Korea’s Lotte REIT Buys Gangnam Commercial Tower From Mastern Fund for $247M

A real estate investment trust sponsored by Korea’s fifth largest conglomerate is acquiring its first non-retail asset with Lotte REIT announcing on Monday that it is buying a hotel and office tower in Seoul’s Gangnam district from a vehicle controlled by Korea’s Mastern Investment Management.

The KRX-listed trust has agreed to pay KRW 330 billion ($247 million) to purchase L7 Hotels Gangnam Tower from Mastern General Private Equity Real Estate Investment Trust No 29, a fund majority owned by the hospitality arm of Lotte Group, which operates the 333-key L7 Hotel Gangnam within the building.

The acquisition marks the first acquisitions of hotel and office properties by Lotte REIT, as the trust seeks to diversify its portfolio beyond the retail sector.

“We will acquire not only retail properties, but also logistics centres, offices, and data centres that have immense potential as future growth drivers, and a wide range of other properties, while concentrating our asset portfolio in the metropolitan area to diversify risk and enhance company value and shareholder value,” Lotte REIT said in its latest annual report.

Investing Beyond Retail

Situated steps from the Seolleung subway station at 415 Teheran-ro, the 30-storey building spans 33,584 square metres (361,495 square feet) of floor area, with the L7 Hotel Gangnam occupying levels 9 through 27 of the tower, while the first eight floors and three basement levels are for office use.

Lotte REIT is paying around KRW 9.8 million per square metre for the asset, according to Mingtiandi calculations. The listed trust is financing the acquisition with short-term bonds and bank loans, including up to KRW 200 billion of short-term bonds with a three month maturity, a 24-month secured loan of up to KRW 180 billion from Standard Chartered Bank Korea, and a 12-month facility of up to KRW 10 billion from Shinhan Bank.

The transaction is expected to complete in late September, pending approval from Korea’s Ministry of Land, Infrastructure and Transport.

Established and listed in 2019, Lotte REIT had KRW 2.3 trillion ($1.7 billion) in assets as of 31 December. The trust’s portfolio comprises 15 Lotte-branded properties across Korea, including six department stores, five hypermarkets, three outlet malls, and a logistics centre, with nine of the assets located in the Seoul metropolitan area.

Lotte REIT is sponsored by Lotte Shopping and Lotte Global Logistics, the retail and logistics arms of Lotte Group respectively, with Lotte Shopping holding a 50 percent stake in the trust. The REIT maintains right of first offer agreements for property acquisitions from both sponsors.

“In addition to ROFO (right of first offer) assets from Lotte Group subsidiaries, we will actively review the acquisition of external assets that contribute to increasing Lotte REIT shareholder value,” Lotte REIT CEO Kim So Yon said in the trust’s annual report.

Korea Deal Boom

Lotte REIT’s acquisition comes as Korea logged $10.9 billion of institutional property transactions in the first half of the year, marking a return to pre-pandemic levels and a 20 percent increase from the corresponding period last year, according to MSCI Real Assets. The office, hotel, and industrial sectors all saw investment volumes climb compared to the first half of 2023.

In June, the Korean unit of ESR-owned ARA Asset Management bought the Conrad hotel in Seoul from Toronto-based Brookfield Asset Management for $300 million as Korean visitor levels closed in on pre-pandemic levels. The North Asian nation received 7.7 million international visitors in the first half of 2024, representing a 73.8 percent year-on-year increase and accounting for 91 percent of arrivals in the corresponding period of 2019, according to the Korea Tourism Organization.

Those visitor numbers are driving hotel tariffs to new heights with daily room rates in Korea averaging KRW 160,684 last year, which was up 32 percent from 2019, according to a March report from Colliers citing data from the Korea Hotel Business Association.

South Korea’s office sector is also robust with grade-A office vacancy in Seoul averaging 1.8 percent in the second quarter. That tight supply helped drive a 15.4 percent increase in effective prime rents in the period, compared to a year earlier, according to a report from CBRE.

Korea’s healthy commercial sector has been driving investment transactions with LaSalle Investment Management last month acquiring a Gangnam office site for $115 million, with plans to develop a $245 million office block on the site.

In May, Korea’s National Pension Service selected Singapore’s CapitaLand Investment as the preferred bidder for the Golden Tower office building in Gangnam with deal coming after local fund manager Koramco in March acquired Blackstone’s Arc Place office tower in Seoul for $588 million in the country’s biggest single-property transaction of the first quarter.