Several news sources have recently reported that Chinese insurance firm Anbang Insurance Group Company is seeking to dispose of its $5.5 billion U.S. luxury-hotel portfolio, which it had acquired from Blackstone in September 2016. Alan Reay, president of Irvine, California–based Atlas Hospitality Group, tells SoCal Real Estate that there’s no downside to the move.
“Of the 15 hotels that Anbang purchased from Blackstone, three hotels are located in Southern California,” says Reay. “They are Loews Santa Monica (347 rooms), Montage Laguna Beach (260 rooms), and the Ritz Carlton Laguna Niguel (396 rooms). When purchased, the allocated prices on these three hotels accounted for 19.7 percent of the entire purchase price ($1.084 billion).”
Reay points out that the market for high-end trophy hotels is still very strong, especially in the SoCal market, so he doesn’t see any negatives to the proposed sale. “The only question is how much of a discount will be needed as Anbang is looing to sell the entire portfolio, rather than single assets, which limits the buyer pool somewhat.” In an interesting twist, Reay says Blackstone will be one of the lead buyers, in his opinion.
Rather than a referendum on the U.S. and SoCal hotel markets, the disposition says more about how the Chinese government is now imposing restrictions on the type and level of investments that Chinese companies can make in the U.S., Reay says, “and as such it removes one of the most active pools of buyers from the market and so there is less competition for companies like Blackstone. It is not a reflection of a cooldown in the market — simply the disapproval of the Chinese government as to how insurance funds have been used to purchase luxury assets in the U.S.”
Reay adds that the disposition is not a sign that the market is slowing down. “These assets are not being sold due to performance, but due to the government stepping in to pull back investments that they say should not have been used to invest in luxury hotels and need to be invested more conservatively, presumably back to China.”
As SoCal Real Estate reported in July, California hotel development is on track to hit a new record in 2018, according to an annual report from Atlas Hospitality Group. 2017 was a record-breaking development year for the state’s hotel sector, and 2018 is on pace to eclipse it.