Mirae misses payment on $5.8bn Anbang hotel deal
Korean asset manager had promised to buy a chain of luxury US hotels sold off by the distressed Chinese insurer
The Korean asset manager that had promised to buy a chain of luxury US hotels sold off by distressed Chinese insurer Anbang has failed to make a payment due on April 17, raising questions about whether the $5.8bn deal will proceed as planned.
Mirae Asset Management won the 15-site Strategic Hotels portfolio in an auction last year, seeing off bids from a host of deep-pocketed investors including Blackstone, which had sold the chain to Anbang, Brookfield, SoftBank-backed Fortress and Government Investment Corp of Singapore.
Mirae said the deal was still ongoing and that it was in talks with Anbang. “We are still negotiating the deal [with Anbang] and continue to communicate with them,” said a company spokesman, who denied Mirae was in technical default, adding there had been no agreed deadline for the payment.
The company was “still tapping multiple US financial institutions for loans for the deal although market conditions have become tougher due to the virus outbreak”, said one person close to Mirae. “Its affiliates as well as banks and financial companies will also throw money into the deal, so even if one or two banks will not lend money, this does not mean a deal collapse.”
But a person familiar with Anbang’s position said: “Everyone knew Mirae had paid way too much.”
“Nobody will lend money for such a deal when the hotels have almost zero occupancy. Anbang has sent notices to the Korean side but there has been no response in writing.”
The transaction is the latest in a number of high profile mergers that have been thrown into doubt by the coronavirus pandemic.
If the deal falls through, Mirae stands to lose its $600m deposit and could face lawsuits. The terms of its purchase agreement do not specify a pandemic as a material adverse clause that would give it flexibility.
Anbang, meanwhile, is still paying off the money it borrowed to buy the hotels from Blackstone in 2016. As of 2018, it has been under government control, with the Chinese Banking and Insurance Regulatory Commission calling the shots, and it is not clear if it will be given additional funds to help it refinance those debts if required.
The news comes as the market for financing real estate transactions for hotels and retail property is in total disarray, with many retailers and hotels in violation of the terms of their loans. “Many hotels can’t pay off their mortgages. It will be years before Anbang can get a decent price for Strategic,” said one person with knowledge of the market.
The Strategic Hotels portfolio includes the Westin St Francis in San Francisco, the JW Marriott Essex House in New York, the Fairmont Scottsdale Princess, and several Ritz-Carlton and Four Seasons hotels.
The refurbishment of another Anbang-owned asset, the Waldorf Astoria in New York, has come to a halt because of the pandemic.
The 1,413-room hotel was being converted into one with 375 rooms, plus 375 luxury apartments for sale.
But the sales office is now shuttered and only a handful of contracts have been signed for the apartments.
Anbang spent more than $1.95bn buying the building in 2014 and a further $1bn so far on reconstruction.