Korean REIT buys Vienna office building for $71 mn

JR AMC Co. Ltd., a South Korean real estate investment trust (REIT), has acquired an office building used as the headquarters of Porr AG, a European construction company, in Vienna for €60 million ($71.2 million), on behalf of two South Korean institutional investors.

The purchase was its first cross-border investment since South Korea allowed REITs last year to launch real estate funds and came as South Korean real estate investors are diversifying beyond big cities in Europe such as Paris, London and Frankfurt where they see slimmer chances of reaping handsome returns than before.

The two unidentified institutional investors committed €24 million in aggregate to a vehicle of JR AMC for the acquisition and borrowed the rest, according to real estate investment sources on Dec. 27.

JR AMC, with cumulative AUM of 2.9 trillion won ($2.7 billion), expects the investment vehicle to generate an annual average return of around 9% for a five-year investment period. Rent is set to rise in line with the consumer price increase.

Porr will continue to use the whole building as a headquarters until the end of 2038 under a lease contract. The second-biggest construction company in Austria by sales has won a construction project for the main stadium of the 2022 FIFA World Cup in Doha, Qatar.

With a floor space of 30,354 square meters, the 22-story office tower was built in 1999 and renovated in 2015.

It is located near Vienna’s new Central Railroad Station, opened in 2014 and serving as a station of railway, subway, tram and bus lines.

Vienna has been emerging as a transportation hub connecting east and west of Europe and has one of the four headquarters of the United Nations and the OPEC headquarters.

The value of commercial property transactions in Vienna almost doubled to €3.1 billion in 2015 from €1.6 billion in 2010, according to JR AMC. Office buildings took the bulk of the transactions.

Despite a small market size compared to London and Paris, the office building market in Vienna is less affected by external factors and has little price fluctuation. Numerous historic sites in Vienna’s central business district limits the supply of new office space.

Before the Porr tower purchase, South Korean institutional investors had bought three properties in Austria: Wien Mitte shopping mall in 2015; IZC Tower in 2016; and a small-sized office building in the third quarter of 2017.

JR AMC was the first South Korean REIT investing in Japan’s office building and logistics center. It plans to make aggressive investments in commercial properties in the US and Japan by launching real estate funds.

By Daehun Kim

daepun@hankyung.com