Actis makes 3.5x Korean office exit amid covid-19 – Exclusive

The London-based private equity firm Actis has generated a 3.5x multiple and 34 percent internal rate of return from an office transaction in Seoul, despite marketing the asset during the covid-19 pandemic, PERE can reveal.

The $447 million transaction is the third exit from Actis’s Asia Real Estate Fund I. The firm sold the Seoul office building complex Young City to an investment affiliate of Korean real estate developer SK D&D. The price reflects a 4.4 percent cap rate – the highest ever for a property trade involving a decentralized office asset in the capital city, according to a source close to the situation.

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Actis Asia Real Estate Fund I’s capital has been fully invested into eight development projects, according to the source. The first exit of the fund was a build-to-core logistics facility in Seoul and the second was the final phase of a joint venture mixed-use development in China.

The private equity firm started marketing the office complex at the end of last year, with the majority of the sales process carried out during the covid-19 pandemic, according to the source. However, the valuation and investor interest in the asset did not change as a result of the outbreak, the source told PERE.

PERE can reveal that Young City attracted 50 interested parties, 17 of which participated in the bidding. The source told PERE that the group of bidders comprised both direct investors and funds from Korea and overseas.

SK D&D has acquired the complex with capital from its own balance sheet, according to the source. The investor will reportedly sell the asset into a real estate investment trust Young City REIT backed by the SK conglomerate‘s investment arm and brokerage NH Investment & Securities.

Brian Chinappi, head of Asia real estate at Actis, declined to comment on investment return but told PERE that the firm has always preferred long-term local investors that have a “long-sighted view about owning a quality asset like this”. The sale was also not affected by delays in the due diligence process as the domestic investor was not affected by the travel ban.

Apart from a strong buyer, the quality of the asset was another reason why the transaction was successful despite being carried out during the pandemic. “The asset itself is very resilient,” Chinappi said. “There is no impact on the asset, rents are being paid, tenants are happy. If anything, an asset like this is even more desirable by tenants in a downturn than a stronger market. It is defensive because it provides high quality, efficient office space at a very affordable price.”

The complex is located in the Mullae neighborhood in Yeongdeungpo-gu district, outside of Seoul’s city center.

The firm started developing Young City in 2016 after it acquired the brownfield site at a 30 percent discount from a distressed seller, the source told PERE. By the end of last year, the complex was 98 percent occupied with tenants such as Citibank, SK Telecom and Samsung Group.