(From Korea JoongAng Daily)
South Korea’s institutional investors are putting money in debt to buy Manhattan and San Francisco skyscrapers as they flee record-low bond yields and falling shares at home.
A group of Korean insurance companies is investing about $220 million in a mezzanine loan, which is repaid after senior debt in case of a default, for the 54-story AXA Equitable Center at 787 Seventh Avenue in Manhattan this month, people familiar with the matter said last week. The Teachers’ Pension is underwriting a combined $100 million mezzanine debt along with other domestic funds for the 32-story Westin St. Francis hotel in San Francisco, its first investment abroad in such loans.
Korea, with an aging population and a national pension fund with 507 trillion won ($413.2 billion) in assets, was the fourth-biggest foreign investor in U.S. offices last year, according to Jones Lang LaSalle data. Driving the foray abroad are 10-year won sovereign yields that dropped 60 basis points in the past year and a benchmark share index that lost 4 percent.
“It’s hard to make money from the stock or bond market,’’ said Kim Chang Ho, the Seoul-based head of the global alternative investment team at Teachers’ Pension, the nation’s second-largest public retirement fund with 12.8 trillion won of assets. “Real estate mezzanine debt is relatively safe compared with equity investment while offering higher yields than senior loans.”
That hasn’t damped demand among companies in Asia’s fourth-largest economy for U.S. property deals. Seven financial firms including Shinhan Life Insurance and Hyundai Marine & Fire Insurance underwrote about $220 million in mezzanine debt for Manhattan’s Three Bryant Park office tower last year. Read more