Korean funds, NH insurers to invest $215 mn in mezzanine debt of Google NY building

  • 2016-12-13

Two South Korean savings funds are set to invest 100 billion won ($85 million) in junior mezzanine debt secured by a Manhattan office building leased by Google Inc., after two domestic insurance firms committed about 150 billion won ($130 million) to senior mezzanine debt for the same property.

The combined mezzanine investment of 250 billion won ($215 million) is part of approximately 650 billion won ($556 million) in loans originated by Wells Fargo and Deutsche Bank for the 11-story office building at 85 10th Avenue in Chelsea, New York, according to investment banking sources on Dec. 12. The two banks sold down part of the loans to the Korean institutional investors.

In the junior mezzanine debt which carries 10-year maturity, the unidentified two Korean savings funds will put a combined 100 billion won through a fund set up by Meritz Asset Management’s real estate investment arm. Its annual return is projected at the upper end of the 6% range. The savings funds won approval of their investment review committees for the investment on Dec. 9, and are set to close the deal this week.

Earlier, NH Property & Casualty Insurance Co. Ltd. and NH Life Insurance Co. Ltd, units of South Korea’s agricultural cooperative, had invested around 150 billion won ($130 million) in senior mezzanine debt secured by the office building, arranged by IGIS Asset Management Co. Ltd. The senior mezzanine financing is expected to deliver a mid-4% annual return, lower than that of the junior tranche.

“The building has multiple tenants, which makes it an attractive asset,” one of the sources told the Korea Economic Daily. “As interest rates on mezzanine and senior loans are on the rise recently, its rental incomes would rise along with them.”

The building, valued at approximately $900 billion, is owned by Related Companies, a top U.S. real estate firm and Vornado Realty Trust, a leading real estate investment trust. Google rents 40% of the office space.

The 85 10th Avenue, a former Nabisco cookie factory, is near the Chelsea market and in the Meatpacking District in New York. It has no vacancies currently.

Amid growing expectations of a U.S. rate hike as early as this month, South Korean investors have been shifting towards mezzanine and senior loans secured by U.S. office buildings, away from equity investment in real estate.

By Daehun Kim

daepun@hankyung.com

<Edited by Yeonhee Kim>