[Exclusive] As the Market Opens, 'Gangnam' Takes the Spotlight... Industry Leader Koramco Launches Project REITs [Real Estate AtoZ]

Major Private Player Enters Just Four Days After First Project REIT Approval
Three Applications Filed, Including 1 Trillion Won Gangnam Station Office Development

Just four days after the approval of Project REITs No. 1, Koramco, a major player in the private REITs market, has entered the scene. By launching a mega-scale office development project in Gangnam, Seoul, valued at over 1 trillion won, as a project REIT, the influx of private capital into the market has begun in earnest. Project REITs require a much higher equity ratio from the project operator compared to project financing (PF), making them a representative advanced business model that can replace PF. With Koramco's entry, there are expectations that the adoption of project REITs will enhance the soundness of various real estate development projects.

According to the government and industry sources on December 24, the Ministry of Land, Infrastructure and Transport recently completed the registration of project REITs submitted by Koramco Asset Trust, the leading private REITs operator in Korea, and its subsidiary Koramco Asset Management. The filings include two REITs related to the 'Gangnam Station L Project' and one REIT for the 'Incheon Residence' project. These REITs are expected to receive approval early next year.

The Gangnam Station L Project involves developing the Lion Missing site in Seocho-dong, Seocho-gu, Seoul, into a prime office building. The project will be built on a 5,363-square-meter site, with a total floor area of 64,390 square meters (approximately 19,500 pyeong), spanning from six basement levels to 23 floors above ground. With a standard floor area of 469 pyeong, it is expected to become a rare large-plate office building even in the Gangnam area. The goal is to break ground in early 2028 and complete construction by 2031.

Koramco Asset Trust is jointly developing the project with SK D&D, a listed domestic developer. The total investment for the project is estimated at around 1.02 trillion won. Koramco is also reported to have completed raising equity capital for land acquisition and other purposes.

Location map of the 'Seocho-ro District Unit Plan' in Seocho-gu, Seoul. The Lion Missing site (Zone 2) is adjacent to the Lotte Chilsung site (Zone 3) near the center of the map. Provided by Seocho-gu.

The site is designated as Special Planning Zone 2 within the 'Seocho-ro District Unit Plan,' and together with the nearby Lotte Chilsung (Zone 3), Samsung (Zone 4), and Kolon (Zone 5) sites, it is considered prime land slated for high-density, mixed-use development around Gangnam Station. The area is also expected to undergo transformation in connection with the undergrounding of the Gyeongbu Expressway.

For this project, Koramco has structured a parent REIT, 'Koramco Value Investment Gangnam Entrusted Management Parent Real Estate Investment Company,' and a subsidiary REIT, 'Koramco Value Investment Gangnam Entrusted Management Subsidiary Real Estate Investment Company.' Typically, the parent REIT raises funds from investors, while the subsidiary REIT acquires the actual land for development and operation. SK D&D has signed the land purchase agreement and will transfer the buyer status to the Koramco REIT in the future.

The 'Koramco Incheon Residence Entrusted Management Real Estate Investment Company,' also filed on the same day, is a project to develop rental dormitories in the Namdong Industrial Complex in Incheon. The residence is a representative operational product that generates profit through long-term rental operations rather than simple sales.

Industry insiders have evaluated these developments as "the signal flare for the full-scale expansion of the project REITs system into the private market." The Dongtan Healthcare and Cheonan Station Area REITs, which were approved as the first project REITs by the Ministry of Land, Infrastructure and Transport on December 19, focused on public interests such as senior welfare and local government participation. These were intended to pave the way for project REITs.

REITs (Real Estate Investment Trusts) are a type of 'real estate corporation' that pools funds from multiple investors to invest in real estate and distributes profits as dividends. Project REITs, introduced on November 28, allow direct participation from the development stage through to post-completion operation. This differs from conventional REITs, which were limited to acquiring completed buildings to earn rental income.

In particular, project REITs are regarded as a strong alternative to traditional, debt-centered project financing. Project REITs are required to maintain a minimum equity ratio of 33% (about 10% with special resolution). A Ministry of Land, Infrastructure and Transport official stated, "Given the nature of project REITs, which consider not just sales but also rental operations, the equity ratio is often maintained at around 20%."

The previous day, the government announced a joint plan with relevant ministries to improve the real estate PF system, which includes raising the equity ratio requirement for future PF projects to around 20%. This measure was introduced because the low equity ratio (about 3%) of project operators and excessive reliance on guarantees have put both financial institutions and investors at risk in the event of project failure.

However, the Korea Housing Builders Association and the Korea Developer Association raised objections on the same day regarding the government's method for evaluating equity capital. While the government recognizes only the initial investment amount by the project operator as equity, the associations argue that if the land value increases due to permits and approvals, the appreciation should also be recognized as equity capital to attract additional investors.