Korean investors buy Dutch logistics center using drones and smartphones

South Korea’s Kiwoom Securities Co. has acquired a new logistics center in the Netherlands for 180 billion won ($165 million) this year, relying on remote due diligence and also wrapping up its sell-down to a domestic blind pool fund with virtual tours.

Live drone pictures and real-time images taken with camcorders and smartphones facilitated the online due diligence process. They were also provided with live images from a third-party real estate agent who captured the traffic environment on video while driving from a nearby highway interchange, according to sources involved in the transaction last week.

“Given the size of the property measuring around 40,000 pyong, it took about three hours to inspect the building from the outside to the inside, from the storage space, office space to the employee lounge,” one of the sources involved in the remote due diligence told the Market Insight, The Korea Economic Daily’s capital market news outlet.

One pyong is equal to 3.3 square meters.

“Additionally, we were informed of details on the traffic environment from the third-party real estate agent we hired there.”

The logistics center is leased to the Denmark-based logistics company DSV under a 10-year agreement. Completed last October, it has a floor space of 113,589 square meters.

Kiwoom Securities was unable to conduct an on-site inspection of the facility because it could not send employees to the Netherlands due to the coronavirus resurgence.

But it pushed ahead with the purchase given that the warehouse was under a long-term agreement with the leading Danish logistics company, alongside the fact that it was a brand-new building, the sources said.

The property is in the proximity of major European ports, located between Rotterdam in the Netherlands and Antwerp in Belgium.
 
The blind pool fund that acquired the logistics asset is a 300-billion-won ($275 million) fund managed by Seoul-based Vestas Investment Management Co. Four unidentified Korean pensions and retirement savings funds participated in the logistics fund as limited partners.

The investment vehicle financed the transaction with 74 billion won in its equity capital and borrowed the remainder. 

Still, it is rare for South Korean institutional investors to complete cross-border property deals without an on-site inspection. But they will eventually embrace online due diligence to deploy their growing assets to overseas investments, with the COVID-19 situation showing little signs of waning, the sources said. 

In particular, remote due diligence will likely become popular for logistics and data centers, classified as business-to-business assets. They are relatively easy to inspect in terms of location and tenancy agreements as they tend to be located on the outskirts of cities and be under long-term leases, compared to office buildings and retail facilities in downtown areas.

Further, hiring a third-party agent for additional due diligence on the target property's location and traffic environment costs around $10,000-$20,000 per case, deemed a reasonable price, the sources added. 

“Under the current situation, we would need to be in almost a one-month quarantine after going on an overseas business trip. Until the coronavirus pandemic comes to an end, such remote due diligence will continue to increase,” an executive of the companies involved in the transaction told the Market Insight.

Write to Seon-Pyo Hong at rickey@hankyung.com
 

Yeonhee Kim edited this article.