KKR, POBA plan to sell commercial buildings in Korea for $1 bn

Private equity firm KKR & Co. and the Public Officials Benefit Association (POBA) have put two commercial buildings in South Korea up for sale separately, in transactions expected to fetch a combined $1 billion and in what would be KKR’s first exit of the country’s commercial real estate.

The two properties, one of which is under construction near Seoul, are expected to attract global investors, or other pension funds aiming to renovate part of the facilities for retail services. The core-plus strategy for office buildings is relatively new to South Korean property developers, given the difficulty in financing big construction projects and their focus on residential markets.

Industry sources said the property auctions come just ahead of an expected interest rate rise which should increase the financing burden of buyers.

KKR tentatively decided to receive bids for the K-Twin Towers, 16-story prime commercial towers, in central Seoul on Dec. 7, valuing it at $621.6 million, according to real estate industry sources on Nov. 15.

The 84,000-square-meter property is jointly owned by KKR, Hong Kong-based investment firm Lim Advisors and Korean Teachers’ Credit Union (KTCU).

KKR and Lim Advisors bought all of common shares in the building in 2014 for an undisclosed sum. It was KKR’s first investment in South Korean commercial real estate. KTCU has owned preferred shares since the construction in 2012.

The selling side is demanding $7,400 per square meter, or around 27 million won ($24,000) per 3.3 square meters. If accepted, it would mark the highest unit price of a South Korea’s commercial real estate transaction. KKR and Lim Advisors reportedly had paid 20 million won per 3.3 square meters.

KKR is understood to put the property on the block to meet the targeted 20% internal rate of return of its fund investing in the building.

President Moon Jae-in’s office is set to move to a government complex, across the K-Twin Towers which house Microsoft and South Korea’s biggest law firm Kim & Chang.

OTHER BUILDINGS ON MARKET

Separately, POBA plans to receive final bids next week for an 87,710-square-meter office building. The property, called Alphadom City, is set to be built by early next year in Pangyo Techno Valley, the South Korean version of Silicon Valley near Seoul.

The sale is expected to fetch $447.3 million, or $5,100 per square meter.

GIC, Singapore-based ARA Asset Management and M&G Real Estate, part of London-based Prudential Plc. are being speculated as potential bidders.

Two other new office buildings are also coming on the market: a 99,500-square-meter building, next to the POBA-owned office building and part of Alphadom City.

Korea Land & Housing Corporation has put the building up for sale. It required a potential buyer to list the REIT company investing in the property on the local stock market, which means the buying company needs to form a consortium with a domestic REIT firm.

Commercial real estate developer CTCore will begin the sale process of Centropolis Towers, a 26-story twin towers with a floor space of 134,310 square meters next January, excluding the ground floor's space to be donated to the Seoul city.

With the sale expected to bring 1.1 trillion won ($1 billion), the developer switched to a public auction from a private deal to improve transparency and increase bidding prices.

A group of South Korean insurance companies extended project financing for the construction which is expected to complete next year.

By Daehun Kim

daepun@hankyung.com