[Exclusive] Project REITs Take Off in Gangnam as Soon as Market Opens... Major Player Koramco Enters [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 the first project REITs (Real Estate Investment Trusts), Koramco, a major player in the private REITs market, has entered the scene. With the launch of a mega office development project in Gangnam, Seoul, valued at over 1 trillion won, as a project REITs, the influx of private capital into the market has officially begun. Project REITs are considered an advanced business model that can replace project financing (PF), as the equity ratio of the project operator is significantly higher than that of PF. With Koramco’s entry, there are expectations that project REITs will become established, thereby enhancing 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 applications filed by Koramco Asset Trust, the leading private REITs operator in Korea, and its subsidiary Koramco Asset Management. The applications include two REITs related to the ‘Gangnam Station L Project’ and one REIT for the ‘Incheon Residence’ project. These REITs are expected to be approved 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 (about 19,500 pyeong), consisting of six underground floors and 23 above-ground floors. With a standard floor area of 469 pyeong, it is expected to become a rare large-plate office 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 is estimated at around 1.02 trillion won. Koramco is also reported to have completed the fundraising of 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 a prime location for high-density mixed-use development around Gangnam Station. The area is also expected to undergo transformation in conjunction with the undergrounding of the Gyeongbu Expressway.

For this project, Koramco has designed a structure consisting of a parent REITs, ‘Koramco Value Investment Gangnam Entrusted Management Parent Real Estate Investment Company’, and a subsidiary REITs, ‘Koramco Value Investment Gangnam Entrusted Management Subsidiary Real Estate Investment Company’. Typically, the parent REITs raises funds from investors, while the subsidiary REITs actually acquires the land and handles development and operations. SK D&D has signed a land purchase agreement and will transfer the buyer status to the Koramco REITs 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. Unlike simple sales, the residence is a representative operational product that generates profits through long-term rental operations.

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

REITs are a type of ‘real estate corporation’ that gathers funds from numerous investors to invest in real estate and distributes profits as dividends. The project REITs system, introduced on November 28, allows participation from the development stage through to post-completion operations. This is different from conventional REITs, which only acquired completed buildings to generate rental income.

In particular, project REITs are considered a strong candidate to replace traditional PF, which is centered on borrowing. Project REITs are required to maintain a minimum equity ratio of 33% (about 10% with special resolution). An official from the Ministry of Land, Infrastructure and Transport stated, “Given that project REITs are designed for rental operations rather than sales, the equity ratio is often maintained around 20%.”

The previous day, the government announced a joint plan for ‘Improving the Real Estate PF System’, which included raising the equity ratio for future PF projects to around 20%. This measure was introduced because the equity ratio of project operators (about 3%) is low and excessive reliance on guarantees makes both financial institutions and investors vulnerable in the event of project failure.

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