Just months after it officially reopened following a multiyear, multimillion-dollar renovation, the owners of the Waldorf Astoria in New York City are preparing to put the luxury hotel up for sale, according to a report in the Wall Street Journal.
Changing Hands
The transaction, if it goes through, would be only the latest step in a lengthy 12-year journey for the historic hotel. Hilton sold the property in 2014 to Anbang Insurance Group, a reinsurance firm based in China, for $1.95 billion, making it one of the most expensive hotel sales ever. Hilton has a 100-year management contract for the hotel. According to Reuters, Anbang spent an additional $2 billion renovating the project, bringing the total to more than $4 billion. By 2017, the Chinese government began cracking down on outbound investment and took over Anbang's operations the following year after an investigation from China’s Insurance Regulatory Commission ended with former Chairman Wu Xiaohui sentenced to 18 years in prison for fundraising fraud. The government created Dajia Insurance Group to take over Anbang's domestic operations in 2019.
The property closed in 2017 for a renovation and conversion from about 1,400 hotel rooms to a mix of 375 hotel guestrooms and 372 residences. When it reopened last year, the project was reportedly five years behind schedule and more than $1 billion over the initial budget.
What it Means
While hotel transactions are a normal part of the business, selling such a notable asset so quickly after reopening it from a massive renovation is bound to raise eyebrows.
But this could be a prime opportunity for the owners. Jan Freitag, national director for hospitality market analytics at CoStar, told Hotel Management that the average daily rate for luxury hotels in New York 10 years ago was $400. Today, it is $580. While occupancy at luxury hotels across the city has declined somewhat over the decade, Freitag credits that to an increase in supply.
Overall revenue per available room declined 0.3 percent last year—but hotels in the luxury segment reported RevPAR increases of 3 percent, and luxury hotels in New York City reported year-over-year RevPAR growth of 9.4 percent. “Those hotels continue to perform quite well on the top line,” Freitag said.
Luxury and ultra-luxury hotels worldwide have seen “tremendous pricing power,” he continued, and their target guests are more focused on the experience than on the price tag. “That has driven up luxury room rates and ultra-luxury room rates to a level that we hadn't seen before.”
In other words, luxury assets could be seen as a safe space for investment, even as more properties open. Beyond that, Freitag noted the “prestige” of owning such a well-known property, especially one that has been in the spotlight since its reopening.
Who will Buy?
Per reports, investment bank Eastdil Secured is expected to market the property for what is expected to be in excess of $1 billion.
While no official price tag for the property has been released, Freitag does not expect an American REIT or private equity company to acquire the Waldorf Astoria. “I cannot imagine a publicly traded company in the United States making the investment case for this,” he said.
Private equity frequently writes big checks, but they are currently focused on data centers and infrastructure construction—safe investments with steady demand. “Luxury [hotels], while doing okay, probably [don’t] have the same return expectations as a data center,” he said. Similarly, hospitality as an industry is “volatile,” he continued, with cash flow depending on day-to-day performance.
As such, Freitag expects bids to come from international buyers—companies that will want to hold onto the asset for a while. According to the Journal, the owner, Strategic Hotels & Resorts—itself owned by Dajia Insurance Group—does not expect to recoup its investment in the deal.
Whoever ends up owning the historic Park Avenue asset, Freitag said the deal will provide valuable data for other possible transactions of similar assets in the market. At the same time, he noted that the property’s unique history and reputation, combined with the “very, very high end” renovation, will make any comparisons difficult. "It's hard to compare any property that is existing today to that.”
A Hilton spokesperson said the company expects “business as usual at the hotel.”