[Fast Money, Real Estate Again] ① Market Thaw Mood... Interest Rate Falls Below 5%

Institutions with Financial Capacity Make Bulk Investments in Prime Real Estate
Real Estate Loans for High Interest Rates, Targeting Asset Price Increases When Rates Fall

Real estate investment sentiment is rapidly improving, centered on institutional investors. The financing interest rates for the commercial real estate market, which rose to double digits last year, have recently plummeted to below 5%. The direction of interest rates has been set, and quick-moving institutions have boldly bet on rate cuts. The sentiment that the first half of this year is the 'last chance' to secure high-interest real estate loans has triggered competition among firms, further driving down interest rates.

Short-term 'Concentrated Investment' in Real Estate... Double-digit Rates Drop Sharply to Below 5%

According to the financial investment industry on the 8th, Kiwoom Securities has made real estate investments totaling about 700 billion KRW over the past three months. This includes 350 billion KRW for GS Construction's Songdo mixed-use complex development and 200 billion KRW for Lotte Construction's project financing (PF) business, marking a large-scale single investment. Additionally, several other real estate investments ranging from 30 billion to 50 billion KRW have been made. A senior official from the financial investment industry hinted, "When construction companies make large-scale fund executions during difficult times, they can secure advantageous positions in future lead manager selections," adding, "The sentiment that the real estate market has bottomed out also played a role."

An official from A Asset Trust said, "The market is all about sentiment. Even if interest rates do not drop immediately in May or June, the sentiment that rates will no longer rise and will only fall is positively influencing the market." He added, "The rates applied when asset managers purchase assets have fallen below the 5% range, and changes to the 2-3% range have already begun."

Investors are moving quickly based on the judgment that if the base interest rate falls directly in the future, asset prices will rise, increasing dividend profits.

An official from B Investment Management said, "Since it is the beginning of the year and the market atmosphere has greatly recovered, aggressive business competition has emerged," adding, "There are cases where senior office collateral loan rates are breaking below 5%." He also said, "In PF projects where top-tier contractors like Samsung C&T are responsible for completion, there is a movement to set senior rates very low," and "Until last year, the approach was mainly through real estate loans, but this year, as interest rates fall, the atmosphere will inevitably shift toward equity investment."

'Quickly Before Rates Fall'... Bulk Investments Flocking to Prime Projects

Although the market situation is still unstable, investment sentiment is rapidly recovering. A representative from C Real Estate Management said, "The Taeyoung issue has been prepared for over a year by everyone, so its impact has lessened, and Lotte seems to have responded proactively," adding, "Shinsegae is responding at the group level, and since the direction of interest rates has been set, I don't think there will be any major events causing market fluctuations among the top 100 contractors."

The influx of real estate projects, which had been stuck without options during the high-interest rate period, now being offered to investors under favorable conditions, has also contributed to the recovery of investment sentiment. Despite ongoing concerns about the real estate PF market, large sums of money are pouring into A-grade projects.

An official from D Securities explained, "Deals that seem likely to lose project rights or be canceled if left dormant are flooding in," adding, "Investors are 'picking up' deals with good conditions and project feasibility." He added, "All deals securities firms are entering now are with prime projects, and if they are not A-grade projects, they do not pass the internal investment review committee."

Positive winds are blowing from top-tier construction companies. Lotte Construction recently confirmed the formation of a real estate PF acquisition fund worth a total of 2.3 trillion KRW through commercial banks and securities firms. The purpose is to support Lotte Construction's unstarted PF projects. Shinsegae Construction is also reportedly planning to raise funds with a structure similar to the PF fund formed by Lotte Construction and financial institutions. Kolon Global recently dispelled market suspicions regarding contingent liabilities. Among Kolon Global's three unstarted contingent liability sites, the Daejeon Bongmyeong project, which accounts for more than 40%, successfully converted to the main PF.

Kim Cheol-gyu, head of the REIT business division 1 at Koramco Asset Trust, explained, "You can see that bulk investments of several hundred billion KRW are being made in projects with good profitability and stability," adding, "Previously, investments were capped at the upper limit for portfolio management, but now, since investment targets are limited, there are many cases of increasing investment volume in prime projects."

Partnerships between construction companies and securities firms are also noticeably strengthening. Construction companies, struggling with a lack of funds, are lowering their stance to secure liquidity by partnering with securities firms that have financial capacity. Given the unstable construction real estate market, securities firms promise reliable financing in exchange for securing new business opportunities such as initial public offering (IPO) or mergers and acquisitions (M&A) advisory contracts from construction companies, forming a mutually beneficial relationship.

Recently, IBK Investment & Securities signed a memorandum of understanding (MOU) with Hoban Group to cooperate on finance and overall business. They agreed to collaborate in real estate finance, corporate finance, fund management and procurement, reciprocal investments, and expanding inter-company transactions. IBK Investment & Securities will support Hoban Group in IPO and M&A advisory, private equity fund and new technology investment association formation, among other areas.