March 23, 2017
LowenthatLetter

The potential sale of the Westin Long Beach Hotel to buyers tied to China or other foreign states has sparked national security concerns and attracted media attention.[i] In December 2016, U.S. Congressman Alan Lowenthal of Long Beach wrote a letter asking the Committee on Foreign Investment in the United States (CFIUS) to review the potential sale of the Westin Long Beach Hotel,[ii] for which real estate manager AEW Capital Management serves as asset manager on behalf of the Utah Retirement System (URS), the owner of the hotel.[iii]

While URS has indicated that CFIUS review will take place if the hotel is put under contract for sale to a foreign entity, important questions remain unanswered.  Neither AEW nor URS has disclosed which buyers they have considered or are considering for the hotel, whether potential purchasers have ties to foreign states, or what the nature of such ties might be.  Nor is there any guarantee that they will keep stakeholders informed about any CFIUS review of a potential buyer for the hotel.[iv]

The potential sale of the Westin Long Beach has attracted media scrutiny:

The sale of the Westin Long Beach to entities tied to China or other foreign states poses national security questions because of its proximity to the Port of Long Beach, the second-busiest port in the United States,[v] and because it is next door to the Customs and Border Protection office, which handles sensitive information related to interstate commerce.[vi] The hotel’s clients have included the Department of Defense, Department of Justice, the Department of Homeland Security, and other federal agencies which also handle sensitive information.[vii]

Since 2014, other hotels being acquired by Chinese firms have sparked national security concerns. In 2016, China’s Anbang Insurance Group Co. sought to purchase the Hotel del Coronado in San Diego as part of a $6.5 billion transaction.[viii] However, after undergoing a CFIUS review, the sale was called off following opposition from U.S. national security officials, according to a Bloomberg News report.[ix] The hotel is located adjacent to the U.S. Navy Base Coronado.[x]  Furthermore, former President Obama stopped patronizing the Waldorf Astoria after it was bought by Anbang in 2014, breaking a tradition of presidential stays due to reported fears of espionage.[xi]

The CFIUS review is time sensitive and must be completed before the hotel is sold to an entity that could present national security risks. AEW investors should consider the following questions:

  • Will AEW honor its commitment to mandate that all Westin Long Beach transactions involving buyers with potential ties to foreign states are submitted to CFIUS for review to ensure national security questions are answered prior to a sale?
  • Is AEW marketing the Westin Long Beach to foreign buyers? Which buyers are considering buying the hotel, and do any have ties to China or other foreign states?
  • Is AEW considering selling other assets to foreign buyers? Will it mandate that CFIUS review those transactions?

AEW faces a long-standing labor dispute at the Westin Long Beach, and its Core Property Trust (“CPT”) Fund has had mixed performance. In August 2015, workers at the Westin Long Beach filed a class-action lawsuit, which is still pending as of March 21, 2017, alleging wage-and-hour violations, which attracted media attention.[xii] As of February 2016, AEW’s CPT fund outperformed income returns of its benchmark but underperformed the appreciation returns and total returns, and faced headwinds in the Houston market as conditions in the energy industry deteriorated at the same time as the pipeline for new office construction appeared robust.[xiii] Further information regarding these issues can be found here.

 

 

 

 

 

 

[i] Lee Davidson. January 5, 2017 “California critics warn that Utah pension fund’s hotel could be used to spy on U.S. agencies if it’s sold to Chinese,” Salt Lake Tribune. Accessed February 11, 2017. http://www.sltrib.com/home/4785744-155/congressman-raises-chinese-espionage-alarm-over

[ii] Andrew Edwards. December 9, 2016. “Citing security risks, Lowenthal asks feds to probe any sale of Westin Hotel in Long Beach to foreign entities,” Press Telegram. Accessed February 11, 2017. http://www.presstelegram.com/business/20161209/citing-security-risks-lowenthal-asks-feds-to-probe-any-sale-of-westin-hotel-in-long-beach-to-foreign-entities

[iii] Utah Retirement Systems. Minutes of the Retirement Workshop. September 8-9, 2016.

[iv] Dan Andersen email 2/16/17, conversation with Alex Burleigh from AEW 2/3/17

[v] “About the Port.” Port of Long Beach website. Accessed February 11, 2017. http://polb.com/about/default.asp

[vi] Home Page, Westin Long Beach website. Accessed February 11, 2017. http://www.westinlongbeachhotel.com/

U.S. Customs and Border Protection Los Angeles/Long Beach Seaport office. Accessed December 1, 2016. https://www.cbp.gov/contact/ports/los-angeleslong-beach-seaport

[vii] “Advanced Data Search.” USA Spending.gov. Searched for transactions with Noble/Utah Long Beach LLC, DUNS 825895159 or Noble Investment Group, DUNS 799554873. Accessed December 1, 2016.

https://www.usaspending.gov/Pages/AdvancedSearch.aspx?sub=y&ST=C,G,L,O&FY=2017,2016,2015,2014,2013,2012,2011,2010,2009,2008&A=0&SS=USA&DUNS=825895159

https://www.usaspending.gov/Pages/AdvancedSearch.aspx?sub=y&ST=C,G,L,O&FY=2017,2016,2015,2014,2013,2012,2011,2010,2009,2008&A=0&SS=USA&DUNS=799554873
“Conference – December 8, 2014.” Federal Energy Regulatory Commission. Accessed December 1, 2016. https://www.ferc.gov/eventcalendar/EventDetails.aspx?ID=7581&CalType=%20&CalendarID=116&Date=&View=Listview

[viii] Hui-Yong Yu, David McLaughlin. October 21, 2016. “Blackstone Ends Plan to Sell Landmark Hotel to China’s Anbang After U.S. Opposition.” Bloomberg. http://www.bloomberg.com/news/articles/2016-10-21/blackstone-said-to-end-anbang-deal-for-hotel-near-u-s-navy-base

[ix] Hui-Yong Yu, David McLaughlin. October 21, 2016. “Blackstone Ends Plan to Sell Landmark Hotel to China’s Anbang After U.S. Opposition.” Bloomberg. http://www.bloomberg.com/news/articles/2016-10-21/blackstone-said-to-end-anbang-deal-for-hotel-near-u-s-navy-base

[x] Ibid.

[xi] Matthew Lee. Sept. 11, 2015. “Spy fears drive US form Chinese-owned Waldorf,” Associated Press. Accessed December 1, 2016. http://bigstory.ap.org/article/a241a637daeb4b80866b6b1bd5e6ef87/apnewsbreak-us-shun-chinese-owned-waldorf-astoria-hotel

[xii] Report. “AEW Capital Management – advised hotel draws class action suit from employees.” August 31, 2015. PE Closer Look. https://www.pecloserlook.org/aew-capital-management-advised-hotel-draws-class-action-suit-from-employees/

[xiii] Report. “AEW Core Property Trust faces headwinds from energy industry distress.” February 2, 2016. PE Closer Look. https://www.pecloserlook.org/report/aew-core-property-trust-faces-headwinds-from-energy-industry-distress/

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