Chinese Firm Buys the Waldorf Astoria: Is a 'China Panic' Next?

Waldorf Astoria Hotel
Courtesy Hilton WorldwideWelcome, new owners!

When the Waldorf Astoria Hotel opened on New York City's Park Avenue in 1931, President Herbert Hoover called it "an exhibition of courage and confidence to the whole nation." He didn't mean China.

So one can imagine Hoover spinning in his grave over this week's announcement that Chinese insurance company Anbang purchased the hotel from Hilton Worldwide Holdings, for a whopping $1.95 billion.
A Hilton spokesperson told me that "Many luxury hotels in New York have foreign ownership" -- among them the Carlyle, Mandarin Oriental, Pierre, Plaza and Peninsula -– "so it's not an atypical arrangement by any means." And Chinese companies have been buying U.S. real estate for years now, including the General Motors Building and One Chase Manhattan Plaza in New York.

Still, for many (not just) Americans, this particular sale strikes close to the heart. The Waldorf's 1,413 guest rooms, three restaurants and 60,000 square feet of banquet halls occupy a whole city block and have hosted U.S. presidents, world leaders and countless celebs. Given that pedigree, the sale can feel like a blow to American national pride.

If you were around in the 1980s and early '90s, the sale of the Waldorf and other properties may also recall the Japanese buying spree of American landmarks from Rockefeller Center to Pebble Beach Golf Club. You probably remember media reports of a "Japan panic," with American investors priced out of the U.S. property market.

Is there cause for a China panic this time?

"It's not the same," says Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania.

"The driving force in the Japan expansion was that Japanese market prices were so high -- clearly in bubble territory. Japanese investors found U.S. real estate bargain priced, and overpaid," Wachter says, causing a corresponding run up in U.S. prices.

On the other hand, Wachter calls Chinese real estate investors "much more long term and selective," with no desire to inflate prices. Case in point: $1.95 billion, while an eye-popping sum, is about current market value for a city block in Midtown Manhattan.

As an insurance company, she says, Anbang "needs steady, safe returns over the long run, not short-term opportunities for cheap properties and quick profits."

Another big difference: in addition to the purchase price, the deal includes a separate 100-year management contract with Hilton, and Hilton says that Anbang will pay for hotel renovations. The Hilton spokesperson says it all "speaks to the relationship and the benefits that can come out of it."

"There will be case studies on this investment," Wachter predicts. "It's about as far as you can get from a strategic, in-and-out investment."

Click for a timeline of Waldorf history.