Daol Asset Management Reaches Settlement in US 'Union Station' Lawsuit... Secures Principal Plus Additional Earnings

Daol Asset Management (CEO Changhee Lee) announced on the 14th that it has reached an agreement to receive $505 million in negotiations over the usage rights of Washington D.C.'s Union Station, which was forcibly expropriated by the U.S. railroad company Amtrak. This ends the lawsuit with Amtrak and secures not only the recovery of the $430 million principal investment but also an additional profit of $75 million.

Daol Asset Management, together with the local U.S. asset manager Rexmark, invested in a $100 million mezzanine loan secured by the usage rights of Union Station in 2018. At that time, the appraised value of Union Station was approximately $1 billion, and the senior loan was $330 million, representing a safe loan investment with an LTV of 43%.

However, due to the suspension of train station operations caused by COVID-19, 112 stores within the station closed, and from early 2021, interest payments on the loan were in default.

In December 2021, when the senior secured creditor Wells Fargo Bank exercised its security interest through the real estate investment company SL Green, putting the $100 million mezzanine investment at risk of total loss, Daol Asset Management injected an additional $330 million in January 2022 to purchase the senior loan, and two months later in March, became the owner of Union Station through the exercise of the security interest.

However, in March 2022, Amtrak, the tenant of the station, claimed expropriation rights over Union Station, initiating a new legal dispute. In the U.S., government agency expropriations are rarely overturned, and compensation prices for the asset are determined by the courts. As asset prices plummeted due to COVID-19, Amtrak exercised expropriation rights to acquire the asset at a low price and posted a deposit of $250 million, which was less than Daol Asset Management’s principal investment of $430 million.

Daol Asset Management and local manager Rexmark conducted five lawsuits over the past three years, and through this settlement, they have ended the litigation and can recover their investment. Amtrak chose a quick resolution through bilateral negotiations rather than court trials and appraisals to determine compensation, aiming to end the legal dispute that could have become more complicated with the Trump administration’s inauguration. They agreed to pay more than twice the $250 million offered at the time of the 2022 expropriation.

Recovering the principal and additional profits from defaulted loan bonds in overseas real estate investments by domestic institutions is a very rare case, and recovering investment funds through litigation with a U.S. government agency after forced expropriation is highly significant.

Although much of the uncertainty regarding investment recovery has been removed, litigation with Ashkenazy, the original owner and borrower of Union Station, is expected to continue for 1 to 2 years.

Although the court has decided that the usage rights transfer and negotiation authority over Union Station belong to Daol Asset Management, a certain period is required until the final judgment. Daol Asset Management plans to fulfill its role as the asset manager until the lawsuit is concluded.