Korean Appetite for U.S. Commercial Real Estate Heats Up During Pandemic
South Korean investors are emerging as some of the most aggressive US commercial real estate buyers during the Covid-19 period.
The East Asian country’s pension funds, life insurers and other investors have targeted warehouses and office buildings with long-term tenants. They are also drawn to ultra-low US interest rates, which make it cheaper to hedge currencies.
South Korean investors raved about the recent hot real estate sales. They made up nine of the 18 commandments for a warehouse near Los Angeles that was rented to Amazon.com Inc.,
According to Alex Foshay, head of international capital markets at real estate services company Newmark.
While Chinese investors have pulled out of the US in recent years due to local capital controls, and other foreign firms shy away from the fear of the pandemic, South Korean interest has increased. In the first nine months of the year, Korean investors accounted for 8.6% of all foreign investment in US commercial real estate, up from 3.7% last year, according to Real Capital Analytics.
South Koreans invested $ 1.56 billion compared to $ 1.24 billion last year. During this time, only Canadian and German investors stayed behind. A year ago, South Koreans ranked 10th among foreign investors in US real estate, according to Real Capital Analytics.
“Korean investors currently feel that they have a window of opportunity when there is not the usual level of competition in the US market,” said Foshay.
The South Korean investment firm Soulbrain Holdings Co.
Ltd. bought three office buildings in San Jose, California for $ 160 million last month. Mr. Foshay said his company marketed an office tower in Seattle at a cost of more than $ 600 million. Four of the 12 offers for the tower, which has been rented to Amazon for 10 years, came from South Korea.
“The Korean bids were the highest and they raised the prices,” he said, even though he refused to say who the winner was.
Unlike many European or US investors, Korean firms are also buying offices in smaller towns or suburbs, said Jeff Friedman, co-founder and director of Mesa West Capital. These traits are seen as less affected by the pandemic, lawyers say. For one thing, Seoul-based Asia Investment Management Inc. bought an office building in Ridgefield Park, New Jersey, in October for an undisclosed amount, according to the seller.
A big reason Korean investors flock to the US is because of the Federal Reserve. When foreign firms invest in the US, they generally hedge against currency fluctuations. The cost of these hedging products depends on the difference between short-term interest rates in the US and home, Foshay said.
Two years ago, the annual cost of hedging the Korean won against the dollar was around 2% of the amount invested, Foshay said. This made it difficult for South Korean companies to compete with US investors for properties that did not need to hedge against currency fluctuations and could often afford to bid higher. Foshay said hedging costs have fallen to around 0.1% today following the Fed’s recent rate cuts.
Meanwhile, it is getting harder and harder to make money from new investments in South Korea, said Ann Seung-Eun Lee, a real estate consultant at the law firm Goodwin Procter LLP. “These money managers are under a lot of pressure to measure returns overseas,” she said.
Plexiglass partitions and floor decals may not be permanent, but the pandemic will transform offices forever. Experts from the architecture and real estate industry report on how they are working again and what offices will look like in the future. Photo: Cesare Salerno for the Wall Street Journal
Write to Konrad Putzier at [email protected]
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