[Fast Money Returns to Real Estate] ② Institutions Hold the 'Kkotnori Card'... Some Advise Caution as Premature

Pension Funds and Mutual Aid Associations as Major Investors Actively Increase Real Estate Investment Execution
Profiting from High-Interest Loans, Asset Prices Rise When Interest Rates Fall
Combined Loan and Equity Investments Also Provide 'Risk Diversification' Benefits

Large institutional investors such as pension funds and mutual aid associations are also actively increasing their real estate investment executions. In a high-interest-rate environment, they generate returns through real estate loan funds, and when interest rates fall in the future, they can aim for real estate price appreciation, making the current real estate investment market a "winning hand" for institutions holding new capital.

According to the investment banking (IB) industry on the 8th, the Government Employees Pension Service (GEPS) plans to actively respond to capital calls for real estate investments in the Americas through global asset managers starting from the second quarter of this year.

Previously, GEPS entered into real estate loan fund agreements with Blackstone, Starwood Capital, and Samsung SRA Asset Management. Baek Joo-hyun, CIO of GEPS’s Fund Management Division, explained, "The investment in the domestic real estate loan fund managed by Samsung SRA, a domestic asset manager, has progressed faster than expected and is nearing completion. Due to the nature of domestic real estate loans, early cash flow is generated through upfront interest income." He added, "For overseas investments, asset managers were selected by region, dividing between the U.S. and Europe. Currently, loans for European real estate are being executed first, and from this second quarter, when the U.S. fund closing is completed, investments will proceed in earnest."

Besides GEPS, most domestic and international institutional investors have recently been competitively entering the real estate investment market. If the high-interest-rate environment persists, real estate loan fund yields increase, and when the interest rate environment changes, loan rates may decrease while the value of real estate equity assets can rapidly recover. Institutional investors holding capital aim for mutual buffering and risk diversification effects through dual-direction investments in real estate loans and equity holdings.

In the first quarter of this year alone, two mutual aid associations announced plans to invest a total of 800 billion KRW in real estate loan funds. Noranwoosang announced plans to select a domestic real estate loan blind fund worth 600 billion KRW, which is twice the size of last year’s investment. The Construction Workers Mutual Aid Association also announced plans to select a fund manager for a 200 billion KRW real estate loan fund.

For assets already invested, active construction work is underway, and sales of assets that had been difficult to sell for a long time are being completed, signaling a market revival. Samsung C&T, NCSoft, Mirae Asset Global Investments, and the Government Employees Mutual Aid Association formed a consortium and started construction of NCSoft’s second office building on the site of the Pangyo District Office in Seongnam, Gyeonggi Province. Blackstone sold Arc Place, a landmark in the Gangnam Business District (GBD), to Koramco Asset Trust. Koramco completed the capital payment within six months as the preferred bidder after extending the memorandum of understanding (MOU) and adjusting the price.

Domestic and International Institutions: "Real Estate Values Have Fallen Enough... Will Increase Capital Investment"

Recent survey results also support the recovery of investment sentiment. According to a survey conducted by global integrated real estate services firm CBRE targeting 1,400 institutional investors worldwide, investors in all regions plan to increase real estate investment activities this year. Capital deployment increased in 2024 because asset prices have sufficiently declined, respondents said. There was also a forecast that expected returns would improve.

According to CBRE Korea, the investment scale in Seoul’s commercial real estate market is expected to show a slight recovery compared to the previous year, with investment activities recovering mainly in offices. The possibility of interest rate cuts in the second half of the year is also expected to contribute to potential investment activities. Corporate (SI) investors are emerging as major demand sources, and investment cases for securing office buildings are expected to increase. Yields are forecasted to continue a slight upward trend.

Meanwhile, despite the swift and bold investments by institutions, there is still cautious opinion that construction and real estate investments are premature. Kim Hyo-seon, Senior Real Estate Specialist at NH Nonghyup Bank, said, "Although the market has recently shown some upward shift, transaction volumes and demand are not yet supported," adding, "While the situation is no longer severe enough to raise crisis concerns, it is necessary to observe the situation after the April general election before making judgments."