Korean investors have long been investing in real estate markets outside their home turf, but a new trend is emerging in their overseas strategy. An increasing number of the country’s pension plans and insurance companies are now flocking towards real estate debt transactions.
At a recent conference by the industry trade body Asian association for Investors in Non-listed Real Estate Vehicles, 88 percent of Korean investors polled said they planned to invest in real estate debt over the next 12-18 months. As many as 60 percent of them expressed an interest in pursuing mezzanine investments. In many cases, plans have already been put to work. Last month, the Public Officials Benefit Association, a savings fund for government employees in South Korea, reportedly gave a mandate to five overseas private debt managers to invest a total of $120 million. This was preceded by the Korea Teachers Credit Union forming a $1 billion joint venture partnership with TH Real Estate in January to invest in commercial real estate loans in the US. The JV would seek investments in modest-leverage mezzanine and subordinate debt investments, as well as lower-rated single-asset commercial mortgage-backed securities.
Steven Craig, managing director for JLL Korea, said the increased overseas debt investing had more to do with Korean investors’ past experiences of outbound investing than any specific macro drivers.
“Korean outbound investors have lost a number of bid situations trying to secure equity deals, thus failing to place as much capital as desired,” he explained. “Debt deals are less likely to come to a bid situation, so Korean investors have found it easier to access those. There are some who struggle with due diligence processes and deal speed in some markets, making them lose deals. They’ve found that due diligence on debt deals can be swifter.”
Much of the Korean capital currently appears to be going into the developed debt markets in the US and Europe, analyses of recent deals show. However, some of the debt investment activity has also remained in-country. POBA was the lead investor in a 200 billion won ($180 million; €163 million), South Korea-focused real estate debt fund sponsored by alternative investment firm Pacific Alliance Group and South Korean brokerage company Meritz Securities, committing 70 billion won in October, PERE sister publication Private Debt Investor previously reported. Meanwhile, KTCU was reportedly in talks to provide mezzanine financing to Brookfield Asset Management for its landmark acquisition of IFC, a prime commercial complex in KTCU’s home market of Seoul, at the end of last year.