Korea’s POBA to invest $109 mn in Koramco’s office REIT

South Korea’s Public Officials Benefit Association (POBA) is set to commit 150 billion won ($108.5 million) in preferred stocks for offices in Seoul and Pangyo, the country’s so-called Silicon Valley, on expectations that the value of preferred shares will rise when interest rates decline.

The retirement fund for Korean provincial government officials has decided to commit to Seoul-based Koramco REITs Management and Trust Co. for preferred stocks with at least 6% of annual dividends for 10 years, people familiar with the matter said on Monday.

With a 10% internal rate of return (IRR), Koramco will invest the fund in offices with a floor area of more than 16,528.9 square meters in Seoul’s upscale Gangnam Business District. In the capital’s other neighborhoods and Pangyo, it will invest in offices with at least double that floor area. The assets should have at least an 80% occupancy rate and less than 75% loan-to-value ratio.

POBA, which managed 22.3 trillion won in assets as of the end of 2023, has bet on the REIT as it forecasts that preferred stocks will perform better when interest rates fall, according to banking sources.

The retirement fund plans to grow as a strong buyer of domestic office REITs' preferred shares by increasing such assets. 

Korean real estate investment managers have struggled with drawing preferred stock investors as senior secured loans have become attractive with rising income amid higher-for-longer interest rates. 

Seoul-based prime office Arc Place, which Blackstone Inc. sold to Koramco for 791.7 billion won in April, took a while to find preferred stock investors, banking sources said.

Write to Byeong-Hwa Ryu at hwahwa@hankyung.com


Jihyun Kim edited this article.