Two Korean firms look to buy six France warehouses

South Korea's Mastern Investment Management Co. and Kiwoom Securities Co. are in the due diligence process to acquire six last-mile logistics centers under construction in France for a combined 250 billion won ($225 million).

The two companies sent their employees to Europe last weekend to conduct due diligence on the facilities, according to the company and industry sources on Apr. 20. They plan to acquire them upon completion of construction.

They are stepping up efforts to invest in logistics centers in Europe before the global economy makes a full-fledged recovery, which should intensify competition for prime real estate. The rapidly growing fast delivery service market is expected to increase demand for last-mile distribution centers.

"Since the coronavirus pandemic began, real estate transaction volume has plummeted because of due diligence difficulties," a Mastern Investment source told Market Insight, the capital market news arm of The Korea Economic Daily.

"But given the record levels of dry powder at blind pool funds, when the pandemic recedes in the second half, the money will flood the prime real estate market and heat up the competition," he said.

The six distribution centers, targeted by Mastern and Kiwoom, are already under long-term lease agreements with well-known e-commerce companies and third-party logistics providers, said one of the sources. 

For the planned purchase, Mastern Investment will set up a real estate investment trust (REIT) company in which Kiwoom Securities will participate as an underwriter to sell down the equity portion.

They will finance the acquisition with 100 billion in equity financing and 150 billion won in loans.

The expected return, or the equity cap rate, is initially in the 4% range but would rise to the 7% range, considering foreign exchange gains and the interest rate differential between South Korea and Europe. 

In comparison, the cap rate on logistics centers in Gyeonggi Province surrounding Seoul has tumbled to 4% from 8-10% on average. Record-high prices for office buildings in Seoul and Pangyo, called Korea's Silicon Valley, pulled their average cap rate to 2%, similar to domestic lending rates.

Since the second half of last year, both Mastern Investment and Kiwoom have been looking to last-mile logistics centers under construction in Europe. Last-mile warehouses are located near cities to offer very fast delivery services, still in their early stages on the continent. 

Last December, Kiwoom acquired a new logistics center in Tholen in the Netherlands for 180 billion won after carrying out remote due diligence. It wrapped up its sell-down to a domestic blind pool fund with virtual tours.

Write to A-Young Yoon at youngmoney@hankyung.com
 

Yeonhee Kim edited this article.