Meritz Real Estate Asset Management Co. Ltd., part of a South Korean financial services group, has recently arranged 120 billion won ($112 million) investment in debts on a US building and a portfolio of shopping malls in Italy, for targeted annual returns of 4.5 to 5.5%.
The real estate investment firm sourced the two deals – mezzanine and senior notes, respectively – outright from the issuer, or the seller. It has sold them to domestic institutional investors through five-year investment vehicles, according to the company and banking sources on Jan. 3.
One of the investments was 70 billion won mezzanine debt secured on the mixed-use office tower at 650 Fifth Avenue in New York, which is expected to deliver a mid-5% annual return.
A joint venture of SL Green Reality Corp., New York city’s largest office landlord and Wharton Properties, founded by real estate investor Jeff Sutton, has a long-term leasehold on the retail space of the 36-floor skyscraper.
The debt investment came after the venture secured a $225 million refinancing package from German lender Aareal Bank for the retail portion of the building, according to Commercial Observer in October, 2017.
Sportswear brand Nike has signed a 15-year lease contract worth $700 million, the largest single lease contract for a retail property in New York. It will open a flagship store at the building’s lower level after moving from Trump Tower early next year by when its remodeling is expected to be finished.
RETAIL SHOP PORTFOLIO IN ITALY
In November 2017, Meritz Real acquired 50 billion won senior debt collateralized by a portfolio of 23 retail shops located in northern Italy on behalf of South Korean insurers and other institutional investors.
Apollo Global Management, an alternative investment firm and AXA Investment Managers co-own the portfolio. French retail groups Auchan and Carrefour are among major tenants.
Considering the premium of over 1% point that South Korean investors currently receive in euro/won swap trade, Meritz expects an annual return of 4.5 to 5.0% from the senior debt.
The Italian shopping mall portfolio underlines Meritz Real’s diversification efforts by country and asset type.
Despite Italy’s lower sovereign credit rating than those of bigger European countries, the senior debt secured on shopping malls is seen as low-risk investment given that the properties are on long-term lease contracts.
Meritz Real’s CEO Jun Hyun Shin sticks with his principle of sourcing deals directly from sellers, which has been welcomed by domestic institutional investors because they could save fees paid to brokerages.
Many other South Korean asset managers serve as sales agents of global investments secured by brokerage companies, or foreign asset managers.
“Meritz Real Estate bids in auctions when their investment plans are almost set in stone. This makes us, as an institutional investor, feel like investing in bridge loans used for deal closing,” said a South Korean institutional investor source. “The advantage is that we can save fees paid to brokerage firms.”
Meritz Real, founded in June 2016, manages more than $1 billion in AUM of global portfolios. It is now diversifying further into mezzanine debt on hotels and lending on a condominium construction project in New York.
Last month it underwrote five-year senior debt of 57.5 billion won on a super-luxury high rise under construction in Manhattan.
By Daehun Kim
<Edited by Yeonhee Kim>