HNA Group’s skyscraper houses a police precinct that protects the president’s New York base

HNA Group’s building at 850 Third Ave. in New York.
HNA Group’s building at 850 Third Ave. in New York. PHOTO: JEENAH MOON/BLOOMBERG NEWS

The U.S. government has told Chinese conglomerate HNA Group Co. it has to sell its majority stake in a Manhattan skyscraper whose tenants include a police precinct tasked with protecting Trump Tower, according to people familiar with the matter.

The Committee on Foreign Investment in the U.S., which reviews whether foreign investments in the U.S. represent national-security risks, informed the Chinese company a couple of months ago it had to divest itself of its holding in the building, according to these people. CFIUS, as the committee is known, didn’t explain to HNA why it had to sell the property, one of these people said.

At the behest of CFIUS, HNA set up a blind trust and transferred its ownership stake in the building to that trust, said a person familiar with the matter. The trust has its own board of directors, which have a fiduciary duty to the trust, not to HNA.

HNA is now trying to find a buyer for the building to comply with the CFIUS order, though the company wasn’t given a deadline to sell, these people said.

The Chinese conglomerate in 2016, before Mr. Trump’s election, acquired a 90% stake in the 21-story tower on Third Avenue in a deal that valued the building at $463 million, according to public records. The building is a few blocks away from Trump Tower and houses the New York Police Department’s 17th precinct, whose duties include security for Trump Tower. President Trump maintains a residence in that Fifth Avenue building, though he has rarely been there since his inauguration.

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A spokesman for HNA said the company has “respect for the confidentiality of the CFIUS process,” and that the company doesn’t view the situation as a fire sale.

“There is no seizure or forced sale of 850 Third Avenue underway or pending,” the spokesman said. “There are unique facts and circumstances regarding the location of this particular property that did not exist at the time of purchase which have raised certain concerns, and HNA Group is taking measured steps to address them.”

CFIUS didn’t respond to requests to comment, and a Treasury spokesman declined to comment.

HNA is in talks with people interested in the building, a person familiar with these talks said, though it isn’t clear how much a potential buyer would pay.

HNA, Anbang Insurance Group and other Chinese investors have spent tens of billions of dollars on trophy assets like New York’s Waldorf Astoria hotel and other properties in cities including Los Angeles and Chicago.

But over the past couple of years, the Chinese government has cracked down on certain types of investments abroad, including real estate, as part of an effort to help stabilize the currency. In the second quarter, Chinese firms turned net sellers of U.S. real estate for the first time in a decade, according to data firm Real Capital Analytics.

In most cases, Chinese companies have made a profit when selling because of the strong U.S. economy and because prices in the commercial real-estate market are holding steady. HNA has already been selling other non-core assets to focus on its core aviation, logistics and tourism businesses. In May, the company sold a San Francisco office tower for $300 million, after paying $255 million for it in 2016.

CFIUS, an interagency committee led by the Treasury, is able to force a sale after a transaction is completed by making a recommendation to the president. President Barack Obama issued an executive order in 2012 directing a Chinese-owned company to divest itself of an acquisition of four wind farms in Oregon based on their proximity to a naval base.

Lawyers generally recommend that foreign buyers engage with CFIUS and its review process while a deal is pending, because, without a prior CFIUS clearance, the president could require a divestiture or impose other adverse conditions after closing. Congress recently bolstered the committee’s authority to counter a range of Chinese activities, including its ability to vet real-estate transactions near sensitive U.S. facilities.

A White House spokesman didn’t respond to requests for comment. A spokesman for the NYPD wasn’t immediately available for comment.

MHP Real Estate Services, which owns a minority stake in the Third Avenue tower and manages it, said the operation of the building has continued as usual.

“MHP has not been contacted or notified by any government official that anything has occurred or will affect MHP’s equity interest or the management of this asset,” the company said.

Write to Keiko Morris at Keiko.Morris@wsj.com, Julie Steinberg at julie.steinberg@wsj.com and Esther Fung at esther.fung@wsj.com

COURTESY: WSJ

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