Chinese investors, who have been pouring money into New York real estate, have finally nailed their trophy property. Over the past year conglomerate Fosun International (656:HK) paid $725 million for a downtown Manhattan office tower , and Shanghai-based Greenland Hong Kong Holdings (337:HK)bought control of the Atlantic Yards project in Brooklyn (albeit without the Barclays Center). Now a China-based company has sealed the type of Japanese-buying-Rockefeller-Center deal that signals the country’s arrival.
An insurance company from China is going to be the new owner of the Waldorf Astoria. Anbang Insurance has agreed to pay Hilton Worldwide Holdings (HLT)$1.95 billion for the landmark hotel on Park Avenue. As Bloomberg News reported, that would be the highest price paid for a single existing hotel in the U.S. and would take to $2.7 billion the amount that Chinese buyers have put into New York real estate this year.
The deal is particularly surprising because Anbang isn’t even a leader among Chinese insurance companies. Founded in 2004, the company sold auto policies and other types of property and casualty insurance but didn’t start selling life insurance until 2010. In a market dominated by big, state-owned insurers, Anbang until recently was an extremely minor player. At the end of 2013, its share of life-insurance premiums was 0.1 percent.
Anbang has since come on strong, rising over the past year to No. 8 among domestic insurers. Its market share has reached 3.6 percent, according to data compiled by Bloomberg. The impressive growth has, in part, been driven by policies offering 5 percent annually, compared to Ping An’s (2318:HK) 4 percent. Anbang has successfully teamed up with banks to offer life insurance policies to those looking for better returns in China, says Hong Kong-based Bloomberg Intelligence analyst Steven Lam. The insurer collected 3.4 billion yuan in property and casualty premiums through August, and the life business in the same eight months collected 33.2 billion yuan.
That leaves Anbang well behind market leaders China Life (601628:CH), which has a quarter of the market, and Ping An, which has a 14 percent share—one reason the Waldorf deal is so surprising. “It’s really a left-field thing for the whole industry,” says Lam.
Given the growth of the Chinese industry, insurers such as Anbang are likely to have even more money to spend on high-profile properties in the U.S. Last year, Chinese insurance companies had assets worth nearly 7.7 trillion yuan ($1.25 trillion), but the China Insurance Regulatory Commission said last month that the assets may top 20 trillion yuan by the end of the decade. That would be equal to 35 percent of China’s gross domestic product last year—and 20 percent more than the economy of France.
Investing in U.S. property makes sense for Chinese insurance companies expecting that kind of growth and looking for long-term assets to match their long-term liabilities. China’s central bank governor, Zhou Xiaochuan, said in March that within the next two years China would probably ease restrictions on the interest rates banks can offer on deposits. Liberalization would spur more competition for insurers; as the cost of funding goes up, the insurance companies will need to increase their investment returns. With China’s equities and property markets in the doldrums, the U.S. is becoming even more attractive, says Lam. “The Chinese insurance companies are still in the beginning of the game of going overseas and mopping up these overseas assets,” he says. “We should be seeing more of this.”
Still, Lam is puzzled by Anbang’s giant deal. “If they dropped half a billion dollars [on an investment], that’s already a good start,” he says. “But two billion? That’s a lot, compared to their size.”
The Chinese insurer snapped up the iconic luxury hotel in the largest-ever U.S. real estate purchase by a Chinese buyer.
Hilton’s announcement on Monday that it’s selling the iconic Waldorf Astoria New York to a Chinese buyer may not have elicited a great deal of surprise, given the growing trend of Chinese investors snapping up U.S. real estate. But news that the luxury hotel’s new owner will be Anbang Insurance Group likely raised a few eyebrows.
The Beijing-based insurer has only been around for about a decade, it also has 30,000 employees and more than $114 billion in assets, according to the company’s website. Still, as Bloomberg points out, Anbang isn’t a heavyweight in the Chinese insurance market. It only has a fairly small 3.6% market share among domestic insurers in China, although the company has improved its position in the past year by offering customers policies with better returns than its competitors. Anbang sits far behind market leaders Ping An, which has 14% of the market, and the state-owned China Life, which controls about a quarter of the market, Bloomberg says.
Anbang’s position among Chinese insurers makes it a somewhat surprising suitor to have snapped up the Waldorf Astoria for $1.95 billion in what is the largest-ever sale of a U.S. hotel and the largest U.S. real estate purchase by a Chinese buyer. Chinese investors have certainly been active on the real estate market in recent years, especially in New York, where a group that included Soho China co-founder Zhang Xin paid $1.4 billion last year for a 40% stake in another Midtown Manhattan landmark, the General Motors Building. Other recent high-profile property investments include two more from last year: JPMorgan Chase’s $725 million sale of 1 Chase Manhattan Plaza to Fosun International, and Shanghai-based Greenland Group’s deal to take a 70% stake in the Atlantic Yards project in Brooklyn.
Meanwhile, Anbang seems to be the first of China’s insurance companies to make a major property purchase in the U.S., and it comes two years after the country’s regulators removed some of the obstacles to overseas investments for insurers. In London, Anbang’s competitors have led the real estate charge in the past year, with Ping An paying $388 million for the Lloyd’s of London headquarters last summer, while China Life led a group that shelled out $1.4 billion for a skyscraper in London’s Canary Wharf district.
As for Anbang, the company had kept a moderately low profile on the acquisition front before this week. Last year, the company was rumored to be a leading candidate to buy family-run Hong Kong lender Wing Hang Bank, but Anbang eventually balked at the potential asking price and Wing Hang eventually sold to Singapore’s Oversea-Chinese Banking Corporation for $5 billion earlier this year. Anbang had previously paid about $2.2 billion to increase the size of its stake in China Merchants Bank to 5%.