12-Year-Old Naegok-dong 'Heonin Village' Development 500 Billion Won Bridge Loan 추진

NH Investment & Securities-led 'Land Acquisition' Fund
Shift to Land Readjustment Development Method... Implementation Plan Approved
Preliminary Investors React Coldly... "Risks Remain"

[Asia Economy Reporter Lim Jeong-su] A bridge loan of approximately 500 billion KRW is being pursued to finance the development project of Heonin Village in Naegok-dong, Seocho-gu, Seoul, which has faced stagnation over 12 years of ups and downs. The funds will be used to repay existing loans and secure land that has not yet been acquired. However, the response from prospective institutional investors has been somewhat lukewarm. Since not all land has been secured and the interests involved are complexly intertwined, there is uncertainty about whether the project can proceed smoothly.

According to the investment banking (IB) industry on the 1st, Upper House Heonin, an affiliate of Shinwon Comprehensive Development, is raising a bridge loan of about 500 billion KRW through Heonin Town Development, the project implementation agency. Upper House Heonin is the actual project owner of the Heonin Village development project, with Woo Jin-ho, chairman of Shinwon Comprehensive Development, holding 100% of the shares. The private equity fund 'The Platform Heonin Urban Development,' which acquired the loans held by Upper House Heonin and Woori Bank among others, is raising funds through a special purpose company (SPC).

The raised funds will be used to repay existing loans and secure additional land. The existing loan amount is known to be around 300 billion KRW. Upper House Heonin and Woori Bank each invested 10 billion KRW in subordinated loans (equity), and a consortium of financial companies lent 280 billion KRW to the developer. By refinancing this, about 200 billion KRW will remain, which is planned to be used to purchase the unsecured land.

According to the industry, the development site of Heonin Village is approximately 40,000 pyeong (about 132,000 square meters) around lot number 374 in Naegok-dong, Seocho-gu, Seoul, of which about 80%, or 32,000 pyeong, has been secured. The unpurchased land includes about 8,000 pyeong owned by clan associations who oppose the development, making resolution difficult. Most of the land purchased by the developer is provided as collateral for existing loans in the form of mortgages or trust beneficiary rights.

Expected Perspective View of Heonin Village Urban Development Project

Shinwon Comprehensive Development and others plan to proceed with the project using the land readjustment method under the Urban Development Act for the unpurchased land. The land readjustment method compensates landowners not with cash but with land created after development. Although the Seoul Metropolitan Government recently approved the implementation plan, approval for the land readjustment plan has not yet been obtained.

Once land acquisition is completed, the project will proceed through procedures such as project financing (PF) exceeding 1 trillion KRW to develop detached houses, multi-family housing, neighborhood living facilities, and surrounding parks and green spaces. Lotte Construction is in charge of construction and is reported to have provided credit support such as capital supplementation agreements for the bridge loan.

The bridge loan being raised from investors this time will be repaid once the main PF is successful. The plan is to establish the land readjustment plan and complete compensation procedures within this year and start construction next year. Completion is expected as early as the end of 2023.

Although the project appears to be gaining momentum with the Seoul Metropolitan Government's approval of the implementation plan and the bridge loan fundraising, the response from prospective institutional investors remains cold. Due to the complex interests involved and uncertainties about successful land acquisition, there is widespread analysis that it is difficult to be confident that the main PF, which is the repayment source for the investment, will be successfully completed.

An official from an investment institution said, "The Heonin Village development project has been drifting for a long time and involves many stakeholders, making it likely difficult to accelerate the project progress," adding, "If the project is delayed again, it is hard to guarantee that the investment can be properly repaid through the main PF within the deadline."

The large scale of fundraising through the bridge loan and the high loan-to-value ratio (LTV) compared to the land collateral value (appraised value) are also burdensome factors for investment execution. According to related industries, the overall LTV of the Heonin Village bridge loan exceeds 99%. Excluding the portion borne by the construction company Lotte Construction, the LTV of 380 billion KRW in loans fully reaches the financial companies' maximum allowable LTV of 75.6%.

An IB industry official said, "The project site is far from the Gangnam area, so its feasibility as a luxury townhouse is low," and predicted, "The feasibility issue will also negatively affect fundraising."

The Heonin Village development project began in March 2009 when it was designated as an urban development zone and a development plan was established. After applying for implementation plan approval in 2011, the project was delayed due to internal issues within the association. The initial contractors, Sambu Construction and Dongyang Construction Industry, went through court receivership as they failed to prevent PF debt.

Previously, 12 financial institutions including Woori Bank, which lent funds to the project, established 'Woori Gangnam PF' in 2006 and participated in project financing (PF) worth 390 billion KRW, but the project was delayed continuously, resulting in long-term failure to recover funds. The project also faced a crisis when Choi Soon-sil was reported to be involved in the Heonin Village development project.

Shinwon Comprehensive Development and Upper House Heonin formed a consortium with financial companies such as Mirae Asset Daewoo, NH Investment & Securities, Hanwha Investment & Securities, and Meritz Fire & Marine Insurance to establish 'The Platform Heonin Urban Development' and resumed the project by acquiring all existing claims generated from the previous project.