Historic Real Estate Investment Ultimately Fails... Mirae Asset Wins Lawsuit Over Cancellation of US Hotel Acquisition (Comprehensive)

Mirae Asset Wins Lawsuit Against China Anbang Insurance
US Court Recognizes Anbang Insurance's Liability... Contract Cancellation Ruling
Able to Recover 700 Billion KRW+α Deposit... "Best Outcome"

[Asia Economy Reporter Minwoo Lee] The contract for the acquisition of 15 luxury hotels in the United States worth 7 trillion KRW by Mirae Asset, the largest alternative investment by a domestic financial company, has finally been canceled. The U.S. court recognized the breach of contract terms by the seller, China’s Anbang Insurance, and ruled to cancel the contract. Mirae Asset will be able to recover the 700 billion KRW deposit and claim various litigation costs.

Mirae Asset Financial Group announced on the 1st that it won the lawsuit against China’s Anbang Insurance on the 30th (local time), resulting in the cancellation of the contract. The ruling stated that the seller, Anbang Insurance, failed to comply with the contract conditions and failed to secure title insurance (insurance that compensates for losses that real estate owners and mortgage holders may suffer due to defects in real estate rights), making Mirae Asset’s contract termination appropriate. Accordingly, Mirae Asset will be able to recover all contract payments including interest. It will also be able to claim expenses related to the transaction amounting to $3,685,000 (approximately 4.1 billion KRW) and legal fees incurred during the trial.

Previously, in September last year, Mirae Asset signed a contract to acquire 15 hotels and resorts in 9 major U.S. cities from China’s Anbang Insurance for a total of $5.8 billion (approximately 7 trillion KRW) and paid a deposit of $580 million (approximately 700 billion KRW). This was the largest alternative investment by a domestic financial company to date. The deal included the JW Marriott Essex House Hotel in New York, the Four Seasons Hotel in Jackson Hole, Wyoming, the Westin St. Francis in San Francisco, and the Loews Santa Monica Beach Hotel.

The transaction was scheduled to close on April 17, but Mirae Asset discovered in February that Anbang Insurance was involved in lawsuits related to the hotels. The Anbang court had already been sued regarding ownership of the 15 hotels involved in the transaction. Although Anbang Insurance responded to the lawsuit in December last year, it did not disclose this fact to Mirae Asset. Four insurance companies, including Fidelity National, the largest title insurer in the U.S., refused to issue full title insurance for all 15 hotels for sale, for the same reason.

Ultimately, Mirae Asset sent a notice of default stating that Anbang Insurance failed to meet the condition precedent for closing the transaction by concealing ownership disputes, and warned that if Anbang Insurance did not resolve the contract violations within 15 days, the contract would be terminated. Anbang Insurance refused and filed a lawsuit demanding contract enforcement against Mirae Asset at the Delaware Court of Chancery on April 27. Mirae Asset notified contract termination on May 3 and filed an answer and counterclaim in response.

This victory is seen as a relief for Mirae Asset. Since early this year, when issues arose with the contract, hotel demand has sharply declined due to the COVID-19 pandemic, and the travel and hotel industry is at its worst due to a resurgence of COVID-19 through the end of the year. According to market research firm STR (Smith Travel Research), the U.S. hotel room occupancy rate for the week of May 15-21 was 41.2%, a 32.6% drop compared to the same period last year. Although this is a recovery from the 22.0% recorded at the peak of the COVID-19 spread in late March to early April, it remains sluggish.

In this situation, being able to fully recover the deposit is rather fortunate. Mirae Asset planned to raise 2.6 trillion KRW of the 7 trillion KRW purchase price on its own and finance the remainder through secured loans from local investment banks (IBs) such as Goldman Sachs. However, due to the sharp decline in travel demand caused by COVID-19, hotel values also fell, making it difficult to attract investors. A financial investment industry official explained, "This ruling, which allows Mirae Asset to recover the deposit, interest, and various litigation costs, is the most favorable outcome for Mirae Asset."