Korean institutions target Western real estate

Daol Asset Management Company, a Korean real estate boutique, says more Korean institutional investors are acquiring overseas property.

Despite the popularity of domestic real estate investments, overseas allocations have been rare and limited to the biggest asset owners. For example, the $280 billion National Pension Service now has core real estate in Australia, Britain, Germany and Japan.

NPS’s overseas exploits achieved a higher profile in 2010, such as the $1.3 billion purchase of London’s Canary Wharf.

This is resonating among other investors, says Jane Kim, managing director of Daol. She notes that some institutions got caught up in emerging-market hype and have made unprofitable investments. Now they are looking to the US, where rules are clear and prices remain low.

She expects more Korean institutions to seek core-type property investments overseas, an area in which Daol provides investment vehicles, along with competitors such as Mirae Maps AMC, Shinhan BNP Paribas AMC and Woori AMC in Korea. Daol now also counts overseas investors among its clients, including Malaysia’s Employee Provident Fund.

For example, last year it launched a $160 million fund to acquire a core office building in San Francisco, master-leased by Wells Fargo Bank, for $333 million. Daol recently paid a first-year dividend of 7.0% to its investors. (This was the first club deal for Korean institutions investing in a developed market’s core real estate.) It also has acquired a trio of commercial buildings in Malaysia it values at $280 million that has been put into a fund structure.

Domestically it has niche investment vehicles, created with backing from the government, for segments such as unsold condominiums and securities backed by non-performing property loans. In December, it launched its first publicly offered real-estate fund that has acquired a $300 million office building in Seoul’s Yeoido business district.

However, some markets are recovering much quicker than expected. To broaden the opportunities, Korean investors need to lower the IRR expectation and should be willing to take more risks, says Kim. She notes that Korean investors are still keen on second-tier cities in China and in core commercial properties in Tokyo.

Australia would be attractive but Koreans face tax issues, not to mention an expensive Aussie dollar. Down the road, Brazil, India and Indonesia could become attractive, but need to demonstrate more consistent and clear policies around property investing.

Daol will also consider investments into opportunistic assets, now that it has experience in the core segment of the market, she adds. For now, however, its expertise lies in office buildings.

Daol AMC was established in 2006 with Hana Daol Trust owning 50.4%; this entity became a wholly owned subsidiary of Hana Financial Group last year. Other shareholders include: Hana Bank’s securities arm, Daetoo; the National Federation of Agricultural Cooperatives, aka Nonghyup; Shinhan Bank; TongYang Securities; and Woori Bank.