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[Exclusive] Alternative investments

Hana buys Osaka logistics center for about $140 mn

In first Japan property deal by a Korean firm since COVID-19 outbreak

By May 28, 2021 (Gmt+09:00)

Osaka (Source: Getty Images Bank)
Osaka (Source: Getty Images Bank)

South Korea's Hana Alternative Asset Management Co. has beat 16 Japanese bidders to acquire a logistics center in the port of Osaka, Japan for ¥14.8 billion ($135 million).

The transaction marked the first investment by a South Korean firm in Japan's real estate market since the outbreak of the global pandemic. It is expected to deliver a return of more than double the 4% average of domestic logistics real estate. 

Hana, the unit of the country's fourth-ranked banking group, won the auction to buy the logistics facility from SBS Holdings Inc., Japan's logistics service provider, according to the company and industry sources on May 28. It was competitive enough to draw 16 Japanese bidders.

"On top of our long track record in Japan's real estate market, we made an aggressive bid, which gave us an edge over the Japanese contenders," a Hana Alternative source told Market Insight, the capital news outlet of The Korea Economic Daily.

"Japan's logistics real estate market is only in the growth stage and has room to grow in terms of value."

Constructed in March 2019, the four-story facility is within a 15-minute drive of Osaka's central business districts of Namba Station and Umeda Station. It has a floor area of 49,500 square meters.

SBS Logicom Co. handled the design and construction process, as well as the leasing process. In a sale-leaseback agreement, the unit of SBS Holdings will continue to occupy the space for the next 10 years.

Bolstered by lower borrowing costs in Japan than in Korea and currency hedging premiums, the logistics center is expected to produce a 7% dividend yield for preferred shareholders in a vehicle used for the property deal, and 10% for common shareholders. 

The average cap rate, similar to the dividend yield, dropped to 4% on Korean logistics real estate because of competition fueled by domestic pension funds' participation. 

Thanks to the yen's weakness against the Korean won, Korean investors are expected to earn a 90-basis-point premium in currency hedging trade.

The port of Osaka
The port of Osaka

Before the Osaka logistics deal, the last investment by a Korean firm in Japan's real estate was the one conducted by Daishin Securities Co. in early 2020, details of which were unknown.

Because of the difficulty of on-site due diligence due to the pandemic, Hana carried out inspections of the logistics center through its Japanese arm.

Since the start of the year, Korean investment firms in droves have been pushing for cross-border deals to prepare for post-pandemic opportunities. Some of them are making full use of their overseas offices for deal sourcing and due diligence.

"(Korean investors) are showing strong interest in medium-sized office buildings and logistics warehouses between 50 billion and 100 billion won ($45 million-$90 million)," said an asset management company source. 

By contrast, they are cool on large office buildings in Japan because of their low yields, avoiding competition with global asset managers such as BlackRock, which focus on big offices, he added.

Amid the e-commerce boom in the pandemic era, logistics centers displaced office and retail properties as the-most favored real estate segment for Korean pension funds. 

In Japan, Hana Alternative had invested in three residential facilities through a fund and in a retail real estate vehicle investing in hotels and retail properties in Sapporo.

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

Yeonhee Kim edited this article.

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