Hyundai Investments Co. Ltd. has collected $162 million from five South Korean institutional investors to invest in a $2 billion US real estate debt securitization fund, as it is keen to introduce new types of alternative assets to the country’s biggest asset owners seeking to further diversify portfolios.
The securitization fund, managed by Claros Mortgage Trust (CMTG), an affiliate of Mack Real Estate Group, extends senior loans of as much as three times the fund’s capital, backed by commercial real estate in largest US cities.
It securitizes them into tranches A and B according to seniority for repayment, and sells A notes to banks to boost returns. It holds onto tranche B.
Hyundai Investments, wholly owned by Hyundai Marine & Fire Insurance Co. Ltd., a top South Korean non-life insurer, set up a vehicle for the investment.
The vehicle is expected to deliver annual returns in the 8% range for the investment period of four and a half years, according to Hyundai Investments on Dec. 8. Because the fund originates debts, it can save fees of up to 1% usually paid to a bank for debt origination.
“This kind of funds – gathering commitments after selecting investments and thus investors make lump-sum commitments – had not been introduced to South Korea before.,” said a Hyundai Investment source.
New York-based Mack Real Estate was established in 2013 by William Mack and his son Richard Mack, cofounders of AREA Property Partners. It manages around $5 billion in assets of institutional clients and the founding family.
With private debt funds filling the gap created by banks in the real estate debt market because of toughened regulations, the company expanded private debt strategies with the hiring of Peter Sotoloff, a former Blackstone debt professional, as chief investment officer in 2014.
“Global market volatility is expected to increase next year. We will further introduce specialized investment products from abroad,” said Hyundai Investments’ managing director Jae Gwang Kim.
Hyundai Investments sees US real estate debts and Europe’s public private partnership projects faring better than other alternative asset classes in 2018.
By Daehun Kim
<Edited by Yeonhee Kim>