Korean institutional investors have increased their outbound real estate investment aggressively in 2013, buying a $5 billion of commercial property outside of Korea in just the first five months of the year – more than the past two full years combined, according to a recent study by Jones Lang LaSalle (JLL).
The $5 billion deployed is also a 10x increase year-on-year, from only $500 million during the same period in 2012. With several further investments in due diligence, the JLL study predicted outbound investment could increase to $10 billion by the end of the year.
Globally, Korea’s activity this year has made the country the second most active cross-border real estate investor, behind only global real estate funds.
Korean institutional investors have been primarily interested in direct real estate investment – they want to own the hard assets abroad, either outright or in a joint venture, said Alistair Meadows, head of JLL’s International Capital Group in Asia Pacific.
He said, some Korean investors are also looking at international real estate funds. Meadows said that Korean institutions should be regarded as both a competitor and a partner for real estate funds. While on some assets they might compete with funds as bidders, the vast majority of Korean investors are most interested in the joint venture model that allows them to take advantage of a local partner’s market expertise, Meadows told PERE.
“The pattern I have seen in mature markets… is onshore partners working with offshore capital,” Meadows said. A good example is the recent $218 million purchase of 225 West Wacker Drive in Chicago, with Korean manager Mirae Asset Management teaming up with Hines in order to take advantage of the developer and fund manager’s local knowledge.
Some Korean institutions, such as the $360 billion National Pension Service, have long-term partnerships in place with private equity firms to allow the managers to allocate capital on their behalf. Without declining details, Meadows said a few other institutions looking to set up similar partnerships as of now.
Korean institutions are already over-allocated to domestic real estate and Meadows said the outbound investment push is sustainable in spite of the dramatic increase in capital to have left its shores already. “This is not just a short-term spike,” he insisted. Their search for yield, however, is pushing Korean institutions towards developed markets, but tier II cities, he said.