Goldman Sachs and Bank of America agreed to finance a portfolio of nine U.S. luxury hotels that includes the Ritz-Carlton Half Moon Bay in California, according to a Securities and Exchange Commission filing by accounting firm EY.
The Chinese government may have lined up a buyer for the properties valued at $2.82 billion after it took control of former owner Anbang Insurance Group three years ago, based on procedures listed in the filing by the firm formerly known as Ernst & Young, which is working with Goldman and Bank of America. Though there’s no guarantee a sale will take place, it's a possible outcome in this case, given the variety of loans tied to some of Anbang’s U.S. properties and the fact that China put the real estate on the market in the past.
Few details of the financing were included in the SEC filing for a new investor offering headed to the commercial mortgage-backed securities market. What the filing does show is that last week the two banks agreed to provide a three-year, floating-rate, interest-only mortgage loan with two consecutive, one-year extensions secured by nine hotel properties in five states.
The purpose of the loan to a single unidentified borrower was not included in the filing. The loan is expected to close in the next two weeks.
The hotel portfolio’s appraised value as of Aug. 1 was $2.82 billion, according to the filing. The only property initially identified was the 261-room Ritz-Carlton Half Moon Bay. In an amended SEC filing Monday, Goldman Sachs named Arizona’s Fairmont Scottsdale Princess and the Fairmont Chicago as part of the portfolio.
Court documents list Strategic Hotels & Resorts as the successor to Anbang in owning the properties. Strategic’s portfolio was bought in 2015 by affiliates of Blackstone Real Estate Partners for $6 billion. The company did not respond to requests for a comment from CoStar News. And Goldman Sachs, the company preparing the CMBS offering, said it would not provide any additional information in advance of the offering.
In 2018, China faced widespread fallout in its insurance industry as Anbang’s spending mounted. The government stepped in to sell assets and avert the insurer’s insolvency, in some ways similar to concerns today over China Evergrande Group which has delayed repayment of a portion of $305 billion in debt. A collapse of the developer could hurt China’s wider real estate market.
A deal to sell a larger portfolio of Anbang’s luxury U.S. hotel holdings fell through last year after the buyer backed out of the deal as the pandemic ravaged the travel industry.
Luxury hotel deals have picked up as the year has progressed, according to Jan Freitag, national director of hospitality analytics for CoStar Group. Healthy leisure demand, coupled with the return of pricing power for upscale properties, has led to at least some deals in which buyers and sellers seem to agree that 2020 is firmly in the rearview mirror and values are no longer depressed.
One example includes Microsoft co-founder Bill Gates’ Cascades Investment agreeing this month to acquire a $2.2 billion controlling stake in Four Seasons Hotels from Saudi Arabia-based Kingdom Holding Company.
The Ritz-Carlton Half Moon Bay is part of a large portfolio of luxury hotels Anbang bought in 2015. The company purchased 15 properties with a total of 6,398 rooms from Blackstone Group-owned Strategic for $5.5 billion. A few months earlier, Anbang paid $1.95 billion for the iconic 1,413-room Waldorf Astoria in New York, which was the largest single-property hotel deal on record at the time.
The SEC filing did not disclose whether other hotels in that portfolio were included in the new financing.
Anbang’s ownership of U.S. properties was complicated by the China Insurance Regulatory Commission issuing a statement saying it had taken control. Chinese officials arrested Anbang’s former chairman and general manager “on suspicion of economic crime.” The commission asserted the chairman’s actions endangered the solvency of the insurance giant.
Two years ago, South Korea-based Mirae Asset Global Investments agreed to pay $5.8 billion for a 15-property portfolio that included the Ritz-Carlton Half Moon Bay. That deal immediately hit a stumbling block when it was discovered that a number of fake deeds were recorded transferring ownership of up to a half-dozen of the properties, according to news reports.
Mirae eventually backed out of the deal entirely after the outbreak of COVID-19. That decision prompted a lawsuit by China-controlled owners in the Delaware Court of Chancery. The court upheld Mirae’s action last year. That decision is still under appeal.
Mirae did not immediately respond to requests for a comment. Attorneys representing the sellers in that case did not immediately respond to requests for additional information.
CoStar data lists the current owner of the 15-hotel portfolio as AB Stable VIII, an affiliate of Strategic based in Chicago.