Korea’s NH Investment, ARA Team Up for $890M Seoul Office Buy

A fund managed by Singapore’s ARA Asset Management has agreed to purchase the iconic Seoul Square building from KR1 CR REIT, a locally-listed trust whose largest shareholder is a division of Singapore’s Keppel Capital.

The deal, which is said by brokers in the market to be in the neighbourhood of KRW 1 trillion ($890 million), would be the largest trade of a single building in Korean history.

The acquisition by the ARA fund, which was established specifically for this transaction and is understood to be capitalised by Korean investment bank NH Investment and Securities, was announced today by ARA.

Set to close by the end of March, the transaction will allow KR1 CR REIT, which is invested by Morgan Stanley as well as by Keppel Investment Management, the Korean unit of Alpha Investment Partners, to dispose of 100 percent of the equity in the stabilised asset in Seoul’s central business district.

And with the change in ownership, Seoul Square’s new bosses foresee an opportunity to profit from demand for prime office space in the South Korean capital.

Buying a Seoul Office Icon

“Seoul Square is one of the most iconic and high profile prime office buildings in Seoul with a rare large and efficient floor plate,” Anthony Kang, CEO of ARA Asset Management Korea said in a statement. “The Property is located within a core transportation hub area in Seoul with convenient access to local, regional and national destinations through numerous subway lines, railways and bus lines,” Kang added that Seoul’s core office market is a key area of focus of ARA.

In September, when Seoul Square was reported to be set to trade at a price of KRW 985 billion, a source at NH Investment was cited in the Korea Economic Daily as saying that the yield on the building was approximately six percent. That cap rate would have been 1.8 percent higher than the average for prime buildings in the city in the fourth quarter of last year, according to a recent report by Savills.

Rents in Seoul Square currently average approximately KRW 120,000 per pyeong per month (KRW 35,736 per square metre per month) — around 12 percent above the KRW 107,300 average for offices in Seoul’s CBD, according to brokerage reports.

The sale of Seoul Square comes less than one year after the building’s current managers locked in WeWork as a tenant on a 20 year lease. The coworking operator now occupies four floors, or approximately 20,000 square metres (215,278 square feet) of the building,

The LEED Platinum complex also houses Mercedes-Benz Korea, Siemens, Oracle, and SK Telecom affiliate SK Planet.

The building’s vacancy rate, which was close to 30 percent in 2016, was squeezed down to just three percent in September, after WeWork took its place in the property. Average vacancy rates for offices in Seoul’s CBD was 15.7 percent in the last quarter of 2018, according to property consultant Savills.

Former Daewoo Headquarters Back in Style

Originally completed in 1977, Seoul Square started life as the headquarters for now-defunct South Korean conglomerate Daewoo, and is located across the street from Seoul Station, near the Gangnam financial district. The building is distinguished by its 7,722 square metre LED display facade, which is often used to display popular art, according to the press release.

The building had been the subject of sale rumours for some time, before ARA announced the acquisition today.

“As a matter of fact, the disposition has been going on for two years,” a Seoul-based investment broker told Mingtiandi, adding that the asset drew significant interest from both domestic and overseas investors.

NH was described as having pursued the acquisition since last year, supported by a trend among Korean investment banks to increase their holdings of alternative investments, especially real estate.

Local media reports last September indicated that NH, acting then in conjunction with Keppel Capital, had been locked in as the preferred buyer for Seoul Square under a combined debt and equity offer.. However, that deal ultimately failed to be implemented.

Kumho Asiana Group had acquired the property in 2006, but flipped it a year later for KRW 960 billion to Morgan Stanley, which spent close to 100 billion renovating the building in 2009. In 2011, KR1 CR REIT purchased Seoul Square from Morgan Stanley for KRW 800 billion.

ARA Expands Korean Presences

According to information from ARA, the Singaporean asset manager now manages a number of REITs and private funds in Korea, with a total of KRW 1.3 trillion in assets under management — up by 108 percent from the S$720 million it managed in the country in 2016.

Among the company’s core assets in Korea are the CJ CheilJedang Center, the Alpharium Towers, and the Orange Center — formerly known as ING Center.

ARA entered the country in 2014, when it acquired Macquarie Real Estate Korea Limited, which at the time held two REITs valued at KRW 588.4 billion. In 2015 and 2016 the company launched a pair of residential-focused ARA-ShinYoung REITs to complement its vehicles devoted to office assets, and also operates a specialised trust for investing in logistics.