A fund managed by Seoul-based KB Asset Management has purchased a landmark development in Dallas, Texas, reportedly teaming up with its compatriots at NH Investment & Securities to lasso the commercial complex for $370 million.
The asset management arm of banking and insurance giant KB Financial Group has joined forces with the investment bank to acquire the office and retail components of The Union Dallas from Phoenix-based property developer Red Development, according to a local Korean media account.
JLL, which represented the seller, said that it worked with KB Asset Management to secure a five-year, fixed-rate loan from Goldman Sachs to finance the transaction, with the credit facility reported by The Dallas Morning News to be worth $222 million.
The acquisition comes as South Korean investors spent a combined $17 billion buying real estate outside the Asia Pacific region during 2019 — almost doubling their previous high of $9.6 billion set two years earlier, according to Real Capital Analytics.
Securing a $222M Loan From Goldman Sachs
Located at 2300 North Field Street in Dallas’ gentrified Uptown area, the 30-storey tower has 420,000 square feet (39,019 square metres) of office space spread across 21 stories. In addition to the desk accommodation facilities, the project’s retail podium provides 87,000 square feet of shopping space and the facility also has nine stories of car parking.
Following the transaction, Red Development, which completed the development in 2018, will retain a minority interest in the property while also managing and leasing the facility. A residential tower in the project, which includes 309 apartments, was not included in the acquisition.
Paying a Record Unit Price
Based on the combined 507,000 square feet of retail and office space transacted, the Seoul-based asset manager and its financial partner have paid $730 per square foot to secure its slice of upscale north Texas real estate, which according to The Dallas Morning News is a record for the city.
The office tower, which boasts an outdoor green space and a conference centre, is 94 percent leased to tenants including Salesforce, law firm Akin Gump and accountancy firm Weaver.
The fully leased retail podium is anchored by grocer Tom Thumb, as well as F&B tenants The Henry, North Italia and TacoLingo.
Dallas Draws in Big Tenants
The South Korean partnership is targeting Dallas as the Texan commercial hub has grown increasingly popular with major corporates establishing regional hubs, according to JLL.
Just last year Nokia consolidated its North American headquarters through a move to a 350,00 square foot space in Dallas business park Cypress Waters, while Uber has chosen the north Texas city for its largest centre outside of San Francisco, taking over 600,000 square feet at The Epic development.
Investor interest is supported by improving vacancy rates, which dropped to 20.1 percent in the final quarter of 2019 from 21.3 percent in the same period one year earlier, with corresponding upward momentum in asking rents. Average citywide annual rental rates climbed from $28.18 in the fourth quarter of 2018 to $28.73 per square foot in the three months ending 31 December.
Forex Hedging Driving Investment
The Dallas deal is the latest in a wave of cross-border acquisitions by South Korean investors.
JLL said in a report released three weeks ago that, while many South Korean investors focused on Europe last year, enticed by the US Federal Reserve’s recent moves to lower interest rates, some of the country’s biggest players also began North American markets late in 2019.
Just two months ago, Hana Financial Investment and Hotel Lotte reportedly set up a 70:30 REIT to acquire the hotel portion of a 44-storey tower in Seattle for $175 million. That west coast deal was preceded in September of last year by Mirae Asset Financial Group’s move to buy a portfolio of US hotels from Anbang Insurance for $5.8 billion.
“The negative carry after forex hedging on the US dollar has come down, and so there is a growing interest back to the US,” said Miyeon Lee, a senior director with JLL’s international capital team in New York. “The trend started late in 2019 with some investors also showing concerns over too much concentration in Europe where parts of the region had seen record-high prices.”
Letting Asset Managers Do the Work
The acquisition is also the most recent in a series of acquisitions in which NH Investment & Securities has teamed up with asset managers to buy landmark buildings.
Less than three weeks ago, NH Investment & Securities and Shinhan Investment Corp joined forces with Helsinki-based pension provider Varma Mutual Pension Insurance Company to purchase Gebhardinaukio 1, a landmark office project in the Finnish capital, for €480 million ($530 million).
In that Finnish deal, Seoul-based AIP Asset Management collaborated with Helsinki-headquartered Avant Asset Management to act as co-investment managers on the deal.
In a similar deal a year ago, an ARA-managed fund purchased the iconic Seoul Square building for a reported KRW 1 trillion ($820 million) with NH Investment & Securities said to have capitalised the investment vehicle.