Korea Post buys $600 mn US building jointly with California pension fund

Korea Post has signed a 680 billion won ($602 million) agreement to buy a Silicon Valley office campus used by a leading cybersecurity company in joint investment with an unidentified California-based pension fund.

Both Korea Post and the US pension scheme will invest around 300 billion won ($265 million) in aggregate to buy equity interests in the property for expected annual returns of 7% to 8%, the Maeil Business Newspaper reported on Sept. 24.

They will split the equity into the ratio of 49% and 51%, with the California-based pension fund taking a bigger stake, and borrow the rest.

A Korea Post’s insurance unit source confirmed the report, but declined to disclose the names of the California pension fund and the seller.

The property in Santa Clara, California, consists of four buildings – three eight-story buildings and a two-story building – totaling 87,300 square meters. Nearly 2,000 employees are based on the campus.

It has been leased to Palo Alto Networks Inc., a security firm founded in 2005 and listed on the New York stock exchange. The company, with revenues of $1.8 billion in fiscal 2017, will continue to rent the property as its headquarters through 2028.

The property acquisition comes as many of other South Korean institutional investors are  shifting towards debt investments in US commercial properties, wary of high equity valuations of target assets.

“Surfing the wave of the fourth industrial revolution, a bunch of electric and autonomous car-related companies as well as IT and internet companies are flocking to that area,” a financial industry source was quoted as saying by the newspaper. “Driven by steady demand growth, asset values (in Silicon Valley) are likely to continue to rise.”

CBRE Global Investors managed the sale.

Last year Korea Post’s savings arm acquired the headquarters building of French bank Natixis in Paris, in a deal worth 230 billion won. It put around 92 billion won in the transaction, and borrowed the rest.

By Daehun Kim

daepun@hankyung.com