[Exclusive] Project REITs Unlock, Gangnam Surges First... Market Leader Koramco Steps In [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 first project REITs (Real Estate Investment Trusts) were approved, Koramco, regarded as the leading player in the private REITs market, has entered the arena. By pushing ahead with an ultra-large office development project in Gangnam, Seoul worth over 1 trillion won as a project REITs, the full-scale inflow of private capital into the market has begun. Project REITs are considered an advanced, developed-market style business model that can replace project financing (PF), as the project operator's equity ratio is significantly higher than in PF. With Koramco’s entry, there is an outlook that, once project REITs take root, financial soundness will be secured across various real estate development projects.

According to the government and industry sources on the 24th, the Ministry of Land, Infrastructure and Transport recently completed the acceptance of project REITs establishment filings submitted by Koramco Reits & Trust, which holds the No. 1 market share in Korea’s private REITs market, and its subsidiary Koramco Asset Management. These filings cover two REITs related to the "Gangnam Station L Project" and one "Incheon Residence" REIT. These REITs are expected to be approved early next year.

The Gangnam Station L Project is a prime office development project on the Lion Missing site in Seocho-dong, Seocho-gu, Seoul. The plan is to build on a site area of 5,363 square meters, with a total floor area of 64,390 square meters (about 19,500 pyeong), comprising 6 basement levels and 23 above-ground floors. With a standard floor net leasable area reaching 469 pyeong, it is expected to become a large-plate office that is rare even in the Gangnam area. The goal is to break ground in early 2028 and complete construction in 2031.

Koramco Reits & Trust will jointly promote the development with SK D&D, a domestically listed developer. The total project investment is estimated to be around 1.02 trillion won. Koramco is known to have already completed the fundraising of equity capital for land acquisition and related 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 a prime area slated for high-density mixed-use development around Gangnam Station. Combined with the planned undergrounding of the Gyeongbu Expressway, a major transformation of the area is anticipated.

For this project, Koramco has structured 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." Generally, the parent REITs raises capital from investors, while the subsidiary REITs actually acquires the land and undertakes development and operation. SK D&D has signed a land sale and purchase agreement and will transfer its purchaser status to the Koramco REITs at a later stage.

The "Koramco Incheon Residence Entrusted Management Real Estate Investment Company," filed on the same day, is a project to develop rental-type dormitories within the Namdong Industrial Complex in Incheon. The residence product is a representative operation-based asset that generates profit through long-term lease operations rather than simple unit sales.

Industry insiders view these moves as "a signal flare that the project REITs system is spreading in earnest into the private market." The Dongtan Healthcare and Cheonan Station Area REITs, which the Ministry of Land, Infrastructure and Transport approved as the first project REITs on the 19th, were projects emphasizing public interest, including senior welfare and participation by local governments. They were designed to open the way for project REITs.

REITs are a type of "real estate corporation" that pool funds from multiple investors, invest in real estate, and distribute profits as dividends. Project REITs, introduced on November 28, can participate directly from the development stage and continue through post-completion operations. This makes them a different product from traditional REITs, which were limited to purchasing completed buildings and earning rental income.

In particular, project REITs are considered a strong model to replace conventional PF, which is heavily dependent on borrowing. Project REITs must maintain an equity ratio of at least 33% (around 10% in cases of special resolution). An official at the Ministry of Land, Infrastructure and Transport said, "Given the nature of project REITs, which take into account not only sales but also lease operations, it is common for them to maintain an equity ratio of around 20%."

The previous day, the government announced a "Real Estate PF System Improvement Plan" through a joint briefing by relevant ministries, which included a measure to raise the equity ratio for future PF projects to around 20%. This step was taken because developers’ equity ratios, at around 3%, are low and they rely excessively on guarantees, which means that, if a project fails, both financial institutions and investors are exposed to high risk.

However, the Korea Housing Builders Association and the Korea Developers Association raised objections on the same day regarding the government’s method of assessing equity capital. The government stated that only the developer’s initial cash投入 would be recognized as equity, but the associations argued that, when land value increases due to permits and approvals, the appreciation portion should also be recognized as equity capital in order to attract additional investors.