A consortium comprising Hong Kong’s Phoenix Property Investors, UK-based fund manager Actis and South Korean developer SK D&D has sold a two-tower office complex in southwestern Seoul for KRW 545.8 billion ($449.2 million).
The tri-national team offloaded the Young City Office Complex to a newly formed real estate investment trust sponsored by SK D&D, according to a stock exchange disclosure by the developer cited in local Korean media.
Phoenix confirmed to Mingtiandi that the group had completed the sale to Young City REIT yesterday, with the Hong Kong private equity shop exiting the investment on behalf of its fifth opportunity fund. The consortium sold off the 13-storey towers some six years after having purchased the project site for $58.9 million and three years after the building was completed in 2017.
Selling As COVID-19 Disrupts Markets
Based on the property’s 1.1 million square feet (102,193 square metres) of gross floor area, the consortium sold the Young City Office Complex for KRW 496 per square foot – with the asset trading at a cap rate of 4.4 percent, according to Phoenix.
Mingtiandi understands that the tender process for the sale of the project’s two 13-storey towers started four months ago, with 30 participants taking site tours in January while 19 bids were then submitted the following month.
The price proposed by SK D&D in mid-February was not affected by the disruption caused to global markets by the COVID-19 pandemic, according to a person familiar with the matter, who indicated that the successful tender was powered by Seoul’s strong office market and low interest rates in South Korea.
The disposal comes as the North Asian nation emerged as the best performing market in Asia Pacific in the first three months of 2020, bucking a general trend of decreasing deal volumes that has gripped the region amid the coronavirus.
According to real estate data provider Real Capital Analytics, South Korea notched $4.5 billion in commercial real estate investments during the first quarter of this year – a 12 percent increase over the same period in 2019.
Investing in Call Centres
The consortium developed the complex in the Yeoungdongpo, a commercial area on the fringe of Seoul’s Yeouido business district, to capture the call centre and back-office operations of major companies relocating back office functions into Seoul’s decentralised office market.
Located six-minutes’ walking distance from the Yeongdeungpo-gu metro station, the property is now 97 percent leased with anchor tenants said to include Korean mobile network provider SK Telecom, Citi Bank and Samsung Fire & Marine Insurance.
Phoenix and its partners reportedly invested a total of KRW 270 billion in the project, including the land acquisition price, according to a local media account, with Actis having gained its stake when it acquired Standard Chartered Bank Principal Finance Real Estate in 2018 after the Hong Kong-based fund manager had been part of the original investment consortium.
Mingtiandi understands that Phoenix’s exit from the investment, which was its first major play in South Korea, earned the firm’s $750 million Fund V an internal rate of return of 28.9 percent.
Phoenix Selling North and South
The Seoul disposal continues a series of exits for the Phoenix, which sold off a pair of properties in Singapore and Tokyo earlier this year.
In February, the firm disposed of a row of shophouses in Singapore’s Chinatown to Aberdeen Standard Investments for S$54 million ($38 million), achieving a mark-up of more than 20 percent over its entry price in 2014.
A month before that deal, the Hong Kong private equity shop, which reached a final close of $1.15 billion on its Phoenix Asia Real Estate Investment VI fund in November last year, flipped an apartment building in Tokyo for JPY 20 billion ($190 million).
For Actis, its exit from the Young City Office Complex investment comes four months after it entered a $200 million joint venture with Warburg Pincus-backed logistics developer New Ease to develop three logistics projects in mainland China.
During 2019 the London-based fund manager also invested $180 million to take a majority stake in mainland China data centre developer Chayora.