[Exclusive] "Shut Down 10 Homeplus Stores at Once"... Landlords Hit Hard by Sudden Termination Notice

All 10 Stores Owned by MDM Asset Management Receive Termination Notices
DL Group Stores on Edge... "Possibility of Additional Terminations Remains"
Commercial Real Estate Market Shaken... "Direct Hit to Asset Values"
Homeplus Says "Notice Issued in Accordance with Legal Procedures... Room for Further Negotiation"

Homeplus has notified the termination of lease contracts at 17 stores nationwide, and it has been confirmed that more than half of these?10 locations?are in buildings owned by MDM Asset Management, an affiliate of MDM Group, the nation's largest developer. This mass contract termination has dealt a direct blow to the real estate industry. Although the five stores owned by DL Group were not included in this round of notifications, there is a high possibility of future terminations, heightening tension within the industry.

Lease Termination Notices Sent for 10 Homeplus Stores Owned by MDM

According to the development industry on May 16, MDM Asset Management received lease termination notices for all 10 Homeplus stores it owns. The affected locations are Gayang, Siheung, Ilsan, Gyesan, Woncheon, Ansan, Cheonan, Jangnim, Dongchon, and Ulsan. MDM Group acquired these properties in 2021, investing a total of 790 billion won, and at the time, entered into long-term lease agreements with Homeplus. In addition to MDM Asset Management, Hana Alternative Asset Management (Busan Gamman branch) and IGIS Asset Management (Hwaseong Dongtan branch) were also notified of lease terminations.

On May 14, Homeplus, in accordance with Article 119 of the Debtor Rehabilitation and Bankruptcy Act, issued a blanket termination notice for 17 out of 61 leased stores where rent adjustment negotiations had failed. At the time, Homeplus did not disclose the list of stores slated for termination, leading to rumors circulating about which regional stores might be closing.

MDM Asset Management refused Homeplus's demands, which centered on a 50% rent reduction and a contract period shortened by more than 10 years. A representative from MDM Asset Management stated, "Homeplus demanded that we cut the rent in half and drastically shorten the contract period from 2036 to next year." The representative added, "These are conditions we simply cannot accept. When we communicated our refusal, we received the termination notice." He continued, "We are currently considering our response. If the terminations go through, we will be burdened with the process of vacating all 10 stores at once and finding new tenants." In particular, some stores are highly specialized for use as supermarkets in terms of layout and interior, making it difficult to attract tenants from other industries. MDM Asset Management is likely to bear the risks of vacancy and additional maintenance costs.

MDM at the Center... Homeplus Says "Room for Negotiation Remains"

DL Group is also closely monitoring the situation. DL Group, which owns five stores?Ulsan Namgu, Uijeongbu, Incheon Inha, Daejeon Munhwa, and Jeonju Wansan?received the same demand from Homeplus for a "50% rent reduction and contract shortening." A DL representative stated, "We maintain our position that we cannot accept a 50% rent reduction. Although our stores were not included in this round of terminations, we remain vigilant as there is a possibility they could be targeted in the future."

The real estate industry is concerned that these rent reduction demands will not only decrease rental income but also lead to a decline in the asset value of real estate holdings. Commercial real estate is typically valued based on rental income. If rents are cut in half as proposed by Homeplus, asset values will be directly reduced. This could trigger a chain of risks, including lower fund returns, failed refinancing of collateralized loans, and investment losses.

Regarding the lease termination notices, Homeplus stated, "This was simply a procedural step to exercise our right to terminate within the legal timeframe, and does not constitute a final termination." A Homeplus representative explained, "We demanded rent reductions of up to 50% for stores owned by private equity funds, but offered relatively lower discounts for stores owned by public funds. There is still room for adjustment through further negotiations." Homeplus plans to continue rent adjustment negotiations through the end of this month.