POBA completes $300 mn Europe property deals via SMA, shy of target

May 24, 2017 (Gmt+09:00)

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The Public Officials Benefit Association (POBA) has completed three office building purchases for around 330 billion won ($293 million) in Europe through its separately managed account (SMA), but the combined acquisition value missed its target of 500 billion won.

The expected average return from the three property deals is around 6% per annum, according to investment banking sources on May 23, slightly lower than 7~8% cited previously for European real estate investment.

POBA, a $8 billion saving’s fund, launched the SMA last May and committed 250 billion won. It expired in April.

A consortium of CBRE Global Investors LLC and South Korea’s IGIS Account Management Co. Ltd. managed the account, the first SMA targeting one region for a South Korean mutual aid association.

Of the committed 250 billion won, POBA deployed only 193 billion won ($171 million) for the three transactions, amid political uncertainty and growing protectionism in Europe.

Originally, the property SMA had targeted around 10 small-sized buildings in Europe for higher returns, as interest rate differences between Europe and Korea raised expectations about leveraged buyouts and currency swap premiums.

But it switched gears towards three to four mid-sized core office buildings, worth 100 billion won to 200 billion won respectively, in search of safer assets.

POBA’s latest purchase via the SMA was a commercial building near Catalunya Square in Barcelona, Spain, for 80 billion won.

The local government of Catalunya is a major tenant of the building, Carrer de Fontanella. POBA drew about 40 billion won from its SMA to fund the acquisition, and borrowed the rest.

The two other acquisitions are an office complex in Belgium for 130 billion won, and an office building in Germany for 120 billion won.

With high valuations across alternative assets forcing asset owners to find a new niche, South Korean institutional investors are showing interest in SMAs as part of an effort to save fees and to gain more control over their invested assets.

“Investment through SMA has the advantages of both project funds which allow investors to directly choose their favorite product and blind-pool funds which make a quick decision,” a local real estate industry source told the Korean Investors. “Once local institutional investors build track records of overseas property investments, they will increasingly use SMA as an investment vehicle.”

By Donghun Lee and Daehun Kim

daepun@hankyung.com