A deal by China’s Anbang Insurance Group Co to purchase a landmark Southern California hotel near a major naval base from Blackstone Group LP was called off following opposition from US national security officials, according to people with knowledge of the decision.
Blackstone ended the sale of the Hotel del Coronado near San Diego, worth an estimated US$1 billion, after concerns were raised by the Committee on Foreign Investment in the United States (CFIUS), according to the people, who asked not to be identified because the sale process was private. The interagency body, led by the Treasury Department, reviews acquisitions of American businesses by non-US entities for national-security risks.
The iconic Victorian era hotel, where the 1959 Billy Wilder comedy Some Like It Hot starring Marylin Monroe was filmed, is one of the most valuable of the 16 luxury properties that were part of Strategic Hotels Resorts, a real estate investment trust that Blackstone acquired last December for about US$6 billion. The firm agreed in March to sell Strategic to Anbang for US$6.5 billion, and the Beijing-based company completed the purchase of 15 hotels last month, according to people with knowledge of the transaction.
The remaining hotel is located on a peninsula that’s also home to the Naval Base Coronado. The base comprises eight installations that lie on either side of the hotel, including an air station, amphibious base, landing fields, radio receiving facility and warfare training centre. It’s one of the main training grounds for the Navy SEALs special forces.
The sale’s termination delays Blackstone’s ability to cash out of its Strategic purchase at a profit. The Hotel del Coronado has an assessed value of US$588 million, though its market price is far higher.
Representatives for Blackstone and Anbang declined to comment on the deal. Whitney Smith, a spokeswoman for the Treasury Department, also declined to comment. CFIUS reviews are confidential.
China’s growth into the world’s second-largest economy has spurred massive overseas investment and sparked tensions and concerns over cyber-espionage. Royal Philips NV in January cancelled the US$2.8 billion sale of its lighting-components unit to a group led by GO Scale Capital of China because of opposition from CFIUS.
Anbang has been on a two-year spree for foreign assets. The insurer’s aggressive style of deal making and opaque ownership structure have raised concerns among regulators and investors. Days after reaching the agreement to buy Strategic, the company launched a bidding war for Starwood Hotels Resorts Worldwide before walking away three weeks later, leaving Starwood to be acquired by Marriott International last month. Completing the purchase of most of the Strategic portfolio helped to restore Anbang’s deal-making credibility.
With the Strategic purchase, Anbang owns properties including New York’s JW Marriott Essex House, the Westin St Francis in San Francisco, InterContinental Chicago, Loews Santa Monica Beach Hotel, Fairmont Chicago, Four Seasons in Washington and Ritz-Carlton resorts in Laguna Niguel and Half Moon Bay, California.
Anbang set a record for a single US hotel acquisition with its February 2015 purchase of New York’s Waldorf Astoria for US$1.95 billion, a deal that CFIUS cleared. President Barack Obama bypassed the Waldorf when he visited New York the following September amid concern over cyberspying, breaking a tradition of presidential stays going back to the 1930s.
CFIUS objections are seen as de facto outcomes and reviews rarely reach the point of the president stepping in to block a deal. One exception was when Obama, in 2012, stopped a Chinese-owned company from building wind farms near a US Navy base in Oregon. He ordered Ralls Corp to remove all property and installations from its sites and divest all of its interest in the wind-farm project, which was near a facility where the Navy conducts training for bombing and electronic combat manoeuvres and develops drones.
Before 2012, the last transaction blocked on national-security grounds was in 1990, when President George H.W. Bush rejected the proposed acquisition of MAMCO Manufacturing Inc, a maker of motors and generators based in Washington state, by China National Aero-Technology and Export Corporation.