Commercial Magazine

International Investments: South Korea

By Arnie Aurellano

It was a banner year for South Korean cross-border real estate investments in 2019, with the Asian nation exporting record amounts of capital and emerging as a new international power in the Far East. Just don’t look for most of that money in the U.S.

During the first three quarters of last year, investors from the Land of the Morning Calm completed $11.5 billion in cross-border deals, a volume that had already eclipsed their previous one-year high of $9.6 billion in 2017, Real Capital Analytics (RCA) reported. At that point, South Koreans had spent more on commercial real estate purchases outside Asia than investors from China, Hong Kong and Singapore combined, according to RCA.

Less than half a billion dollars of that historic volume, however, went into investments on U.S. soil. That’s a fraction of the more than $10 billion in South Korean capital that flowed into commercial real estate in Europe, with more than $4 billion earmarked for Parisian office space, RCA reported.

That’s only the latest development in a trend of South Korean funds streaming away from American destinations. South Korea was a stalwart participant in the North American real estate investment scene during the middle years of the past decade, as prices within the country (especially in the capital city of Seoul) grew to record highs as more investors allocated their cash to local real estate. This spurred increased action abroad, especially in 2015, when South Korean investors spent more than $3 billion in the U.S. Those investments increased in 2016 and remained strong in 2017.

Financial policy changes, however, have since pushed the South Korean investment needle away from U.S. properties and further toward European Union markets, culminating in a scant first three quarters of activity in 2019. Of the top 10 South Korean global real estate buyers that closed a cross-border deal of at least $10 million during 2018 or the first three quarters of 2019, only five purchased assets in North America.

A small rebound, however, may be coming. BusinessKorea reported last May that properties in the U.S. and Japan are garnering interest from a growing number of South Korean investors, who are attracted by stable property values and favorable regulatory environments in the two countries. At a global-investment strategy meeting that month, an official at a subsidiary of Hana Financial Group — South Korea’s largest international real estate buyer — called U.S. commercial real estate “a risk-free asset” and that “many customers showed much interest in it because of relatively lax regulations on lending,” the report stated.

Indeed, there are large planned investments in the U.S. to be found from South Korean investors. This past September, Seoul-based Mirae Asset Financial Group announced that it bought a $5.5 billion portfolio of 15 luxury hotels in the U.S. from China’s Anbang Insurance Group Co. Although the sale had yet to close as of October 2019 — meaning it wasn’t counted by RCA in its year-to-date South Korean deal volume — it stands to represent the largest cross-border acquisition ever by a South Korean company.

Mirae flexed a bit of financial muscle to seal the deal, too. It beat out a host of hospitality- property investment giants — including Canada’s Brookfield Asset Management and Singapore’s GIC, as well as U.S.-based Host Hotels and Resorts and The Blackstone Group.

Only time will tell if this purchase foreshadows a more active stateside period for South Korea in 2020. But if the Mirae deal says anything, it’s that there are South Korean investors who are willing to be major players in U.S. commercial real estate, and that the right properties can coax this sleeping Asian giant into big moves in the market. Capital Group, a Toronto-based rental- housing investment company.


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