Waldorf to Be Biggest Chinese Property Purchase in U.S.David M. Levitt
New York City’s Waldorf Astoria hotel is set to become the biggest prize yet for buyers from China who have been pouring money into U.S. real estate as they seek stable investments outside their country.
Beijing’s Anbang Insurance Group Co. agreed to pay $1.95 billion for the 1,232-room tower on Park Avenue, an Art Deco landmark and one of Manhattan’s signature properties. That would be the highest price for a single existing hotel in the country, and the most paid for a standing U.S. building by a Chinese buyer, said Kevin Mallory, global head of the hotels unit of commercial real estate brokerage CBRE Group Inc.
“We’re seeing a diversification strategy being employed by insurance companies and others, and it’s also true when it comes to private Chinese investors,” he said in a telephone interview. “We’ve seen a lot of wealth generated there over the last decade, and we see see private investors diversifying their portfolio around the globe.”
The Waldorf deal follows such high-profile New York acquisitions as Shanghai-based Greenland Holding Group Inc.’s purchase this year of a 70 percent interest in the Atlantic Yards project in Brooklyn. In late 2013, billionaire Guo Guangchang’s Fosun International Ltd. paid $725 million for lower Manhattan’s 1 Chase Manhattan Plaza, the former headquarters of Chase Manhattan Bank.
Earlier last year, a group including Zhang Xin, co-founder of Shanghai’s Soho China Ltd., took a 40 percent stake in midtown Manhattan’s General Motors Building, one of New York’s most-valuable office towers, said Doug Murphy, director of analytics at Real Capital Analytics Inc., a research firm that tracks commercial real estate sales. That $1.4 billion deal was the largest Chinese purchase of a U.S. building before the pending Waldorf sale, he said.
Including Anbang’s purchase of the Waldorf from Hilton Worldwide Holdings Inc., Chinese investors will have bought $2.7 billion of New York-area real estate in 2014, topping last year’s $2.6 billion, according to Real Capital.
In the past couple years, the Chinese government has allowed the country’s insurance companies to allocate a portion of their funds into global real estate, Mallory said. With concerns about volatility in the property market at home, New York and and other major markets around the world, including London and Paris, “tend to be safe havens for any global investor,” he said.
The size of the Waldorf deal is another attraction, said Bruce Ford, senior vice president and director of global business development at Lodging Econometrics Inc., a Portsmouth, New Hampshire-based research firm.
“If you have $2 billion to invest, isn’t it easier to buy one asset at arguably the greatest address in the world rather than 10 different ones?” he said.
As with the Atlantic Yards and Chase investments, the Waldorf’s buyer will have to spend additional money to realize the property’s revenue potential. Atlantic Yards’ 14 apartment buildings, recently renamed Pacific Park, are almost entirely unbuilt, and the Chase building’s main tenant, JPMorgan Chase & Co., will vacate most of its space in the 60-story tower. Fosun last month said it had hired brokerage Jones Lang LaSalle Inc. to manage the leasing of the building.
The surge in Chinese real estate investment overseas is reminiscent of the Japanese wave of property purchases in the U.S. and other countries in the 1980s, which included New York’s Rockefeller Center and California’s Pebble Beach golf course. Many Japanese buyers were forced to sell when the U.S. fell into recession.
Anbang is planning a major renovation of the Waldorf, “which we believe will include converting some of the higher floors to condominiums,” C. Patrick Scholes, an analyst at SunTrust Robinson Humphrey, said today in a research note.
Another iconic New York hotel, the Plaza, was split between condominiums and hotel rooms when it reopened in 2008 after a two-year restoration that cost more than $400 million.
“This is a tremendous amount of capital, and there are very few global players who have access to this type of capital,” Mallory said. “The Chinese appear to have it.”