NH Investment & Securities Co. Ltd. has pulled out of negotiations to buy an office building under construction in a suburb of Paris after a due diligence study on the construction site last month, in what could have been the largest cross-border property investment by a South Korean brokerage house.
NH Investment had been in early-stage talks with the Abu Dhabi Investment Authority (ADIA) to acquire the office complex, Ecowest, for an estimated 900 billion won ($786 million). L’Oréal is to lease about 70% of the space under a long-term contract.
Its withdrawal underscores the recent shift in attitude among South Korean institutional investors toward overseas real estate amid caution about soaring valuations of target assets and higher borrowing costs.
NH Investment, a brokerage arm of South Korea’s agricultural cooperative, was the latest bidder for the 60,000-square-meter office complex, after Meritz Securities Co. Ltd. and other domestic brokerage houses backed off last year. Meritz reportedly had studied the investment for over one month.
“We reviewed the investment from various perspectives, based on our due diligence results. But after taking profitability and other factors into considerations, we decided not to buy it,” an NH Investment source was quoted as saying by the MoneyToday newspaper. The brokerage company confirmed the report to the Korean Investors on April 10.
The estimated acquisition price of 900 billion won is equivalent to 20% of NH Investment’s net capital.
NH Investment had considered selling down part of its principal investment in the office building through a retail real estate fund, but gave up the plan on uncertainty about profitability and stability of the property asset.
On top of funding concerns, the location of the building and tight deadlines set by the selling side were cited as reasons to pull out of the talks. The complex consists of two eight-story office buildings in 80/82 Quai Michelet in Levallois-Perret.
“The building is away from the commercial district of Paris and is in the vicinity of a big cemetery,” an unidentified brokerage company official told the MoneyToday. “Apart from the fact that L’Oréal will lease it, we can see little merit in the investment offsetting the high price.”
A Meritz source said that the company had received an investment offer for Ecowest in mid-October last year, with the conditions attached of giving its confirmation by end-November on whether to invest in it or not. “We ended the talks because we didn’t have enough physical time,” he added.
South Korea’s FG Asset Management Co. Ltd. had received a mandate late last year to arrange the sale of the building.
By Daehun Kim
<Edited by Yeonhee Kim>