insurance paid nearly $400 million for the Lloyd’s of London Building last summer, while China Life led a group that invested $1.4 billion in the Canary Wharf district.

But New York is a favourite for China’s property investors. A consortium led by SOHO China’s co-founder Zhang Xin paid $1.4 billion last year for a 40% stake in the General Motors Building, another Manhattan landmark. Also in 2013, the property groups Fosun International and Greenland Group took control of 1 Chase Manhattan Plaza and the Atlantic Yards project in Brooklyn respectively. In 2011, Hong Kong billionaire Cheng Yu-tung bought five top-notch hotels including Manhattan’s Carlyle for $570 million. Indeed, Bloomberg notes that the Waldorf deal adds another property to at least 12 luxury hotel transactions made by Chineese buyers in Manhattan since 2006.

Yet the Waldorf purchase is still somewhat special. Its 1,413 guest rooms and banquet halls have hosted countless celebrities and political leaders, so its sale might “feel like a blow to American national pride”, Forbes reckons.

But as the American media scrambles to uncover more information about the Waldorf’s likely new owner, observers in China are less surprised that Anbang has the financial power to broker such a high-profile deal.

WiC talked about Anbang back in February, predicting that it was a company to watch (see WiC226). The insurer was formally established in 2011 from a restructuring of a small Beijing-based property and casualty insurer. Anbang then relocated to Shenzhen and several years of spectacular growth followed. Thanks largely to dealings in banking and property shares, it now has more than $114 billion in assets despite controlling a relatively small 3.6% market share in the domestic insurance market. (Ping An has 14%, while China Life controls a quarter.)

Anbang’s highly connected backers are starting to draw global attention too, with the New York Times noting that the insurer is run by Deng Xiaoping’s grandson-in-law Wu Xiaohui. One of Wu’s other companies once formed a partnership with a private equity firm co-founded by former Chinese Premier Wen Jiabao’s son. Another of its board directors, Chen Xiaolu, is the son of Chen Yi, formerly a senior figure in the Chinese military and a longtime foreign minister.

This group of princelings looks to have even grander ambitions than owning the Waldorf. Anbang said this week it has agreed to acquire Belgium insurer Fidea from American private equity firm JC Flowers for an undisclosed amount. This would make it the first Chinese insurer to complete a 100% takeover of a European counterpart, Southern Metropolis Daily says, which is of a “symbolic significance higher than the Waldorf”. The newspaper also reports that Anbang is one of the potential buyers for a 30% stake in South Korea’s Woori Bank worth about Rmb15.4 billion ($2.5 billion).

Hong Kong’s Apple Daily queries the timing of Anbang’s overseas expansion, saying the acquisition spree coincides with a general move by China’s erstwhile power brokers to “shift their assets offshore”. It also likens the Waldorf acquisition to Japanese billionaire Hideki Yokoi buying the Empire State Building in 1991 as “the last craze before the economic bubble burst”.

But the Hong Kong Economic Journal is more complimentary about the purchase, saying that Anbang has attracted worldwide publicity with the Waldorf deal, and that overseas investors may now perceive it as “the Ping An of the new dynasty”. (Ping An is alleged to have deep ties with family members of former prime minister Wen Jiabao, according to the New York Times.)

Will Anbang succeed in projecting its Chinese guanxi onto the global stage? A bit of history may help answer that question. When Li Hongzhang made his historic US visit more than a century ago, he brought along two of his sons whom he was grooming as diplomats. In the Waldorf they met several senior American figures, including the son of former US president Ulysses S Grant. But the networking effort never fully paid off because of the different developmental trajectories of the two countries. As the US rose to become a global superpower, the Qing Dynasty crumbled.

Perhaps the Waldorf sale will bring China’s princeling class back into closer contact with the American elites that use the hotel?

Or perhaps not. US officials are now reviewing the Waldorf sale. Their decision on whether to approve it will be based on factors including security concerns. Apparently, the US ambassador to the United Nations has leased office space at the Waldorf for 50 years and opponents of Anbang’s bid have speculated that unnamed interests may seek to listen in on diplomatic conversations. There are even rumblings that top-level meetings at the hotel won’t be safe from unwanted eavesdroppers…

However, assuming the deal does get approved, Hilton will continue managing the hotel. Though there’s a small Chinese connection there too: Blackstone bought Hilton in 2007 in a massive leveraged buyout (it span off the hotelier last year in the biggest-ever hotel IPO but maintains an investment interest). China’s sovereign wealth fund CIC, in turn, is a major shareholder in Blackstone, with a 12.5% stake in the American investment group.

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