This week, more than 230 members of the PERE Network gathered in Seoul’s Fairmont Ambassador Hotel for the annual PERE Network Seoul Forum 2023, to hear how South Korean managers and investors are dialing back on real estate investments, managing existing portfolios and addressing refinancing issues.
1. Investors have shrinking appetite for real estate equity
One prominent theme from the conference was South Korean investors’ diminishing appetite for real estate equity investments. Jooil Kim, director and head of global investment, investment group at IGIS Asset Management, said investors’ exposure to real estate is higher compared with that of other alternative asset classes. Going forward, they will focus on rebalancing their alternative portfolios by prioritizing investments in infrastructure and private equity. He also noted confidence in real estate has dropped after investments were negatively impacted by the pandemic and interest rate hikes. Indeed, Seunghwan Hwang, global real estate team leader at Hanwha Asset Management, said refinancing is now the biggest concern for South Korean investors as they face loan maturities for many of their real estate investments. Currently, his team is spending considerable time managing its existing portfolio.
2. But real estate debt has come into focus
Song-ah Lee, director, alternative investment division at Kyobo AXA Investment Managers, believed real estate debt investments will be an upcoming focus for Korean investors. “We can have good momentum for various debt strategies such as whole loans, transition loans and mezzanine loans when traditional lenders like the banks are pulling back,” she explained. She preferred to invest in blind pool funds rather than direct lending to projects for risk diversification. Harry Song, head of overseas real estate at The Public Officials Benefit Association, also pointed out real estate debt has been one of the investor’s key strategies in 2023 besides investing in the public market. He thought the refinancing gap in the US and Europe has created many opportunities for private credit investments.
3. Budgets are tightening during a window of opportunity
With real estate pricing continuing to correct in the US and Europe, investors expect the end of 2023 and 2024 to be a good time to invest in property. Youngshin Park, head of real estate and infrastructure investment at National Federation of Fisheries Cooperatives, said the coming year would be a “good vintage year” for real estate investments. However, he thought it would be difficult to get the budget approved for any new overseas property investments as the institution has realized significant losses from directly investing in real estate projects in the past. “Credit is not available, and valuations are dropping in the US. If we can purchase now, there are some good opportunities,” said Kim. However, he advised investors to think carefully before rushing into new investments.
4. Investors to speed up investment decision making
With a small internal team, investors usually rely on gatekeepers to conduct due diligence and do administrative work on their investments. As a result, any attractive investment opportunities could be easily lost to a more sophisticated investor that could finalize its commitment in a shorter period of time. Because of this, Korean investors are proactively seeking to optimize efficiency. This includes looking at separately managed accounts to pursue opportunities more quickly, according to Eugene So, head of the global alternative investment team at financial services firm IBK Securities. Meanwhile, panelists also encouraged managers to provide more detailed business plans when they are pitching to Korean investors to help them make decisions with greater speed.