Outbound real estate funds hit by first capital outflow in over 4 years

South Korea’s real estate funds for outbound investment saw their first net capital outflows in four and a half years in March, hit by delays in deal closing and little progress on asset sell-downs.

Net capital outflows from overseas real estate funds, including both private and public vehicles, amounted to 855.8 billion won ($696 million) in March from a month before, data from the Korea Financial Investment Association (KOFIA) shows.

Their combined assets under management shrank to 55.4 trillion won at the end of March, from February’s 56.3 trillion won. Real estate investment trusts are excluded from the data.

It was the first net outflows from overseas property funds in the country since August 2015 when their AUM fell by just 20 billion won.

Yields from overseas real estate funds swung to a negative 2.20% on average in March, compared with 1.07% in February, according to FN Guide, a data service company.

Mirae Asset Daewoo Co. Ltd. has postponed the closing of a $5.8 billion acquisition of 15 US hotels from China’s Anbang Insurance Group to the second half of this year due to prolonged negotiations with US lenders since the coronavirus outbreak.

Korea Investment & Securities Co. Ltd. has yet to close the 430-billion-won purchase of Jaguar Land Rover’s logistics center in the UK. The brokerage house had agreed to buy the facility earlier this year, but it has been struggling with increasing financing costs.

Growing uncertainty about valuations, bleak economic outlook and travel restrictions added to the difficulty in sealing a cross-border deal.

Mastern Investment Management’s plan to acquire office buildings in Europe and include them in a REIT to be listed this year has been derailed as negotiations have been on hold indefinitely.

“All cross-border deals practically came to a stop,” a big brokerage company head told the Korean Investors.

Mirae Asset Daewoo and Hana Financial Investment have yet to complete the sell-down of Tour Majunga and Tour CBX, respectively.

Korean pension funds are now worried about valuation losses on their overseas real estate portfolios and hesitant to raise exposure.

South Korean institutional investors poured a record 12.5 billion euros into Europe’s real estate assets in 2019.  The investment was more than double the previous year’s 5.4 billion euros.

SIX-FOLD GROWTH

Overseas property funds in South Korea have grown six-fold since mid-2015 in terms of AUM, as they were seen as medium-risk, medium return investments in the low interest environment. They account for 54% of total property funds, including domestic-oriented ones, in the country.

In March, new capital inflows to overseas real estate funds were 205.7 billion won, down 76% from February’s inflows of 858.7 billion won, according to the KOFIA.

In aggregate, both domestic-focused and overseas property funds saw a net capital outflow of 239.1 billion won to total 101.8 trillion won in AUM at the end of March, compared to the end of February.

The vast bulk of them are closed-ended private funds held by institutional investors and wealthy individuals.

In March, Seoul-based Discovery Asset Management suspended redemptions of about 100 billion won for its two US real estate debt funds.

Write to Hyung Joo Oh and Hyun-il Lee at ohj@hankyung.com


(Photo: Getty Images Bank)