Why Chinese insurers could be next big NYC property buyers

Anbang’s purchase of Waldorf-Astoria is only the beginning, experts say

From left: Waldorf-Astoria and Anbang building
From left: Waldorf-Astoria and Anbang building

When the Chinese government allowed the country’s insurers to invest more money in foreign real estate in 2012, China hands predicted a surge in investments in overseas commercial property. The boom never fully materialized – only a few blockbuster deals in London were done.

But the first major New York City property purchase by a Chinese insurer could signal the race is on.  On Monday, Anbang Insurance Group agreed to purchase the Waldorf-Astoria from Hilton Worldwide Holdings for $1.95 billion in what could wind up as the city’s largest single-asset transaction this year. Anbang beat out at least two other bidders ahead of a planned campaign to market the hotel, a source familiar with the development told the Wall Street Journal.

“These [Chinese] institutional investors are studying the market,” said James Murphy, executive managing director of the investment sales group at Colliers International. “And when they find something they can compete on, they’ve obviously shown that they have the ability to close.”

Market insiders recently told The Real Deal that Chinese insurance giants have been seeking opportunities to purchase properties in New York City, even making trips to inspect the sites. Until today’s announcement about Anbang’s buy, however, none have pulled the trigger. Part of that stems from insurers’ typically conservative approach to capital outlays.

The nearly $2 billion purchase price for the iconic hotel trumps the $1.5 billion that David Werner and a group of investors paid for 5 Times Square in June, said Adrian Mercado, vice president of research at Massey Knakal Realty Services. It also tops the $660 million sale of The Park Lane Hotel last year, making it New York’s priciest hospitality purchase, he added.

The deal comes amid a huge ramp up in investment by Chinese buyers in New York real estate. In 2013, China surpassed Canadian buyers as the top purchasers of New York City office property, with two deals worth a combined $1.4 billion. Chinese property developer Fosun International acquired One Chase Manhattan Plaza for $725 million, while Zhang Xin, co-founder of developer Soho China, partnered with a Brazilian investor on a $700 million stake in the GM Building.

Those deals were done by individuals and companies that tend to be more aggressive than big Chinese insurance companies, according to experts. Further, most Chinese companies are still studying the US market, explained Murphy, and do not have the infrastructure to make timely acquisition deals.

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“They still  have multi-level decision-making processes which require senior-level approval at the home office,” said Murphy. “They have more success pursuing off market transactions but not properties offered via the brokerage community which require timely decisions.”

But insurers and developers in the People’s Republic are very sophisticated and capable of tackling a number of barriers to competing with domestic buyers, said Dan Cashdan, senior managing director at HFF Securities.

“Chinese insurance companies will be entering market. They just need to find out what the strategy is going to be and who the right partners are,” Cashdan told The Real Deal recently.

Under the deal announced today, Hilton will continue to operate the Waldorf-Astoria for the next 100 years. Through a strategic partnership, the hotel will undergo a major renovation.

Anbang Insurance Group is one of China’s largest insurance companies, with 700 billion yuan ($114 billion) in assets under management, according to the company. It has expanded rapidly under chairman Wu Xiaohui since he founded the company in 2004, acquiring holdings in a number of Chinese banks, as well as a potentially lucrative development site near Beijing’s CCTV building, Chinese newspaper Caixin reported in a recent profile of the company.

New York is not the only U.S. market that Chinese institutional investors are exploring.

The big insurance groups are also looking at properties in Chicago, San Francisco and Los Angeles, as well as tertiary markets, such as Seattle, Brendon Frye, senior manager at Colliers International in Hong Kong, told The Real Deal in a recent interview. Investments in smaller markets could be further off though.

“I don’t see them pulling the trigger on a Seattle office building tomorrow,” said Frye.