Real Estate

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

(Updated )

For a private equity firm that likes to tout the virtues of what it calls ``patient capital," Blackstone Group managed to get rid of Strategic Hotels with almost indecent haste.

The group founded by Stephen Schwarzman is selling the U.S. luxury chain to Anbang Insurance of China for $6.5 billion just three months after completing the purchase of the company, Bloomberg's Hui-yong Yu reported, citing people familiar with the matter. That's about $450 million more than Blackstone paid, the people said.

However you look at it, that doesn't speak well for Anbang's skills as a dealmaker. Strategic Hotels hired bankers to explore a sale last July, when the Chinese company had just spent $1.95 billion buying New York's Waldorf-Astoria hotel from -- Blackstone. If Chairman Wu Xiaohui, who boasts of his friendship with Schwarzman, didn't know about the opportunity back then, he should have. Blackstone signed an agreement last September to pick the business up for just 13 percent above its share price before reports that the deal was being discussed. That premium of about $341 million is some way below the one that's now going to flow from Anbang to Blackstone. Unless he's carried out truly heroic levels of turnaround activity over the past few months, Schwarzman hasn't really had to sweat for his payday.

On the High Side
Transaction multiples to Ebitda of major recent hotel takeovers
Source: Bloomberg data
Note: Shows pending, completed, and proposed deals worth more than $100 million for hotel businesses over the past five years for which Ebitda multiple data is available. Travelodge deal has been cited in media reports but not announced by the company.

On the plus side, the price doesn't look excessive. At 20.42 times Strategic's $318 million of Ebitda in the 12 months ended Sept. 30, a $6.5 billion enterprise value would be on the high side of recent hotel deals, but not overly so. It's a bit less than 25 percent above the company's valuation before the sale process was reported, which again looks reasonable.

Insurers typically steer clear of owning a lot of real estate, however, because there's little in the way of a market for such assets and they often need to liquidate in a hurry if disaster strikes. Real estate comprised just 0.7 percent of U.S. insurance companies' portfolio assets during 2014, according to the National Association of Insurance Commissioners. Of 370 acquisitions valued at $1 billion or more made or proposed by such companies globally since 1990, just 13 were for real estate assets or real estate investment trusts, according to data compiled by Bloomberg. Three of those 13 were by Anbang .

The deal looks more explicable when you consider it in the context of the flood of capital exiting China. Outbound M&A by Chinese companies so far this quarter amounts to about $99 billion, more than in the four-and-a-half years up to June 2008, according to data compiled by Bloomberg.

Treasure Ships
Value of Chinese outbound M&A, by quarter
Source: Bloomberg data

Mainlanders desperate to diversify from their own faltering, debt-laden economy have a good appetite for trophy assets overseas. For Blackstone, the deal looks obvious: When a big Chinese investor waves a $6.5 billion check in your face, it's worth not asking too many questions about why they didn't show up earlier.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects spelling of Schwarzman's first name in the second paragraph of article published March 14.)

  1. One of that number, for the real estate arm of Germany's Hypo Real Estate, was reported according to people familiar with the matter in the Wall Street Journal last May. There have been no announcements since then. Hypo was one of the first casualties of the 2008 subprime crisis.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net