Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Call it the North Asia bet.

Anbang Insurance Group Co., which made headlines earlier this year when it aborted the $14 billion pursuit of Starwood Hotels & Resorts Worldwide Inc., is sharpening its focus on Japan. With some recent acquisitions facing regulatory pushback in the U.S., the Chinese firm's pivot closer to home makes a lot of sense.

Beijing-based Anbang is in talks to buy as much as $2.3 billion in Japanese residential property assets from Blackstone Group LP,  in what would be the biggest investment in the country's real estate market since the global financial crisis. The purchase includes properties in large cities such as Tokyo, Osaka and Nagoya, and would be Anbang's first foray into Asia's second-largest economy since a failed bid for an asset manager last year.

It would also be Anbang's second North Asia transaction in a matter of weeks. Tongyang Life Insurance Co., owned by Anbang, was part of a consortium that bought a $2.1 billion stake in South Korea's Woori Bank earlier this month. In April, the Chinese insurer agreed to buy Allianz SE's operations in Korea.

There are compelling reasons why Anbang, which has made more than half of its $18.1 billion in offshore investments in North America, should take a breather from big U.S. deals. (Its most recent tilt, for a 30-story office tower in Toronto, is for a relatively modest $395 million.)

Maxed Out
Anbang has forked out billions of dollars on overseas assets in recent years
Source: Bloomberg

Questions around its ownership structure and how a provincial car insurer that began life in 2004 could be such an aggressive acquirer have dogged Anbang since its sudden withdrawal from the Starwood talks in March. New York regulators cited the group's opaque constitution in June as one area of concern when considering Anbang's planned purchase of Fidelity & Guaranty Life. The merger termination date to acquire the U.S. insurer has now been extended until February.

Another large American deal -- Anbang's $6.5 billion bid for Strategic Hotels & Resorts Inc. -- has also hit snags. Anbang didn't end up buying Hotel del Coronado, near San Diego, because of its proximity to a major naval base, a fact that rang alarm bells over at the Committee on Foreign Investment in the U.S. It did manage to acquire the other 15 hotels in the group.

Under pressure to fulfill guarantees to buyers of wealth-management products that promise high returns, Anbang could do worse than investing in Japanese real estate.

While home prices in the nation's biggest cities may not have risen as much as in places like Shanghai or Beijing, they have increased, thanks to a migration to urban areas and, more importantly, low borrowing costs.

Gone House Hunting
Japanese loans secured by real estate and floating mortgages are on the rise again
Source: Bloomberg

The average price of a Tokyo condominium climbed to a 15-year high of 63.28 million yen ($570,900) last November, and prices remain 3.8 percent above 2015 despite flat wage growth. For a Chinese company like Anbang, funding costs are much lower than they are back home, despite the Bank of Japan's recent move to control bond yields.

China's prickly relationship with CFIUS may thaw. It can't hurt that Jon Gray, Blackstone's head of real estate and friend of Anbang Chairman Wu Xiaohui, is a possible candidate for Treasury secretary. Politics aside, Anbang's pivot to assets in its own backyard still looks like a smart move.

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

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net