KB Securities to launch public fund to buy $224 mn Hawaii hotel from KKR

The brokerage arm of KB Financial Group, a top South Korean banking group, is planning to raise around 60 billion won ($54 million) from individual investors in a domestic public fund to buy a four-star hotel in Hawaii, worth about 250 billion won ($224 million), from private equity firm Kohlberg Kravis Roberts (KKR) & Co.

A consortium of KB Securities Co. Ltd. and South Korea’s IGIS Asset Management Co. Ltd. has been picked as a preferred bidder for Hyatt Centric Waikiki Beach in the former Waikiki Trade Center.

The public fund to be launched will be used to buy preferred shares of a new real estate investment trust (REIT) company that will own the hotel, according to investment banking sources on March 30.

KB and Meritz Securities Co. Ltd. will first underwrite the preferred shares of 60 billion won and provide payment assurance.

For the remainder of the acquisition price, the consortium will borrow about 100 billion won from financial institutions. KB, Meritz and IGIS may use their own capital to buy part of the other preferred shares and common stocks of the REIT company.

It is known that KKR is considering participating in the REIT as an investor.

The hotel with 230 rooms was transformed from a former office building in the tourist district and opened last December.

Despite its great location and steady hotel demand in Hawaii, it is known that the relatively high proportion of preferred shares in the transaction had put off some Korean institutional investors.

Since last year Korean investment firms, led by Mirae Asset Global Investments Co. Ltd., have been introducing retail funds to finance their overseas property transactions.

Those funds offered expected returns of 5 to 6% per annum and attracted yield-hungry wealthy investors who also wanted to diversify portfolios into foreign-currency assets.

The 156 billion-won public fund launched by Hana Asset Management Co. Ltd. on March 23 for the purchase of the NASA headquarters building was fully subscribed on March 29, a day earlier than its closing date.

Earlier this month, a domestic public fund of Mirae Asset Global attracted 141 billion won from individual investors as planned just in two days. The fund, South Korea’s first public fund for an Australian asset, will be used to finance an office building purchase in Canberra.

But a real estate industry source warned that individual investors in public funds would be more exposed to currency risks than institutional investors which hedge their foreign exchange risks.

By Daehun Kim

daepun@hankyung.com