In October of 2014, Chinese insurance company Anbang purchased the historic Waldorf Astoria hotel in Manhattan for $1.95 billion. This M&A activity, as we have noted many times, was part of an effort to bypass Chinese capital controls and park cash in America.
Today, courtesy of the WSJ, we learn what Anbang’s plan is for the hotel. The insurance group plans to close down the 1,413 room property in the spring and renovate it so that when it reopens, the hotel will feature between 300 and 500 guest rooms upgraded to luxury standards, with the remaining units to be sold as condominiums.
Anbang hasn’t shared much publicly about its plans for the Waldorf, however as the WSJ notes, Anbang Chairman Xiaohui Wu hinted at the company’s vision last year when speaking before an audience at Harvard University. Xiaohui said he planned to convert hotel rooms into condos and suggested that there would be an element of exclusivity by saying “A potential buyer needs more than money to qualify for our apartments.”
The renovation costs are expected to be more than $1 billion, and being that Anbang already spent $1.95 billion on the acquisition, $3 billion in sales would be needed to break even on the venture – although admittedly, this perhaps was never really about turning a profit as much as it was to get USD in bank accounts in the US.
Anbang will have a difficult time covering that $3 billion in today’s market. In 2014 Morgan Stanley hotel analyst Thomas Allen wrote that based on sales at other luxury Manhattan condo buildings, a conversion of the historic hotel could help raise $4 billion in condo sales under a best-case scenario. However, as readers of this site know full well, the best case scenario has long passed when it comes to luxury real estate in Manhattan.
The number of contracts signed for units at $4 million or more during the first 25 weeks of this year fell 22% y/y according to Olshan Realty, who said “There’s just too much inventory that’s overpriced. We’re past the peak.“
Not only will the renovation change the historic hotel, it will also cost hundreds of employees in room-service, housekeeping and other hospitality roles their job. Anbang has reached severance agreements to the tune of $100 million or more according to the WSJ.
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The move is a bold one that will test the resolve of a weakening Manhattan real estate market, but then again the company boldly bid an additional $14 billion for Starwood, the owner of the W Hotels, Sheraton and St. Regis brands, before pulling the offer after it couldn’t prove it had the funds.
Here is all we have to say about this plan:
Source: zero hedge
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