Korea Investment & Securities Co. Ltd. and Samsung SRA Asset Management Co. Ltd. have teamed up to buy an office tower in Manhattan from JPMorgan’s asset management arm for about 600 billion won ($502 million), in one of the biggest property deals they are seeking to finance with individual investors’ money.
Under the agreement reached with JPMorgan Asset Management, the two Korean institutions will buy a 95% stake in the 29-story building in a consortium with L&L Holding Co., a US real estate investment company.
L&L, which already owns 5% of the property at 195 Broadway, will put an additional 50 billion won into the transaction, sources with knowledge of the matter said on Sept. 23.
To fund the acquisition, they will borrow 350 billion won from local financial institutions and raise 250 billion won from Korean investors.
Of the 250 billion won equity financing, Samsung SRA will collect 50 billion won from institutional investors. Korea Investment Management Co. Ltd., an affiliate of brokerage Korea Investment & Securities, will launch a retail fund around next month to raise the remaining 200 billion won.
The investors are expecting an initial yield of 5%, the Real Deal, a New York real estate news provider, reported last week.
JPMorgan bought a 95% stake in the property in 2013, valuing it at $500 million, according to the report.
The investment comes amid caution on increased competition and high valuations in the US commercial real estate market.
But Korea Investment & Securities CEO Il-Moon Jung shrugged off valuation concerns.
“Apartment prices in our country, which seem to have peaked already, are continuing to go up,” Jung said in a speech at a local university last week, in reference to the new property investment in Manhattan.
“We thoroughly manage the risk without getting scared and think about exit strategies. That’s our mindset.”
Expected yields from global real estate investments are 6% to 8% per annum, he added during the speech, without specifying the target return for 195 Broadway.
ONE OF BIGGEST RETAIL FUNDS
The planned retail fund for 195 Broadway will be one of the biggest retail funds launched in South Korea for overseas property investment.
Korea Investment has rolled out a string of retail funds for cross-border real estate investments since the start of this year, including one for a Milan office building in February.
All of them were fully subscribed as yield-hungry individual investors took the place of institutional investors who became lukewarm on overseas real estate investments sourced by Korean brokerage firms.
In July, IGIS Asset Management Co. Ltd., South Korea’s largest real estate investment firm, raised the targeted amount of 245 billion won ($207 million) to fund the purchase of three Amazon’s logistics centers in Europe.
JPMorgan and L&L spent $100 million in renovating the office tower, one block from the World Trade Center Campus.
About 90% of the property is occupied. Tenants include luxury brand Gucci, Omnicom Media, and HarperCollins Publishers.
As for the ground underneath the office building, ground-lease real estate investment trust Safehold Inc. signed a contract to buy the fee position for $275 million, the company announced on Sept. 10.
By Hyun-il Lee and Gowoon Yi
<Edited by Yeonhee Kim>