ARA REIT Sells Greater Seoul Office Building to Korea’s Mastern for $853M

A trust managed by Singapore’s ARA Asset Management has sold the Alpharium Tower office building near Seoul for KRW 1.02 trillion ($853 million), nearly doubling its investment in the 2015-vintage asset.

Located in the Pangyo tech hub less than an hour south of the capital by train, Alpharium reportedly drew the interest of institutional investors including Singapore sovereign fund GIC and Britain’s M&G before Seoul-based Mastern Asset Management scooped up the property in one of Asia’s hottest office markets.

“ARA Korea’s avant-garde view on the Pangyo office market translated into more than doubling of the property value in less than five years,” said ARA Korea chief executive Anthony Kang. “Looking ahead in 2022, we see buoyant demand for Korean real estate, underpinned by continued strong interest from domestic investors.”

The sale of the fully stabilised asset, which comprises two 13-storey towers with a gross floor area of 112,254 square metres (1,208,292 square feet), represents one of the largest office transactions in South Korea since the onset of the COVID-19 pandemic, said property consultancy JLL, which together with rival CBRE advised ARA on the disposal and managed the sale process.

Tech Boom Boosts Pangyo

New owner Mastern paid KRW 9,086,536 ($7,574) per square metre of GFA for Alpharium, which had a 93 percent occupancy rate and a portfolio value of KRW 791.8 billion as of June 2021. The office portion is mostly leased to video game giant NCSoft until 2031, with other tenants including Samsung C&T Co and Samsung SDS. A retail section in the lower levels of the building houses Starbucks, Kookmin Bank and other stores.

“Seoul’s office market stands as a highly attractive asset class and investors will continue to diversify into evolving business districts like Pangyo due to the favourable fundamentals of this area,” JLL country head Chang Chae Hun said in a release. “Trophy assets like Alpharium Tower rarely come to the market and strong investor interest is reflective of both the competition for high-quality properties and the long-term future of the Seoul office market.”

ARA, now a subsidiary of Hong Kong-listed fund manager ESR Group, had purchased Alpharium from the building’s developer, Alphadom City PFV, six years ago on behalf of a group of investors including the Korean Teachers’ Credit Union, Pine Tree Investment & Management and NongHyup Life Insurance, according to local media accounts. The unlisted REIT paid KRW 527.9 billion (now $440 million) for the asset, the Korea Economic Daily reported.

Since that time Pangyo has solidified its status as South Korea’s Silicon Valley, attracting many high-tech industries and driving up rents and sale prices, JLL said. The planned city in Gyeonggi province, which surrounds the capital, is also home to offices for software provider Kakao, game developer Nexon and life sciences firm CHA Group.

Known for its range of Singapore-based private and public funds, ARA has also been a significant player in the Seoul office market, including teaming up with South Korea’s NH Investment & Securities in 2020 to purchase Tower II of the city’s Parc1 complex from developer Y22 Project Financing Investment for KRW 1 trillion ($897 million).

In 2019, another NH-backed ARA fund had purchased the Seoul Square office tower across the street from Seoul Station in Jung District for $890 million.

Maintaining Momentum

Office deals in Seoul hit a record high of KRW 17.1 trillion ($14.2 billion) in 2021, topping the year-earlier total of KRW 16.6 trillion, according to a report published last month by JLL.

The consultancy expects new office stock and average rents in Pangyo to rise further because supply in the area is limited in comparison with more established areas like the Gangnam business district.

“Korea office assets are firmly on the radar of domestic regional and global investors, driven by high rental demand and diversifying tenant mixes,” said Stuart Crow, CEO of capital markets for JLL in Asia Pacific. “In 2022, we expect to see competition for Korea assets intensify, particularly as global investors look to expand investment allocation in this market.”

Real Capital Analytics reported last November that South Korea led all Asia Pacific markets with commercial property deal volume of $10.6 billion in the third quarter of 2021.

Korean institutional investors accounted for the bulk of the increase during the three months to last September, including pension fund manager NPS’s $2.26 billion purchase of a two-asset office-retail portfolio from a joint venture of IGIS Asset Management and builder Taeyoung E&C.

Other Korean megadeals last year included KOREIT buying the H Square office complex in the Pangyo Techno Valley from asset manager Koramco for $628.2 million, the sale of Le Meridien Seoul Hotel to a joint venture of Hyundai E&C and Wealth Advisors by Jeonwon Industrial Co for $626.3 million, and Koramco’s purchase of the Galleria Department Store Gwanggyo in Suwon from Hanwha Corporation for $582.3 million.