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China’s Anbang takeover could prompt national security review

CFIUS approved $1.95B Waldorf Acquisition in 2014, but could revisit under new ownership

The Waldorf Astoria, Wu Xiaohui and U.S. Treasury Secretary Steven Mnuchin (Credit: Getty Images)
The Waldorf Astoria, Wu Xiaohui and U.S. Treasury Secretary Steven Mnuchin (Credit: Getty Images)

Before Anbang Insurance Group bought the Waldorf Astoria Hotel for $1.95 billion in 2014, the Chinese insurer asked Washington, D.C. to review the acquisition for potential national security implications that could have muddled the deal.

The Committee on Foreign Investment in the United States (better known as CFIUS) reviewed and ultimately approved the sale. But the China Insurance Regulatory Commission’s decision last week to temporarily take control of Anbang and its assets for up to two years has the potential to prompt a new federal review, experts told The Real Deal.

“One possibility is that the China Insurance Regulatory Commission moves forward and actually files a CFIUS review for their takeover,” said Chuck Blanchard, a CFIUS expert in Washington, D.C. for the law firm Arnold & Porter. “Or another possibility is that they decline to do so and the U.S. government initiates such a review.”

The CFIUS committee, which is chaired by U.S. Secretary of the Treasury Steven Mnuchin, has the authority to outright block a foreign acquisition of an American asset or put in place safeguards to protect national security interests. Blanchard said that in a case like the Waldorf, where there’s a change in effective ownership as opposed to a new sale, federal regulators can still take action.

“They can force the divestment of a U.S. entity or they can ask for some type of mitigation efforts,” he said.

The majority of CFIUS reviews are voluntary, but there are instances when the committee can initiate one on its own. (CFIUS is notoriously tight lipped about the process, and traditionally won’t even acknowledge if a review is underway.)

It’s rare that the committee kills a deal outright, and regulators are often more concerned with acquisitions of telecommunications or public health companies. When it comes to real estate deals, the issue that gets the most scrutiny is often a property’s proximity to national security assets.

That was the case when Anbang bought the Waldorf, but many of the national security implications have since changed.

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At the time of the deal, the State Department had a longstanding White House reservation for the president at the hotel. As a result of the insurer’s acquisition, then-President Obama opted to stay instead to the New York Palace Hotel.

And at the time, the Waldorf was home to U.S. Ambassador to the United Nations Nikki Haley, who later moved her residence to 50 UN Plaza as Anbang closed the hotel for its $2 billion renovation and condominium conversion.

“I think the risk profile is profoundly different today,” said Chris Brewster, a CFIUS expert at Stroock & Stroock & Lavan, “and plainly what CFIUS decided when they looked at the Anbang acquisition was that the risk profile even then did not warrant intervention.”

One major difference today is that President Trump owns a home not far from the hotel: Trump Tower is about 10 blocks north and west of the Waldorf. But Brewster said he didn’t think that would be an issue.

“How is that really at the end of the day any different from being on the Upper West Side? I think when you’re looking at significant metropolitan centers in the U.S., mere proximity taken by itself is not going to be the driver, or you’d end up nixing a lot of foreign investment in urban properties,” he said.

The Trump administration could end up exerting extra pressure on the Chinese government-controlled Anbang.

Arnold & Porter’s Blanchard said the current White House has taken a harder stance on foreign investment than its predecessor. Under the Obama administration, voices in the Commerce, State and Trade departments largely advocated to approve foreign deals. But the Trump administration has taken a harder line over national security concerns.

Last summer, CFIUS blocked a Chinese-backed private equity firm from a $1.3 billion acquisition of a semiconductor maker in a $1.3 billion deal. And it’s currently reviewing Singapore-based chipmaker Broadcom Ltd’s bid to buy rival Qualcomm Inc, Reuters reported earlier this week.

“The dynamics on CFIUS really have changed,” Blanchard said. “National security voices are being heard much more.”

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