The embittered parties fighting over a $5.8 billion hotel portfolio sale went to trial this week to decide the matter.
The deal for 15 American hotels, which was supposed to close April 17, unraveled with the U.S. economy. It was further complicated by an 11th-hour revelation of legal challenges of the hotels’ ownership.
The seller, Anbang, and the buyer, South Korean asset manager Mirae Asset Global Investments, both sued for breach of contract. A Delaware judge will now decide whether the contract should be enforced.
Anbang alleged Mirae is trying to get out of the deal because the pandemic has devastated the hospitality industry and because Mirae’s parent fears Korean regulators are scrutinizing foreign real estate investments.
Mirae responded in kind, claiming Anbang’s lead dealmaker buried his head in the sand as the commercial mortgage-backed securities market seized up and resorted to “absurd” tactics to force Mirae to close the deal.
The trial has revealed unexpected details about the blockbuster deal, such as Mirae’s alleged plan to sell three of its luxury hotels and a last-minute game of hardball in which Anbang tried to get another $1 billion while Mirae demanded a $2 billion discount.
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The trial, conducted remotely, ended Friday after five days before the Chancery Court of the State of Delaware.
Anbang’s lead litigator, Adam Offenhartz of Gibson Dunn, argued that Mirae had been concerned Korean regulators would begin monitoring its overseas real estate unless it sold the Four Seasons Hotel Sydney in Australia, Fairmont San Francisco and the Hyatt Regency Waikiki Beach Resort and Spa in Hawaii.
Mirae’s head of global acquisitions, Ken TaeHern Kim, initially denied that Mirae was worried about that, but ultimately admitted that “someone’s concerned” about Mirae’s overseas investments. He also testified Mirae had no current plans to sell the hotels and only briefly shopped the Hawaii resort around.
Kim also testified that Anbang tried to play hardball as he pieced together financing for the deal — despite late word of litigation over ownership of the hotels Mirae was about to purchase.
He claimed that Anbang’s lead dealmaker, Zhongyuan Li, offered him a three-month extension if Mirae doubled its deposit, waived its rights to property-condition reports and paid nearly $400 million in Anbang’s funding costs.
Kim called the conditions “absurd” and offensive. In response, Kim said he would chop at least $2 billion off the price or put the deal on ice until the hotel market recovered.
“[That] was me trying to tell [Li]: ‘Wake up. This is really something serious. The magnitude of the problem is not small. So, come to your senses, we need more time,’” he testified.
Mirae also claimed Anbang withheld information and downplayed the seriousness of trademark disputes involving the Strategic Hotels & Resorts portfolio by dismissing them as the work of “a 20-year-old Uber driver with a criminal record.”
These disputes stopped the deal a year ago, though both Kim and Li testified that it might have closed in September 2019 if Anbang had agreed to either hold the cash value of the hotels in escrow or issue a line of credit equal to the value of the six hotels known to be part of the trademark scheme.
Anbang insists the trademark litigants are fraudsters. On the stand, Li called the parties’ claims to Anbang’s assets “crazy” and said the insurer sold Vancouver’s Bentall Center, to which the alleged fraudsters lay claim, to the Blackstone Group and Hudson Pacific Properties last year without a problem.
A Delaware court dismissed the ownership claims to Anbang’s hotels, but the decision is being appealed.
At least one person behind those claims has stepped forward: a former journalist named Zhao Yan.
Zhao this month told Bloomberg — which identified him as an officer of one of the entities — that the claims on the hotels are part of an effort to “defend private property against wrongful taking by the Chinese government.”
Mirae’s lead litigator, Michael Carlinsky, argued that the claims on the hotels could be connected to former Anbang chairman Wu Xiaohui, who was jailed in 2018 for economic crimes, or other parties. Carlinsky, a partner at Quinn Emanuel Urquhart & Sullivan, raised the Bloomberg story and Zhao during his examination of Li.
The judge hearing the case, J. Travis Laster, is expected to deliver a verdict this fall.
Write to Erin Hudson at ekh@therealdeal.com
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