A $270 million real estate fund of Samsung SRA Asset Management Co. Ltd. has invested $100 million in mezzanine debts backed by a prime office building in New York, which is expected to deliver an annual return of 5.25% for the 10-year investment period.
The mezzanine debts are part of the $450 million loans which SL Green Realty Corp., a real estate investment trust listed in New York, recently secured for 485 Lexington Avenue, according to investment banking sources on March 6.
Citibank leases 26% of the building, located near Grand Central Terminal in Midtown Manhattan.
Samsung SRA, wholly-owned by Samsung Life Insurance Co. Ltd., had launched the blind-pool fund last year to invest in mezzanine and subordinated debts secured by commercial buildings in major US cities.
Seven insurance firms and a credit union participated in the fund: Samsung Life Insurance, Samsung Fire & Marine Insurance, ING Life Insurance, KDB Life Insurance, KB Insurance, NongHyup Life Insurance, Lotte Non-Life Insurance and the National Credit Union Federation of Korea.
The 310 billion won ($270) fund set it apart from other domestic real estate funds which were raised to finance specific deals.
Industry observers expected that the blind-pool fund would take advantage of faster decision making and a larger pool of money to acquire decent assets overseas. Previously, Korean insurance firms had participated in project-based funding, which made it difficult to secure good deals because of slow decision making and a limited amount of investment.
A real estate industry source said that the Samsung fund has already deployed 240 billion won, or 80% of its capital.
“The remaining 70 billion won will also be invested in commercial buildings in major US cities, including New York, Boston, Chicago and San Francisco,” he added.
The real estate fund satisfied the growing demand for extending asset durations among domestic insurance companies which are also in search for better returns from low-risk investments.
The mezzanine debts, arranged by Goldman Sachs, are secured by the building and 86,000-square-meter land. They can be redeemed from four months before they expire.
SL Green, the building’s landlord, provided a guarantee to investors that it would take responsibility for finding replacement tenants if the current lease term is not extended, according to the sources.
By JiHoon Lee and Daehun Kim
<Edited by Yeonhee Kim>