Keppel Capital Locks into $400M Talks for Trio of Seoul Office Buildings

Keppel Capital’s Korean unit has been named the preferred buyer for a trio of Seoul office buildings valued at a combined KRW 450 billion ($400 million), according to a report in The Korea Economic Daily.

The private equity unit of Singapore’s Keppel Group is now locked into negotiations with Samsung SRA Asset Management, the owner of the three properties in South Korea’s capital, after reportedly stepping forward as one of only two buyers willing to acquire all three assets as a package.

The report comes two months after Korea closed its biggest year for office investments ever, after recording over KRW 11 trillion in transactions of corporate desk space during 2018 — close to 22 percent more than the 2017 total —  according to property consultant Savills.

Buying in Triplicate

Another Keppel Capital unit, Alpha Investment Partners. reached a $1.1 billion closing on its Alpha Asia Macro Trends Fund III in January of this year. Now the firm’s Korean affiliate, Keppel Investment Management, may be helping to deploy some of that pooled cash into the set of Seoul properties.

The most valuable of the office assets is the 21-storey Yeouido Finance Tower on Seoul’s Yeouido island in Yeongdeungpo district, a financial hub that houses the Korea Exchange Center. SRA Samsung had acquired all three of the properties in 2009, according to market reports, with the 42,346 square metre Yeouido Finance Tower, which is now home to Samsung Life and Eugene Corp, costing the fund manager KRW 169.7 billion at the time.

In Seoul’s Gangnam financial district, Keppel is negotiating the purchase of the 18,606 square metre Nonhyeon Building, which SRA Samsung had acquired for KRW 73.8 billion. That 20-storey property is home to  Samsung Electronics and Hanwha Life Insurance subsidiary Hanwha Financial Asset, among others.

The third asset in the set is the Hannuri Building in Seoul’s Jongno district, a 13,007 square metre structure that houses local law firm Kim & Chang. Samsung SRA had purchased the 15-storey structure in 2009 for a reported KRW 52 billion.

Should the sale of the three assets go through as reported, Samsung SRA Asset Management would derive a capital gain of KRW 295.5 billion over what it paid to acquire the set of properties 10 years ago — achieving approximately a 52 percent markup, according to figures provided in the Korean news report.

Keppel Grows Korea Presence

Keppel Capital was chosen as the preferred bidder after it was among only two players to enter expressions of interest for the set of office assets, with local giant IGIS Asset Management having also formally registered for a potential bid, according to sources cited by The Korea Economic Daily. The other six potential bidders were only interested in a chance to acquire one or two buildings in the set.

At time that it closed the Alpha Asia Macro Trends Fund III in January, Alpha had included Seoul as one of the target markets for the funds acquisition strategy, along with Singapore, Shanghai, Beijing, Tokyo, Sydney, Melbourne and Brisbane .

Should this acquisition be implemented, it would be the first property investment of Keppel Investment Management in the country since it was established in April of 2018, according to The Korea Economic Daily. Local media reports last September indicated that Korean investment bank NH Investment & Securities, 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.

Yeouido Leads the Pack

The proposed acquisition comes amid a tepid office market in Seoul, although capitalization rates for prime offices stood at 4.7 percent in the fourth quarter of last year, according to Savills.

Average rents and vacancy rates in the city remained relatively stable as a slew of new supply was offset by a net absorption of 270,000 pyeong (893,000 square metres) — 180 percent higher than the five-year average.

Vacancy rates for prime offices across the city climbed 0.7 percent year on year to 12.4 percent at the end of the fourth quarter, while prime rents rose 1.7 percent, according to Savills.

Yeouido island accounted for close to 41 percent of net absorption, driven by companies relocating from the CBD, including pharmaceutical Novartis and insurance conglomerate Marsh and Mclennan.

Rents in Gangnam climbed 1.2 percent amid vacancy rates steady below eight percent. With no new supply expected in the area this year, Gangnam is the most stable of Seoul’s three main business areas.