Executives for a Chinese company that made U.S. commercial real estate transactions worth billions of dollars have been detained in China on unspecified charges.
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HNA Group Chairman Chen Feng and CEO Adam Tan have been detained by police in Hainan Province, China, where the company is based. They were detained “in accordance with the law for suspected crimes,” the company said in a widely reported statement.
The Hainan provincial government has found that billions of dollars were misappropriated as funds were moved among more than 2,000 HNA subsidiaries, affiliates and shell companies, The Wall Street Journal reports.
During the mid-2010s, HNA, founded in 2000 as a regional airline in China, was a major investor worldwide, including sizable real estate assets, such as a 25% stake in Hilton Worldwide Holdings, which it acquired in 2016 for $6.5B and sold two years later for a $2B profit.
Not all of the company's investments went so well, however, especially after the Chinese government cracked down on the flow of outbound capital. In 2018, the company sold off a number of U.S. trophy real estate assets in Chicago, New York, San Francisco and other cities, as well as its holdings in Spain’s NH Hotel Group SA.
Late that year, to emphasize the point that HNA Group was edging out of real estate, HNA Real Estate Holdings was renamed HNA Airport Development.
Despite selling assets, the company was still saddled with enormous debt when the coronavirus pandemic came, hitting its airline business especially hard. Following petitions from creditors, HNA and many of its subsidiaries were put under a court-led reorganization early in 2021.
The arrests come at a particularly tumultuous time for China-based real estate investors. Evergrande Group's widely reported lurch toward insolvency is causing ripple effects in the U.S., and other Chinese companies are on the edge as well, such as the capital-strapped China Oceanwide Holdings Group, which is now uncertain about finishing $3.5B worth of commercial real estate developments in U.S. markets.
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