JLL-Avison Young Completes Sale of Jongno Tower to SK REITs

Despite Interest Rate Hikes, Sales Price Trades at 33.9 Million KRW per Pyeong

[Asia Economy Reporter Kwangho Lee] Global integrated real estate service companies JLL (Jones Lang LaSalle) and Avison Young, as joint exclusive sales advisors for KB Asset Management, announced on the 28th that they successfully completed the sale of Jongno Tower, located at 51 Jongno, Jongno-gu, Seoul, on the 19th.

KB Asset Management proceeded with the sale of Jongno Tower three years after purchasing it in 2019. After intense negotiations with multiple investors, the transaction was completed through Total Value No.1 REIT, a 100% subsidiary REIT of SK REITs, for 621.5 billion KRW, at a sale price of 33.9 million KRW per pyeong. KB Asset Management acquired the asset in June 2019 by establishing the KB Wise Star Jongno Tower Investment Trust for 463.7 billion KRW. The fund included KB Financial Group’s blind fund and KB Securities as major investors. The fund liquidation is expected to take place around December after the liquidation procedures are completed.

Jongno Tower is a landmark office building with historical value, completed in September 1999, consisting of 6 basement floors and 24 above-ground floors, with a total floor area of 60,601 m2 (18,332 pyeong). It is a prime office building located in Jongno-gu, the core office district (CBD) of Seoul, where major domestic conglomerate headquarters and foreign companies are concentrated. It is a high-quality asset generating stable rental income with an overall occupancy rate of 99%. SK Group affiliates, one of Korea’s top conglomerates, lease 46% of the total area, using it as a strategic office for environmental and energy businesses (SK Green Campus). Other reputable tenants such as McDonald’s and Meritz Fire & Marine Insurance also lease space in Jongno Tower.

Jaehoon Jang, CEO of JLL Korea, said, “In the second half of 2022, amid ongoing interest rate hikes causing difficulties in financing and increasing economic uncertainties delaying transactions, the Jongno Tower deal is a remarkable achievement. It is a case that proves the unwavering investment demand for landmark locations.”

Dongheon Shin, Head of Real Estate Management at KB Asset Management, said, “Immediately after establishing this fund, we sought various ways to overcome adverse factors such as decreased office and retail leasing demand due to the spread of COVID-19 and rent arrears caused by deteriorating performance of major tenants. Ultimately, we attracted SK Group as a replacement tenant, enhancing the asset value of Jongno Tower.” He added, “Despite recent capital market shocks caused by economic crises, this is a case of successfully completing the sale at a good timing.”

Although domestic investors face increasing burdens on commercial real estate transactions due to the recent sharp rise in interest rates, the potential for A-grade offices is expected to increase due to low vacancy rates and rising rent trends. Furthermore, in asset selection, a discerning trend of carefully choosing assets with good location and condition by sector is expected to continue.

The downtown area where Jongno Tower is located has recently shown a rapid decrease in vacancy rates. Since 2021, effective rents have risen sharply. Due to the shortage of A-grade office supply within the entire Seoul business district and delays in office supply caused by development project financing delays, the Seoul office market is expected to maintain low vacancy rates from a mid- to long-term perspective.