LaSalle Investment Management has completed the acquisition of an office site in Seoul’s Gangnam business district after having submitted the winning bid in a non-performing loan collateral auction for the project two months ago, as office assets in the Korean capital continue to be a top draw for investors globally.
The property investment arm of Jones Lang LaSalle acquired the project on behalf of its LaSalle Asia Opportunity Fund VI and an unnamed local investor with a bid price of $115 million, representing a 33 percent discount to the project’s appraised value of KRW 230.8 billion, with market sources having previously identified the local investor as KT Estate, the property development arm of Korea Telecom.
“Opportunistic investing in a higher cost of capital environment has forced us to be patient and also creative in how we source attractive entry points to our acquisitions,” Steve Hyung Kim, LaSalle Investment Management’s senior managing director and head of Korea said in a release on Tuesday. “On behalf of our investors, we recently closed on recapitalisations, private off-market sales, and collateral acquisitions from NPL auctions like this recent transaction, which capitalises on both Gangnam’s strong office fundamentals, as well as a lowered project cost basis due to a legacy borrower and junior lender getting foreclosed.”
LaSalle estimates the project will cost $245 million upon completion, with the site’s existing zoning allowing for the development of a new office building with a planned gross floor area of over 29,000 square meters (312,153 square feet).
Ramping Up in Gangnam
LaSalle is paying the equivalent of $56,345 per square metre for the 2,041 square metre site at 832-21 Yeoksam-dong, which comprises five adjacent shovel-ready plots one block from Gangnam Boulevard, a main arterial road in the trendy business district, and is within walking distance from the Gangnam metro station.
“Larger sized office sites in Gangnam have retained scarcity value and this latest project from LaSalle Korea will introduce modern designs and sustainability initiatives to which we are very excited about,” said Kim.
The asset was auctioned off by creditors of Aster Development after the troubled local developer failed to pay interest on a KRW 175 billion bridge loan for the project.
Aster, which recently changed its name to Shinyu C&D, reportedly spent KRW 120 billion, or KRW 58.8 million per square metre, to acquire the site in 2021, but had yet to start development as building costs have skyrocketed. Some 21 construction companies went bankrupt in Korea last year, according to government statistics, with authorities having moved to restrict lending to the property sector.
The site was first put on the market in February at a reserve price of KRW 230.8 billion but failed to find a buyer, with three subsequent tenders also falling short. LaSalle and KT Estate bested four other offers in the fifth round of bidding to win the project at their one-third discount.
Last year, LaSalle made a high-yield collateralised loan to bridge finance a 10-storey office project in Seoul’s Seongsu district on behalf of the LaSalle Asia Opportunity VI vehicle, with the loan having been repaid on its maturity date in December. That deal marked the fund’s first opportunistic debt investment in Asia Pacific.
The sixth iteration of LaSalle’s closed-ended opportunistic fund series raised $2.2 billion in equity and aims to take advantage of mispriced assets and explore value-add opportunities across key markets in Asia Pacific, including Korea.
Flurry of Deals
LaSalle picked up the Gangnam site amid low vacancy and rising rents in Seoul’s office sector, with both global and domestic investors rushing to snatch up office properties in the Korean capital.
Office assets in Gangnam saw the lowest vacancy and highest effective rents among Seoul’s major business districts in the second quarter, with rents in the trendy district having climbed 15.5 percent compared to the same period last year, according to a report this month from CBRE. Average vacancy of grade-A offices in Gangnam stood at 1.5 percent in the second quarter while effective prime rents grew 4.1 percent from the prior quarter, according to the consultancy.
In May, Mingtiandi reported that Singapore’s CapitaLand Investment had been selected by Korean pension giant NPS as the preferred bidder for the Golden Tower office building in Gangnam.
That same month, a KKR-led consortium, which includes Seoul-based fund manager IGIS Asset Management and developer SK D&D, began marketing the 23-storey Namsan Square tower with market sources indicating the owners could potentially achieve a nearly 60 percent mark-up from their 2020 purchase price.
In March, Blackstone’s $588 million sale of Arc Place on Seoul’s Teheran-ro to local fund manager Koramco ranked as Asia Pacific’s largest transaction of a single property in the first quarter, according to MSCI Real Assets.
Other recent Seoul office deals include Mastern Investment Management’s forward purchase of an under-development building in the Seongsu neighbourhood of Seongdong district for $220 million; Hanwha Asset Management’s sale of the T412 office tower in Gangnam to local bedding manufacturer Allerman for $242 million; and M&G Real Estate’s sale of the Icon Yeoksam building in Gangnam to Capstone AMC for $151.4 million.
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