Chinese Buyers Eye NY Real Estate, European Soccer
Two major new global investments are highlighting a recent trend that has Chinese buyers moving beyond their traditional comfort zones of resources and manufacturing and into other less familiar areas like real estate and sports clubs. The first case will see domestic insurance company Anbang Insurance buy New York’s landmark Waldorf Astoria hotel for a supercharged price of nearly $2 billion. The second deal has media reporting that Wang Jianlin, founder of real estate giant Wanda Group, is preparing to buy a stake in Spanish soccer club Atletico de Madrid.
Both of these deals show that Chinese investors want to move beyond a traditional penchant for natural resource and manufacturing assets in their overseas M&A. Anbang’s purchase continues a recent trend that has seen Chinese institutions purchase a growing volume of western real estate, an area that was previously off-limits to many companies under strict regulations from Beijing. Hong Kong buyers have occasionally come up as global sports investors in the past, though this is one of the first times I can recall seeing a domestic Chinese investor enter the space.
Let’s begin with Anbang, which will purchase the Waldorf from Hilton Worldwide (NYSE: HLT) for $1.95 billion — a record price for a hotel. (company announcement; Chinese article) I’m no real estate expert, but this is one of the highest price tags I’ve ever seen for any commercial property anywhere. As part of the deal, the 2 sides have agreed to perform a major renovation on the Waldorf, and Anbang has agreed to let Hilton continue managing the property for the next 100 years.
Hilton began to manage the historic hotel back in 1949, and acquired it in 1972. The high price tag, and fact that Hilton won the right to continue managing the property for the next 100 years, both look like big victories for Hilton. What’s more, I suspect that Anbang could end up paying millions of dollars more for the renovation, though perhaps Hilton will also pay some of the cost. Either way, Anbang appears to be paying a hefty premium for this property and could end up regretting the decision.
This kind of buying of “trophy properties” looks similar to what happened in the 1980s, when a purchasing spree by Japanese firms led to a US property bubble that later left many Japanese banks with billions of dollars in bad debt. It’s too early to say if the Chinese could spark another such bubble, but I would put the chances at better than 50 percent following a recent string of similar though smaller deals. One of those saw private equity giant Fosun (HKEx: 656) buy One Chase Manhattan Plaza for over $700 million last year, while another saw the owner of Soho China (HKEx: 410) invest about the same amount in the GM Building.
Next let’s look at the far smaller deal that has Wanda’s increasingly high-profile founder Wang Jianlin in talks to purchase an undisclosed stake in Atletico de Madrid. (Chinese article) The reports don’t contain any detail on the size of the investment, and only say that a deal could be announced soon and could close in the next few months.
Another major sports deal involving a Chinese buyer was in the headlines earlier this year, when e-commerce giant Alibaba (NYSE: BABA) agreed to buy half of Guangzhou Evergrande, one of China’s most successful soccer clubs, for up to 1.2 billion yuan ($190 million). (previous post) That amount was relatively small, reflecting the low valuations for teams in China’s scandal-plagued professional sports leagues. I suspect that Wang will probably pay a similar amount or more for a far smaller stake in Atletico, which could mark the start of a similar buying spree by super rich Chinese eager to flaunt their wealth with such high-profile purchases.
Bottom line: Anbang’s record purchase of the Waldorf Astoria points to a growing fondness for western real estate by Chinese investors, who could also be eying the high-profile market for sports teams.
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