November 24, 2024

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[THE INVESTOR] South Korea’s institutional investors along with asset mangers are pouring money into overseas real estate mezzanine debt eyeing higher and safer yields.

Mezzanine loan, which is repaid after senior debt in case of default for buildings, is emerging as a popular alternative investment option among Korean insurers and pension funds as it is relatively safe compared with equity investment while offering higher yields than senior loans.

The latest in a string of such moves is an investment worth 220 billion won (US$196.62 million) by five of Korean insurance companies in mezzanine debt for Vertex’s headquarters building in Boston, US. Deutsche Asset & Wealth Management, which underwrote the loan, expects that investment will generate up to 5 percent returns annually.

Korean investors’ appetite for property deals in the US are growing in particular on high investment property loan rates. 

10 Hudson Yards in Manhattan's West Side

Shinhan BNP Paribas Asset Management invested 400 billion won in mezzanine loans together with Hyundai Asset Management for 10 Hudson Yards skyscraper in Manhattan.

Meritz Asset Management raised funds worth 150 billion won for a 52-story Gas Company Tower in Los Angeles

A group of six Korean insurance companies including NongHyup Life Insurance committed an investment of 240 billion won on the Atlantic Building in Washington DC.

“Real estate mezzanine debt is an attractive option for investors as it offers lower tax burdens than stake acquisition deals. Especially in the US, you can expect over 4 percent of returns,” an official at a local asset management firm said.

Industry experts said the competition among investors to secure such deals will heat up.

Korean asset managers’ total investments in overseas real estate this year increased to 16.2 trillion won as of June 29, up 71.8 percent from the same period in 2015.

By Park Han-na (hnpark@heraldcorp.com)