South Korean investors are raising blind funds and forward funding real estate acquisitions with their eyes set on European assets.
“Some Korean investors have started blind funds and pre-committed funds while others are in the process of doing so,’ according to Miyeon Lee, from JLL’s Global Capital Markets team, focusing on the Korean investors’ outbound investment. “It strengthens their position as they compete in bidding wars with other international players in terms of shortening the approval process and enabling faster execution.”
Samsung SRA and Mirae Asset Global Investments have both been actively raising funds on behalf of their respective insurance companies while IGIS Asset Management, has been doing so on behalf of Public Officials Benefit Association (POBA), she adds.
In forward-funded deals, investors secure a product pipeline for attractive projects, take over some of the risks and thereby enable developers to take advantage of the low-interest financing on offer. In a blind pool, money is raised from investors, usually with no stated investment targets.
Examples of forward-funded properties acquired by Korean investors this year included the sale of new Allianz headquarters in Berlin, Germany, for US$330 million to Hana Investment Securities and Hanwha Investment Securities. The office complex, composed of three 5-story buildings, has a lettable space of 60,000 square meters. The project is scheduled for completion in 2019 and Allianz has signed a 15-year lease on the property.
Another similar transaction was Meritz Securities and Capstone Asset Management’s acquisition of German online apparel retailer Zalando’s new headquarters in Berlin for US$215 million. The property is under construction for completion in 2018.
Lee said that while most Korean insurance and pension funds’ allocation to real estate remain small compared to equities and fixed income, many have started to increase their investment in the asset class. These funds’ direct real estate investment preference continues to be Core and Core Plus office and logistic properties with quality tenants and long weighted average lease expiries (WALE), she says.
In recent months, some have started to look into possible investments in forward funding developments and core plus properties with shorter WALE and slightly off-central business district locations, according to Lee. She pointed out that South Korean investors could be “more aggressive and adventurous in debts and indirect Fund of funds (FoF) investment via international fund managers.”
In terms of location, local investors have been aggressively chasing opportunities in Europe due to “the interest rate, yield, and currency exchange movement in the United States,” she said.
At the same time, there is growing interest in the non-office sectors, including multifamily, healthcare, student housing, and data centers. This appetite for alternative assets indicates plans to diversify their portfolios as well as expand into new geographies, she said.
Recent European transactions include Korea Investment and Securities (KIS)’s acquisition of Astro Tower in Brussels, Belgium for US$170 million. Astro Tower is located in the city’s central business district. It provides 36,000 square meters of office accommodation on 33 floors. KIS acquired the asset via FG Asset Management.
Meanwhile, Hanwha and Kiwoom Securities, through Hana Asset Management, acquired the European Parliament Building in Brussels, Belgium for US$220 million. The 11-story Square de Meeus 8 is located in the heart of the European quarter, 600 meters from the European Parliament Assembly.
Real Capital Analytics reported that South Korean investors’ net acquisitions would likely have hit US$4.6 billion last year while a survey by ANREV last year also showed that 88 percent of South Korean investors planned to invest in real estate debt in the next 12 to 18 months with bond yields staying compressed.
“South Korean funds’ appetite for real estate investment is showing no sign of waning and we definitely see a change in attitude regarding ways of financing and types of assets,” says Lee.