Public Officials Benefit Association is among the few South Korean institutional investors that is optimistic about its real estate portfolio due to its limited exposure in the office sector.
Harry Song, head of overseas real estate at POBA, told members of the PERE Network at the PERE Network Seoul Forum last week that the pension “does not have many challenges” in its real estate portfolio compared to its peers. This is because the pension has adopted a defensive investment strategy where it has reduced its exposure to the office sector from 70 percent to 30 percent of its real estate portfolio over the past five years.
“We adopted a long-term view on our investments, and we don’t have many things coming to maturity as well,” said Song. He noted the heavy exposure to the office sector was the main problem faced by many South Korean institutional investors.
Indeed, Jun Park, team leader of the real asset investment department at Hyundai Marine and Fire Insurance, and Youngshin Park, head of real estate and infrastructure investment at National Federation of Fisheries Cooperatives, were both facing legacy issues from its overseas office investments.
Park from Hyundai Marine and Fire Insurance noted the book value of the investor’s overseas real estate investments has dropped as interest rates have increased and loan-to-value ratios have declined. “If you still believe in real estate, you cannot fire sell,” he said. Hyundai Marine and Fire Insurance was one of several South Korean institutional investors that attended the forum and were grappling with refinancing issues.
On the other hand, Song thought 2023 and 2024 are good years to invest. For 2023, POBA has been focusing on real estate investment trusts, commercial mortgage-backed securities, and real estate debt opportunities arising from refinancing needs. In 2024, the investor will lower its exposure to the public markets and increase its allocation to private equity real estate as price corrections kick in.
For upcoming investments, Song will not increase the number of its managers, but will also not decrease the ticket size of its investments. “We are very picky on new partners, and we prefer to give money to our existing partners,” Song said. He noted the level of communication and trust between the partners was critical, and it takes time to build that kind of quality relationship.
NFFC’s Park also agreed on the importance of communication between managers and investors, especially under the current situation where many investors’ real estate investments are underwater. While he thought getting a budget approved for new real estate investments could be tough in 2024 due to the problems in the investor’s existing portfolio, he would prefer to work with smaller managers that are willing to spend more time on providing investment updates and answering questions. “The top guys are tough to contact. So smaller managers should not be discouraged, you can still distinguish yourself from the others,” he said.