Following Institutional Investments... Real Estate Loan Funds Emerging as 'Attractive Investment Destinations'

Announcement of 800 Billion KRW Investment Plan by 2 Credit Associations in February
Rising Loan Fund Demand and Expected Returns Amid Real Estate PF Crisis
Stability and Profitability 'Killing Two Birds with One Stone'... "Big Opportunity After General Election"

Among institutional investors (LPs), domestic real estate loan funds are emerging as attractive alternative asset investment destinations. This month alone, two mutual aid associations have decided to invest a total of 800 billion KRW. As the 'sorting out' process progresses amid the real estate project financing (PF) crisis, the strategy is to discover high-quality real estate assets in urgent need of funds and secure profits by charging high interest rates.

Increasing investment scale compared to previous years... Target return rate above 5.5%

According to the investment banking (IB) industry on the 26th, Noranwoosang recently announced plans to select a domestic real estate loan "blind fund" (a fund that selects investment targets after raising capital) with a total scale of 600 billion KRW. This is twice the investment scale of last year (300 billion KRW). Two entrusted asset managers will be selected in total. The minimum target return rate is 5.5%. The investment targets are pure loan types of real estate in major domestic cities such as offices and logistics. Specifically, secured loans on physical assets and development project PF loans are targeted.

Earlier, on the 13th, the Construction Workers Mutual Aid Association also announced plans to select entrusted asset managers for a real estate loan fund. The investment scale is a total of 200 billion KRW, and four entrusted asset managers will be selected. The minimum target return rate is set at 6%. The investment targets are the same as Noranwoosang’s: pure loan types including secured loans on physical assets and development project PF. At the end of 2022, the Construction Workers Mutual Aid Association selected Capstone Asset Management and Koramco Asset Management as entrusted asset managers for the real estate loan fund and invested a total of 150 billion KRW. Compared to that time, the investment scale has increased by 50 billion KRW.

"Big opportunity after the general election"... Aiming for both profit and stability

In the past, real estate loan funds were not considered attractive investment destinations because real estate developers could secure sufficient financing from commercial financial institutions. However, the situation changed as the real estate PF crisis became a reality. As banks and securities firms tightened funding, the market dried up, and the increased demand for funds raised the expected returns of loan funds. An IB industry insider said, "From the perspective of institutional investors, the appeal lies in the ability to achieve higher returns than bonds," adding, "The PF crisis is becoming an investment opportunity."

Lee Doyoon, Head of Asset Management and Chief Investment Officer (CIO) at Noranwoosang, said, "The PF crisis, which seemed temporarily contained, will continue to erupt after the April general election, bringing good investment opportunities. That is why we have started the process of selecting asset managers now." According to his detailed market analysis, now is the time to open wallets for real estate loan funds. Real estate loan funds are generally classified as medium-risk, medium-return investments. However, he believes that investing in loans with a relatively low risk, such as those with a high proportion of senior loans, can capture both stability and profitability. The CIO said, "Even with a high proportion of senior loans, the interest rates are sufficiently attractive." He also presented an asset management guideline that investments in real estate secured loans proceed only when the senior loan investment ratio exceeds 70%. The Construction Workers Mutual Aid Association also solidified a senior loan-focused investment strategy, stating that "only senior loans are possible for development project PF investments."

In addition to Noranwoosang and the Construction Workers Mutual Aid Association, which have already announced investment plans, other pension funds and mutual aid associations are also showing interest in real estate loan funds and are expected to make full-scale investments after the general election.