Anbang to offload U.S. luxury portfolio

New York's Essex House is one of the hotels up for sale. Photo credit: Marriott International (Anbang is reportedly selling the hotel portfolio in order to raise money following its seizure by the Chinese government. )

Chinese holding company Anbang Insurance put up for sale a luxury hotel collection it acquired two years ago, pricing it at $5.5 billion. According to The Wall Street Journal, Anbang is selling the hotel portfolio in order to raise money following its seizure by the Chinese government.

The portfolio consists of roughly 15 hotels that Anbang purchased from private equity firm Blackstone Group in 2016. Earlier this year Blackstone was rumored to be in talks to buy back other assets it sold to Anbang, such as New York City’s Waldorf Astoria, which it sold in 2014 for close to $2 billion. However, the Waldorf Astoria is not expected to be included in this current sale.

While nothing came of Blackstone’s talks, Anbang has been entertaining offers for individual hotels, such as New York City’s Essex House Hotel; the Four Seasons Hotel in Jackson Hole, Wyo.; and the InterContinental hotels in Chicago and Miami. Now, however, Anbang appears to be looking to sell the entire portfolio.

Pressure to sell these assets is coming from the Chinese government. The Chinese government seized control of Anbang back in February following an investigation from China’s Insurance Regulatory Commission. Anbang, the regulator claimed, had violated regulations, putting into question its ability to pay insurance claims, although the regulator did not specify which regulations Anbang had violated. The investigation resulted in the jailing of former Chairman and CEO of Anbang Wu Xiaohui on charges of fraud and embezzlement, and Anbang was seized in order to prevent the firm from collapsing. Since the seizure, Anbang has received $9.7 billion in capital to stabilize its operations, but in order to stabilize the organization it has been ordered to sell off its assets.

Anbang purchased the portfolio for $5.5 billion in 2016, and while it is seeking the same price for these hotels today it is uncertain how much these properties are worth. The U.S. luxury hotel market has dropped in valuation in recent years, down from $22 billion in sales in 2015 to $5.2 billion this year. In addition, only a small number of buyers can be expected to afford Anbang’s asking price, limiting the playing field to sovereign-wealth funds and large private equity firms like Blackstone.

The move was not terribly surprising, said Michael Bellisario, VP and senior research analyst for real estate-hotels at Robert W. Baird & Co. In fact, he noted, there have been rumblings of a major offload for months, and there are few new details about Anbang’s next moves. “Discussions are occurring, but we don't know how far along they are,” he said. “Will they sell individual assets or the whole portfolio? What is the pricing?” 

Still, Bellisario said, the lack of detail doesn't mean that no progress is being made—only that it's unknown what that progress looks like. “A lot of [The Wall Street Journal] article is confirming what people had already been speculating” he said, and noted that any real deal could be a month or even a year away.

Anbang's U.S. Assets

Blackstone Group sold the Waldorf Astoria to Anbang back in 2014 for close to $2 billion, ushering in the era of major Chinese investment in U.S. real estate assets. After Anbang acquired the hotel, President Barack Obama declined to stay there due to security concerns, opting instead to use the nearby Lotte Palace hotel.

Even in early 2016, Chinese regulations may have limited Anbang's growth. The company made headlines that year when it tried to outbid Marriott International for Starwood Hotels & Resorts Worldwide, leading to a bidding war. But the China Insurance Regulatory Commission reportedly had "a disapproving attitude" toward the plans because completing the Starwood deal would break rules banning insurers from investing more than 15 percent of their assets abroad. While Anbang never formally stated a reason for withdrawing its Starwood bid, the regulator may well have played an important role in blocking the company's hospitality growth.

In August, China formally implemented measures to limit and restrict what it calls extensive overseas investments made by domestic groups. In response, companies like Anbang, Dalian Wanda, Fosun International and HNA Group are looking to offload their assets. Earlier this month, HNA agreed to sell its holdings in Radisson Hospitality AB and Radisson Holdings to a consortium headed by Jin Jiang International Holdings, which is controlled by the Shanghai government.