China’s Anbang Insurance has checked into the Western hotel market for what it hopes will be an extended stay – provided its own government does not come knocking.
The Beijing-based insurer made its first major hotel foray last year, purchasing Manhattan’s classic Waldorf Astoria for $1.95 billion. Last month, Anbang revealed its bigger ambitions through two major plays for entire hotel platforms in deals that underscore the insurer’s quest for US hotel dominance.
In the middle of March, Anbang reportedly agreed to purchase Chicago-based Strategic Hotels & Resorts Worldwide from The Blackstone Group for $6.5 billion, only three months after Blackstone itself closed on the acquisition of the luxury hotel chain, which include the brands W, Westin, Sheraton and St. Regis. Just days later, Anbang upended the mergers and acquisitions space with an unsolicited bid for Stamford, Connecticut-based Starwood Hotels & Resorts Worldwide. Hotel chain Marriott International had been set to buy Starwood for $12.2 billion until the Anbang-led consortium of investors that included JC Flowers and Primavera Capital first bid $76 a share, then $78 a share, and then $82.75 a share to value the company at $14 billion. As of press time, Marriott had tabled a stock-and-cash deal valuing Starwood at $13.3 billion, but industry leaders say the bidding war will likely continue to at least another round.
Anbang, after all, has proved itself a fierce opponent in previous takeovers, making this first hotel bidding war a likely sign of how the insurer will approach future real estate deals. With deep pockets to fund a voracious appetite, Anbang is known as a tough international negotiator, led by low-profile chairman Wu Xiaohui, and this bidding war has quickly won the insurer even more respect. No matter who buys Starwood, the back-and-forth has cemented Anbang’s status as a force to be reckoned within lodging and real estate more generally.
Going forward, Anbang could be a tough opponent for deep-pocketed private equity real estate firms or an attractive exit option for large portfolio sellers. Blackstone benefitted from the latter role, as sources told PERE the insurer approached the private equity giant well before Blackstone could proceed with plans to sell Strategic’s assets individually. Few other buyers can match Anbang’s capital or its hunger for trophy assets, particularly in an unstable home market. The current volatility in China and elsewhere in Asia gives the insurer all the more reason to search outside the region for deals. Purchases such as the Waldorf that might appear overvalued to Western buyers provide a safe place to park capital, hedging against Chinese currency devaluation.
Over the next five years, insurers from mainland China are expected to spend as much as $73 billion in overseas property acquisitions, according to a report published by Cushman & Wakefield in November. Much of that cross-border capital will flow, unsurprisingly, to New York, if recent deals are any indication. In February 2015, an affiliate of China’s Sunshine Insurance Group bought the Big Apple’s upscale Baccarat Hotel, a 114-room property, for $230 million. The April 26 foreclosure auction of The Plaza, one of New York’s most iconic hotels, could bring out similar Chinese buyers looking to write big checks.
Would-be Chinese buyers of trophy properties, however, may find their most formidable opponents are not other bidders, but their own government. A Chinese financial magazine reported that an official at the China Insurance Regulatory Commission said the regulator is planning to reject both of Anbang’s hotel purchases, citing a rule that bans insurers from investing more than 15 percent of their assets abroad, among other, unspecified reasons. Anbang has not disclosed its total assets.
Even if the government allows these two deals, China’s bureaucracy has put Anbang and any of its ambitious peers on notice, potentially hampering future transactions. Deep pockets may mean little if the government decides capital cannot check out of China.