Koramco "Gwacheon Daetori REITs, Conversion from Residential to Office"

Koramco Asset Trust announced on the 17th that it has finalized the land sale contract for the Gwacheon Juam District with Korea Land & Housing Corporation (LH) and will commence the office complex development project using the land-for-REITs (Real Estate Investment Trust) method.

This is the first case in Korea where a large-scale office complex facility is developed through a land-for-REITs scheme, and it is also the largest project ever in terms of scale, approaching 1 trillion KRW. Land-for-REITs have mainly been used in small-scale development projects such as commercial shopping centers or officetels. Land-for-REITs are a type of REIT established by contributing land compensation rights received by landowners whose land has been expropriated for public projects such as the government's new town supply plans. The REIT management company applies the optimal development model to the contributed land and distributes the profits to the investors.

The Gwacheon Juam District is a site of 929,080㎡ (approximately 280,000 pyeong) located in Gwacheon-dong and Juam-dong, Gwacheon City, developed across from Umyeon-dong, Seocho-gu, Seoul, and Yangjae-daero. Koramco plans to develop an office complex combining offices and neighborhood living facilities on a 17,454㎡ (approximately 5,280 pyeong) site within this area, consisting of three buildings with six basement floors and ten above-ground floors, totaling a gross floor area of 153,057㎡ (approximately 46,300 pyeong).

Koramco established the Gwacheon Juam Land-for-REITs No.1 Entrusted Management Real Estate Investment Company in September 2022 and began the project. The land sale contract with LH was finalized last month. Construction is scheduled to start in the second half of 2027, with development expected to be completed by the first half of 2030 at the earliest.

The Gwacheon Juam Land-for-REITs initially planned to develop about 500 units of publicly supported private rental housing on a nearby site (B-1 block). Sensing changes in the real estate market at the border between Yangjae and Gwacheon, Koramco changed the acquisition target site (blocks 1-7 to 2-5) and shifted the development purpose from housing to office space.

Koramco is the number one private REIT operator in Korea, with about 60% of its investment assets in the office sector. As a management company that best understands the trends and changes in the domestic office market, it appears that Koramco changed the development sector placing emphasis on the growth potential of Gwacheon Juam as a business district.

In fact, the project site is a key area connecting the Gangnam business district and the Bundang-Pangyo business districts, attracting attention as an expansion base for the Gangnam business district. Recently, significant development projects such as the redevelopment of The-K Hotel, KCTC IDC & R&D development, and Harim urban high-tech logistics complex development have concentrated in the nearby area, increasing its potential as a business district. A Koramco official said, "The change in use was a proactive response to changes in the real estate environment, such as the creation of the Yangjae R&D special zone near the Gwacheon Juam District."

The Gwacheon Juam Land-for-REITs is Koramco's second land-for-REITs project. Previously, Koramco has been developing officetels and neighborhood living facilities in Pyeongtaek Brain City using the land-for-REITs method since 2021. At that time, while the land-for-REITs market was limited to projects worth 30 to 40 billion KRW, Koramco pushed forward a development project worth over 100 billion KRW, setting a milestone for expanding the land-for-REITs market. The REIT industry expects Koramco's current project to be a cornerstone for the large-scale expansion of land-for-REITs.

Kim Cheol-gyu, Executive Director of Koramco Asset Trust’s REIT Investment Division, said, "It is meaningful that we are developing land-for-REITs, which had been limited to small-scale sales projects, into a large-scale long-term operation model that meets the demands of the times, showcasing new possibilities." He added, "We are also considering supply not only of large offices but also senior housing and IDC (Internet Data Centers) in the future."

He continued, "In line with the purpose of land-for-REITs designed to prevent the short-term outflow of land compensation funds, we will faithfully provide stable cash flow to landowners and supply the most effective products from a long-term perspective to the development sites."