Hotels in top Seoul tourist area on sale due to rate hikes

South Korea's KB Asset Management Co. is set to sell two three-star hotel buildings in Myeong-dong, one of the most popular spots for foreign tourists in the country, as recent rate hikes have severely impacted the properties' cash flow.

The asset manager has put Hotel Skypark Central Myeongdong (Skypark Central) and Hotel Skypark Myeongdong II (Skypark II) on sale, investment banking sources said on Jan. 4.

KB Asset determined it would be difficult to repay senior loans, worth more than 100 billion won ($78.6 million), by the maturity date of Jan. 18. The senior lenders, including NH Investment & Securities Co., have already extended the maturity a few times at low interest rates.

The KB Financial Group’s unit acquired Skypark Central, with 312 guest rooms, for 129.9 billion won and Skypark II, with 132 rooms, for 45.1 billion won in 2018. Taiwan's Yuanta Securities Co. and Korean investment firm Fine Partners Corp. joined equity investors. IQWell, the Skypark Hotel brand operator and a real estate firm, bet on junior loans.

The two hotel buildings boasted occupancy rates over 90% at the time of the acquisition, despite China’s travel ban to Korea after Seoul's deployment of a US Terminal High Altitude Area Defense System (THAAD).

The investors were hopeful that the hotels' earnings will soar once China lifts restrictions on importing K-content and traveling to Korea as Myeong-dong, which has the most expensive plots of Korea, is one of the most favorite spots in Seoul for foreign tourists.

However, the property has posted operating loss since COVID-19. The stakeholders attempted to divest the assets in 2021, but the deal fell apart in the final stage due to IQWell’s disagreement with the sale plan.

The lenders have decided not to further extend the maturity due to the steep interest rate hikes.

KB Asset has selected accounting firm Deloitte Anjin LLC as a lead manager for the sale and is planning to exit through divestment and other strategies. But some investors in the junior loan and equity tranches may lose part of their principal, IB sources said.

Many real estate assets in Korea are on the brink of default due to rate hikes, a real estate investment source said. With their maturity dates coming in the first half of this year, a lot of properties will be on sale if the owners fail to repay loans, according to the sources.

More hotels in Seoul’s commercial areas are set to be renovated or redeveloped for use of residence or office. Le Méridien Seoul in Gangnam District, Sheraton Seoul Palace Gangnam Hotel and Hotel Crown Itaewon will be remodeled as luxury apartments.

Millennium Hilton Seoul, which closed down for business on Dec. 31, 2022, will be redeveloped as a mixed-use complex. Hotel Aventree Jongno will be demolished for the construction of an office tower.

Write to Dong-Hun Lee at leedh@hankyung.com
Jihyun Kim edited this article.