The new people in control of the Waldorf Astoria and the Essex House aren’t your typical New York real estate investors.
On Thursday, China’s top insurance regulator announced that it was taking over Anbang Insurance Group and all of its assets, including the two New York City hotels, for at least a year amid fraud allegations against the company.
A 31-person team headed by one of the agency’s top officials, He Xiaofeng, is now charged with overseeing the struggling insurance giant and a rumored sale of its global real estate portfolio.
Most New Yorkers may have never heard of the China Insurance Regulatory Commission, much less considered it a player in the local property market. But the agency has long played a key role directing the flow of overseas money into the New York real estate market.
CIRC was founded in 1998 to oversee the country’s insurance firms, part of a series of economic and bureaucratic reforms ahead of China’s entry into the World Trade Organization in 2000. At the time China’s insurance sector was in the middle of a remarkable transformation. In the 1980s, the sector was small and dominated by property insurance policies. But by 2010 it had grown into an enormous industry in which the value of all life insurance policies was three times larger than that of property insurance.
In 2011, Xiang Junbo, a trained lawyer and former chair of the Agricultural Bank of China, took over CIRC’s leadership and began liberalizing the country’s insurance sector. In 2012, the agency started allowing Chinese insurers to invest overseas and to buy real estate — both had previously been outlawed. The rule change opened the floodgates. In late 2014, Anbang bought the Waldorf Astoria for $1.95 billion. Two years later, it bought the real estate investment trust Strategic Hotels & Resorts, which includes the Essex House, for $6.5 billion. Then, in 2015, the company paid $414 million for the office condo at 717 Fifth Avenue.
Anbang also briefly bid for Starwood Hotels and reportedly came close to investing in Kushner Companies’ planned condominium conversion of 666 Fifth Avenue before backing out in early 2017. The insurer reportedly funded its acquisitions through the sale of short-term investment products with a token insurance component, creating fears that the company was overloading itself with risky debt.
In late 2016, Beijing launched a broad crackdown on risky overseas investments by Chinese companies and CIRC took over a crucial role in the effort. In December of that year, Xiang announced that his agency would more closely monitor insurers’ investments to make sure they ast as “friendly investors” and stay away from hostile, disruptive takeovers.
But a few months later, the changing tide swept out Xiang. In April, he was ousted from CIRC amid reports that he was being investigated in an anti-corruption probe. In September, Chinese authorities announced that he would be tried in court for alleged “serious violations of political discipline and rules.” He became the most senior financial regulator to fall victim to President Xi Jinping’s anti-corruption campaign.
The agency’s vice chair Chen Wenhui, who took over operations from Xiang, has adopted a tougher tone. In September he announced that CIRC would no longer grant the kind of regulatory exceptions to “special companies” that his predecessor had tolerated — an apparent jab at Anbang.
He Xiaofeng, who heads the agency’s so-called development and reform department and is now in charge of Anbang, appears to have been on the forefront of CIRC’s crackdown on the insurance sector. In December, he announced that the agency would go after 10 insurance firms for alleged illegal stock trading.
It wasn’t immediately clear what CIRC plans to do with Anbang’s U.S. real estate. As of Friday, the conversion of the Waldorf Astoria into 350 luxury condos was continuing as planned, the Wall Street Journal reported.
CIRC said in its statement that it plans to restructure Anbang with the help of private investors, and asset sales appear to be on the table. Anbang had reportedly been in talks to sell its global property portfolio to Blackstone Group.