The Waldorf Renovation: Over Budget, Past Deadlines, a Man Imprisoned

0:05The Waldorf Astoria Hotel in New York City is one of the most iconic hotels in the world. And it was once the crown jewel of New York glitz and glam. I spoke to my colleague Craig Carman about it. It's one of the most famous hotels in America. It opened in 1931. And at the time, it was probably the most luxurious hotel probably in the world. It was also the most modern. Imagine it's the 1950s. You're headed out for a night on the town. So you put on your finest clothes and head to the Waldorf. So you would probably walk in from Park Avenue. The hotel took up a full block on Park Avenue. You'd walk up the marble stairs.

0:47And once inside, you would probably be surrounded by wealthy business people, tourists, perhaps the occasional celebrity or sports figure. There was a part of the hotel lobby known as Peacock Alley. It was a place where people went to strut their stuff. The hotel drew celebrities like Marilyn Monroe and Frank Sinatra, And even presidents have stayed there. But by the 2010s, the hotel was losing its shine. It badly needed renovations. The plumbing was old. Elevators needed to be repaired. In 2014, a Chinese billionaire bought it, looking to restore it to its former glory. But it was a tall task.

1:28They would go a billion dollars over budget, take nearly a decade to finish. And before it would be done, its new owner would end up in jail. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson. It's Monday, November 3rd.

1:52Coming up on the show, the Waldorf Astoria's nightmare renovation.

2:11The Waldorf Astoria Hotel opened in 1931. Since the 70s, it's been owned by the Hilton Hotel Corporation. Conrad Hilton, the company's founder, once scribbled on a picture of the building that the Waldorf was the greatest of them all. But in 2014, Hilton was thinking about selling it. What was the state of the Waldorf Astoria when it went up for sale? So by that point, it was approaching a century old. It had become a bit antiquated. You could see it on the walls. You could see it on the floor. It was a natural outcome from people having walked through it and rubbed up against the walls for decades.

2:48The investment company Blackstone, one of Hilton's largest shareholders, was told by its advisors that the Waldorf would likely be worth around a billion dollars. And there was someone who was interested. A Chinese businessman named Wu Xiaohui. They didn't know who this guy was. They didn't know where his funding was coming from. But they thought it couldn't hurt to ask for a price. So they called up the CEO of Hilton, and they decided, well, why don't we ask for the moon? Let's ask for$2 billion and see what Chairman Mu says. So they went back to the Peninsula Hotel where they're having breakfast, and they told him, well, you could have it for$2 billion.

3:26He thought for a little bit, and he said, well, how about$1.9 billion? The Blackstone guys were floored. They couldn't believe that his counter was almost as high as their outrageous initial salvo. So they kept talking, and within a short period of time that same day, they had reached a deal at$1.95 billion for the hotel. 1.95. It's almost$950 million more than they thought that their own hotel was worth. Roughly speaking, yes. Hundreds of millions of dollars more than they had been given guidance on it. It was also the most anyone has ever paid for a standalone hotel. But to Wu, it still seemed like a reasonable price.

4:04He later said at an event that the hotel was cheaper on a square meter basis than certain properties in Beijing.

4:13Wu had a long career in the insurance industry. And he was married to a granddaughter of Deng Xiaoping, the former leader of the People's Republic of China. So he was always sort of a mysterious figure in the U.S. He had started his own insurance company, Anbang Insurance Group, in 2004, started off as a regional car insurance company in China, and he grew it rather rapidly into a full-service insurance company, an asset management company. And the growth of Anbang coincided with this relaxation in China of investment rules in terms of Chinese investors and companies being able to buy real estate overseas.

4:52By 2014, the Chinese government made it easier for its citizens to buy property overseas, and Chinese businessmen saw it as an opportunity to buy prestigious property that would go up in value. Wu was at the forefront of this movement and bought a lot of real estate in places like Chicago, L.A., and New York. But according to Craig's reporting, the Waldorf was his prized purchase. It was prestigious to own a trophy building in the U.S. I think Wu took a lot of pride in being able to show people the Waldorf and say, this is my property. I own it. I have great plans for it. And while he paid a lot for it, I think he also felt that this was a one-of-a-kind asset.

5:32And over a period of time, it would appreciate. And should he ever want to sell it, he would be able to sell it far above what he paid for it, even at$1.95 billion. And what did Wu Xiaohui want to do with the Waldorf Astoria once he acquired it? He really wanted to make it almost a centerpiece for Manhattan's social life. And he had a lot of various ideas, many that he would think up and dismiss rather quickly afterwards. But at one point, he talked with other people working on the conversion project about creating a members-only club there that would invite only the city's billionaires. Another time he talked about creating a state-of-the-art gym that would turn to a nightclub at night and only residences of the Waldorf would be allowed to attend.

6:22A gym to a nightclub? You're like running on the treadmills or dancing on the treadmills? And then someone would pull it away and it would bring out the disco ball, something like that. Perhaps his most ambitious plan for the hotel, another one that never really came to fruition, He sketched out plans for what would be a magnificent grand reopening party for the Waldorf when the conversion was done. The hotel was complete. The residences were all ready to be sold. And he wanted to show it back to the New York Society and to the public. And his plan called for combining his Chinese heritage and the history of the Waldorf.

6:58And he was going to rely on holograms. And his grand opening party would start with Chinese warriors riding horseback through the lobby, holograms of Chinese warriors entering the Waldorf Astoria, followed by Marilyn Monroe and Frank Sinatra, former residents of the Waldorf, exiting a black limousine to enter the Waldorf. And then the grand opening party would hit its peak when Celine Dion, the singer in real life, not a hologram, would perform for the audience. Sounds like a cool party. It would have been a great party. And on top of these new additions at the hotel, don't forget, there were parts of it that also needed repairs.

7:42And Wu wanted both of these things, renovations and repairs, to be completed on a quick timeline. How big or expensive, how would you characterize how ambitious his plans were? It was incredibly ambitious. He then hoped to convert the hotel to a modern hotel and residences in one year. How did he choose one year? He read that the Empire State Building had been built in one year, and he felt if you could build the tallest building in the world in a little over one year, it took about 13 months, you ought to be able to convert the Waldorf. His development team in the U.S. told him that was not even remotely possible, that construction laws and safety requirements were very different back then, labor was far cheaper and more abundant, and there was no way they could turn around the Waldorf at such a tight schedule.

8:34You know, I was just at the Empire State Building recently and I was walking through where they're showing the videos of it being built and there are a lot of people balancing on steel beams in the sky without any fall protection back in the 1930s. That's not something to get away with in the 2000s. So after they convinced him that, he grudgingly decided that he would do a three-year construction schedule. But before they could get any of that work done, Wu Xiaohui got arrested. That's next.

9:32The Insolvenzantrag is set. And suddenly everything is in all-tempo. For our protagonist begins the hardest phase. In episode 4 of our series Endstation Insolvenz We show why Openness is the most important part. Why a Insolvenzman is not a Gegner. And how a company stabilizes or is ordered and is converted. In 2017, three years after he bought the Waldorf Hotel, Wu Xiaohui was arrested in China. Chinese officials have been cracking down on some types of international investments like real estate, in part to help stabilize its currency. Wu was arrested on charges of fraudulent fundraising and abusing his power.

10:28Some people I talk to think that he had just become too much a face of this flamboyant, free-spending Chinese entrepreneur overseas that the Chinese government was no longer comfortable with. But in fact, by the time that he was arrested, the Chinese had started to rein back in those rules that allowed people like Wu to spend so freely on real estate in the U.S. Wu is believed to be serving an 18-year prison sentence. So what happened to his project with the Waldorf Astoria after he was sentenced to prison? So Wu was really the driving force and the vision behind creating this magnificent hotel.

11:07And once he was gone, things got a lot more difficult to push ahead. After Wu was arrested, the Chinese government took over his company's assets, which included the Waldorf Hotel. But by then, the project was on pace to blow past its deadline. And its new owner kept setting new ones. It said the hotel will be done by 2020, then 2022, then 2024. When the Chinese government took over the project, why didn't they change the scope? I think at that point, they were just following through on the initial vision. I think they felt like money was not an object for them. This is the Chinese government after all.

11:49They didn't need a loan. They have plenty of cash around. They wanted something that they could be proud of, and maybe at one point that they would sell. And I think they just figured the path of least resistance was to continue and move on somewhat along the lines of what Wu had wanted, although there would be tweaks along the way. Some of those tweaks included killing the hybrid gym-nightclub idea. Ultimately, the entire renovation process took eight years.

12:25Part of the reason it took so long, because there was a lot of painstaking detail in the hotel, there's a floor mosaic that has 148 ,000 individually hand-cut marble pieces that make up this mosaic. So it was very labor and time intensive. They brought in artisans from Europe. But a lot of the work was just the more mundane stuff, replacing the plumbing, replacing the electrical systems, replacing the stairs and the elevators, stuff that had been around for decades that was beyond obsolete and that took much longer to replace than anyone anticipated at the time. Did the Chinese government, did they say anything about how they felt about the project?

13:08Did they consider selling it off or they just sort of thought like, we'll just have this gem? Yeah, people who work on the project said that they considered a few options. They considered bringing in an American partner to take control of the project, but the American partners who they considered all wanted equity. They weren't comfortable giving up the equity, so that never really went anywhere. They also floated the idea of selling it. I don't know how seriously. I think if someone was willing to give them a good price for it, they would have taken that in consideration. But in the end, it was a work in progress.

13:43It was going slower than expected, costing well over budget, and they didn't find any offers from any outsiders that seemed compelling. Eleven years after the sale, the Waldorf is now open again. And it's not just a hotel anymore. About half the rooms are being sold as condos. One of those condos, a roughly 900-square-foot, one-bed, one-bath, is listed for$3.2 million. And how much did they end up spending on this renovation? Well, the all-in costs, if you include the acquisition cost, the construction cost, the fact that they kept paying property taxes and insurance premiums even though it was closed, all-in costs were around $6 billion.

14:29$6 billion. That seems like a lot of money for a hotel renovation. I think it's a lot of money by almost any standards. And I think there's a big question about whether they'll ever see any return on their dollars. If the condos sell at extraordinarily high prices, probably higher prices than they're getting right now, it's possible. And you've gone to see it. What is it like now? Yeah. I went with a colleague a few weeks ago on a Friday afternoon. And the lobby was abuzz with people who looked like a combination of people who had gotten off work and were still dressed in work attire, people who looked like tourists.

15:08The guy in the white suit and the white cowboy hat was probably a tourist. Most of the tables in the lounge were full. And I asked the bartender, is it always this crowded? And he said, actually, it's pretty light today. Usually the bar is standing room only. Would there ever be a way to renovate the Waldorf Astoria and make money back? Well, that's a good question. I mean, I think there was probably ways it could have streamlined the process. But I think it was always, you know, given a building that was that big, I think in the end it was about 1.6 million square feet. And trying to modernize something that was nearly 100 years old was always going to be a very costly endeavor.

15:51It was always going to be an expensive project. It was always going to have to be a passion project for someone who was probably thinking more about the hotel's place in history than about the bottom line. Craig says that like the hotel itself, what happened to the Waldorf is unique. There's only one Waldorf story in New York in the world, the original Waldorf Hotel. I think if there's a lesson, it's that if you want something badly enough and you want to make it as pretty and as historic and iconic as it can be, you have to open your checkbook and spend the money.

16:43This episode has been updated to correct the pronunciation of Wu Xiaohui's name.

16:52That's all for today. Monday, November 3rd. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Alison Poley.

17:05Thanks for listening. See you tomorrow.