Korean firms to raise $350 mn mezzanine fund for 10 Hudson Yards NYC - report

Two South Korean asset management firms will start to raise about 400 billion won ($346 million) in a mezzanine fund from this week to invest in 10 Hudson Yards, a new skyscraper located in Manhattan’s West Side, a local newspaper reported on June 29.

Shinhan BNP Paribas Asset Management and Hyundai Investments will kick off the fund-raising from domestic insurance companies and other institutions, targeting an expected return of 4~5% a year, the Maeil Business Newspaper said, citing investment banking sources. A majority of South Korean insurance firms are considering participating in the mezzanine fund.

The fund-raising reflects growing interest in U.S. property loan funds among South Korean insurers suffering from reverse margins. So far this year, South Korean insurers have bought a combined 1 trillion won worth of U.S. property loans, and the amount is expected to reach 2 trillion won by the year’s end, according to the newspaper.

10 Hudson Yards is the first to open in the Hudson Yards mega project. The 52-story office tower has a floor area of 1.7 million square feet and consists of two office buildings and a shopping mall. The daily added that the new building is valued at about 2.5 trillion won.

Earlier this month, NongHyup Life Insurance and five other South Korean insurance companies invested about 240 billion won in the “Atlantic Building” in Washington D.C., targeting an annual return of the 4% level for the duration of 10 years. Under the investment, they bought senior loans collateralized by the building, the newspaper said.

Last month, three local insurance companies bought about 230 billion won worth of senior loans issued by a medical office building in a major city in the United States. In April, Mirae Asset Life Insurance and other investors purchased about 93 billion won of mezzanine debt of “Hotel del Coronado”, a beachside resort hotel in San Diego.

“Property-collateralized loans generate low but stable returns. Thus, they are appropriate investments for conservative investors such as insurance companies,” the daily quoted an unnamed industry source as saying. “Because of the smaller impact on the RBC (risk-based capital) ratio than stocks, insurance companies favor them."