NH Investment set to buy Tokyo office building for $308 mn

The brokerage arm of South Korea’s national agricultural cooperative has decided to acquire a 23-story skyscraper in Tokyo, for about 350 billion won ($308 million), which Sony Mobile Communications Inc. contracted to use until 2020.

The investment review committee of NH Investment & Securities Co. Ltd. recently endorsed the purchase of Shinagawa Seaside TS Tower from Takeda Pharmaceutical Co. Ltd., Japan’s largest drugmaker, according to investment banking sources on April 20.

NH Investment was named as a preferred bidder for the 40,000-square-meter property.

For the purchase, the brokerage firm will invest 140 billion won and borrow the remaining 210 billion won from financial institutions.

It plans to sell down its investment in the property through a fund which will offer a target return of around 9% per annum with a five-year maturity.

The deal comes just after NH Investment ended talks to buy an office building, worth an estimated 900 billion won, under construction in a suburb of Paris which L’Oréal is set to lease.

JR AMC Co. Ltd., a South Korean real estate investment firm, arranged the investment. In 2014, it set up a real estate investment trust company (REIT) to attract money from domestic institutions and buy equity stakes in a commercial building in Akasaka, Tokyo. It was the first case of South Korean institutions’ property investment in Japan via REIT.

South Korean institutional investors have shied away from Japan’s office buildings because their cap rate, or the current market value divided by net operating profits, is just 3~4%, compared with 4~5% in the US and Europe.

Bang-joo Lee, Chairman and CEO of JR AMC, said in February that investment returns from Japan’s office buildings have improved, supported by the weaker yen and low borrowing costs in Japan.

“If we borrow in Japan at near-zero interest rates and earn swap premiums, we can expect to achieve annual returns of 6 to 7% or above,” he told the Korean Investors.

He cited the similar legal environment and Japanese companies’ loyalty to business partners, once entering into business relationships, as the advantages of investing in Japanese property.

Meanwhile, KB Securities Co. Ltd. in February announced the sale of a 6,000-square-meter office building in Tokyo to a Japanese real estate trust company, three years after it bought the property for 30 billion won. The deal, the value of which was undisclosed, generated a 12% annualized internal rate of return.

daepun@hankyung.com