Meritz Securities Co. Ltd. has reaped 37 million euros ($42 million) in proceeds from a recent sale of a new headquarters of German online retailer Zalando, which marked the first exit by a South Korean brokerage firm from an overseas property under construction.
The small-sized South Korean brokerage firm sold the 42,345 square-meter property to US real estate investment manager Hines for 233 million euros in the third quarter of this year.
It made the exit in less than one and a half years after acquiring it from Austria-based UBM Development AG for 196 million euros in a forward deal last year.
For the transaction, Meritz spent less than 20 billion won ($18 million) of its own capital given that it just made a down payment in July of last year and borrowed the rest of the deposit, according to sources with knowledge of the matter on Nov. 18.
It was supposed to pay the balance around the end of this year when the building is due for completion.
South Korea’s Capstone Asset Management Co. Ltd. had sourced the deal and managed a domestic fund dedicated to the purchase. Hines bought the property on behalf of a Luxembourg-based real estate fund.
“It exercised the selling right before taking a full ownership. The balance will be paid by Hines to UBM,” one of the sources told the Korean Investors.
Zalando fully leased the property located in Valeska-Gert-Strasse in the Berlin office property submarket of an urban renewal project under a 12-year term.
Buying uncompleted property is a high-risk, high-return investment because of the possibilities that a long-term tenant could revoke the lease before completion and the developer may halt the construction.
But Meritz concluded that the Zalando Campus was a low-risk investment, betting on the e-commerce growth. It also had prepared various exit plans, including a resale to domestic institutional investors.
Sung Woo Sohn, a Meritz executive, said that only 5% of global real estate investment managers invest in uncompleted properties.
“We were able to find such a suitable buyer as Hines after contacting investors more than 15 times since the acquisition,” he told the Korean Investors.
Young Kwon Kwak, managing director of Meritz’ structured finance business division, added that it had thoroughly studied the risk and the exit plan for the investment which minimized the injection of its own capital.
By Daehun Kim and Chang Jae Yoo
<Edited by Yeonhee Kim>