NPS in $2 bn real estate development project in Seoul

The National Pension Service (NPS) has agreed to participate in a 2.6 trillion won ($2.2 billion) real estate development project in western Seoul, in what would be its largest-ever investment in the domestic property market.

The South Korean pension scheme will finance the vast majority of the project to build an office and commercial complex with a gross floor area of 463,180 square meters in Magok-dong, according to investment banking sources on Aug. 26. 

They declined to specify how much the NPS will pump into the development, but noted that the investment should be its largest-ever spending in the domestic real estate market.

The $770 billion pension fund has signed the agreement on the condition that its developer will complete the construction without fail, the sources added. It is scheduled to be built by the second half of 2024 by Taeyoung Engineering & Construction Co.

The NPS will make the investment via a vehicle of IGIS Asset Management Co., South Korea's largest real estate investment company. 

The new complex is expected to be a landmark building in Seoul, comprised of an office building, hotel and shopping center housing E-Mart Traders, a supermarket chain of Shinsegae Group. It is also within a walking distance from the nearby Magok subway station.

Magok-dong is home to new R&D centers of South Korea's leading IT and chemical companies. LG Science Park, the country's largest R&D center, is located in the district which is emerging as a new business hub in the Seoul Metropolitan Area, after Pangyo Techno Valley, the South Korean Silicon Valley. 

The size of the development project, or 2.6 trillion won, is equivalent to 15% of South Korea's commercial property transactions in 2020 totaling 17.5 trillion won.

The new investment is part of the pension scheme's build-to-core strategy, under which the world's third-largest pension fund has been buying large-sized quality assets in the development stage at attractive prices.

The build-to-core strategy involves the risk of construction failures and the investor needs to fill the space with tenants, in return for buying the property at a lower price.

In 2018, the NPS participated in the 2 trillion won development of Gangnam Yeoksam Centerfield, a twin-tower building measuring 239,957 square meters.

Built on the site of the former Renaissance Hotel in Seoul, its office portion has been fully occupied, about a half year since its completion in January this year. NPS had financed the construction through IGIS Asset.

Write to A-young Yoon at youngmoney@hankyung.com
Yeonhee Kim edited this article.