When the global financial crisis was in full effect, South Korea’s largest non-life insurance company Samsung Fire & Marine Insurance (SFMI) decided it was time to expand its real estate portfolio beyond domestic investments in anticipation of acquiring prime properties at a discount.
Today, SFMI has still to make its first international outlay. But despite valuations rebounding in many of the prime markets it is targeting, Jin Seo, who leads the insurer’s international investing effort, remains confident that the first investment is just around the corner. “Even this year, we feel there are some opportunities left in the core markets,” he said.
SFMI almost broke the ice in January. The insurer and three other Korean investors in a club deal alongside ING Real Estate Investment Management had a bid accepted by Germany’s CommerzReal for 10 Aldermanbury, a 312,000-square-foot office building in the City of London. Unfortunately, two of the Korean investors pulled out and the office ultimately was sold to funds run by JPMorgan Asset Management for £260 million (€296 million; $423 million).
While that deal fell apart, Seo, who attended this year’s MIPIM conference in March in search of deals, told PERE that SFMI and its compatriot investors have been shortlisted on other transactions in Europe. By the end of the year, the insurer expects to have completed two or three investments in global core markets valued at between $200 million and $400 million each. “We are looking for yields of between 6 percent and 6.5 percent from properties with long-term leases,” he said, pointing to SFMI’s overall real estate return target of between 6.5 percent and 6.7 percent, which is slightly higher than its group target of approximately 5.6 percent.
SFMI currently has a real estate portfolio valued at $1.3 billion, comprised predominantly of Seoul office properties. “The yield rate for Seoul offices is not high,” Seo said, noting that yields for prime domestic properties have compressed. “If we want to invest, we must look overseas.”
Seo noted that other Korean investors also are keen to expand their real estate exposures beyond the domestic market. Typically, such investments would be sourced by SFMI or another Korean organisation before being introduced to other compatriot groups to form investment clubs, he explained. Indeed, SFMI previously has negotiated investments alongside fellow Korean investors such as the Korean Teacher’s Pension Plan, among others.
Although opportunity fund investing currently is not on the agenda, Seo said commitments to third-party vehicles like that could follow once SFMI’s initial direct investment strategy has been achieved. Aside from Korea’s giant pension fund, the $293 billion National Pension Service of Korea, which recently reverted back to fund commitments, most Korean investors want club deals first, he noted.