[Urban Development in Turmoil] ① Seongsu HL Group and Yangjae Harim Sites Stir... War to Attract Landowners

Projects Stalled by Bridge Loans Seek Revival Through REITs
Donated University Land and Regional Station Areas Also in the Running
Japan 2?5% vs Korea 13%: Hopes to Ease Real Estate Concentration

HL Group is moving to establish a project REIT (Real Estate Investment Trust) to build a new headquarters-grade office on the site of the former Hansung Motor Mercedes-Benz Service Center in Seongsu-dong, Seoul. A project REIT is a development-specialized REIT that can be launched with a simple registration from the real estate development stage and continues through to operation and dividends after completion. Since project REITs were introduced in Korea in November last year, urban development through project REITs has begun to appear in areas like Gangnam, Seoul, and is now expanding into northern Seoul.

Just two months after the implementation of project REITs, the multi-trillion-won urban complex development market in downtown Seoul is experiencing significant changes. According to industry sources on the 23rd, HL REITs Management, the asset management company (AMC) of HL Group, recently submitted a project REIT registration for “HL Seongsu Project Entrusted Real Estate Investment Company” to the Ministry of Land, Infrastructure and Transport. Once development is complete, the site is expected to be used as a second headquarters or rental office for affiliates such as HL Holdings and HL D&I Halla. Following MDM Group, Korea’s largest real estate developer and the first project REIT operator, other major players such as Koramco REITs Management & Trust, SK D&D, and now HL Group are joining in, drawing even more attention.

Companies like HL are interested in project REITs because it allows them to eliminate the middle margin (premium) that brokers or developers used to take during the development process, enabling the acquisition of high-quality assets at cost. An executive at an AMC operating listed REITs said, “Most REIT shareholders, such as pension funds and retirement funds, want stable dividends. If assets can be secured at cost from the early stages of development through a project REIT, higher dividends can be provided to investors.” He added, “Since everything from development to operation is managed within a single system, costs can be minimized.”

Koramco REITs Management & Trust, the largest AMC in Korea, and real estate developer SK D&D have also completed project REIT registration for a super-large office development worth 1 trillion won near Gangnam Station. In the public sector, Incheon Urban Corporation is pursuing the Jemulpo Station urban complex project (3,497 units) as a project REIT.

Harim, Hyundai Motor, Lotte... Prime Gangnam and Seocho Land to Be Released

The former cargo terminal site located south of Yangjae IC in Seocho-gu, Seoul. Harim Industry, an affiliate of Harim Group, is promoting the development of a logistics complex center here. Harim Industry

The most promising candidate site for a project REIT is the former cargo terminal site in Yangjae-dong, purchased by Harim Group a decade ago. On this 83,183-square-meter site, the plan is to build an advanced urban logistics complex with logistics, retail, office facilities, apartments, and officetels. With a total project cost of 6.8712 trillion won, the key issue is how to structure the financing. A real estate development industry insider said, “Given the scale, pushing forward with only loan-based project financing (PF) would be burdensome. Since options like land in-kind investment and equity attraction are open, it is highly likely that a project REIT will be considered.”

Hyundai Motor has also started utilizing project REITs. At the end of last year, it signed a memorandum of understanding (MOU) with Koramco REITs Management & Trust and others, and is currently reviewing the development and securitization of its real estate holdings at major sites in the Seoul metropolitan area and major cities. The parking lot site across from Hyundai Department Store’s Trade Center branch in Samseong-dong is also being discussed as a potential project REIT. The plan is for a complex facility with six basement floors and 33 above-ground floors on a 5,600-square-meter site. Since a large portion of the assets can be operated as rental properties such as offices, it is considered well-suited to the project REIT system, which is intended to cover both development and operation.

The Seocho-dong logistics center site owned by Lotte Chilsung Beverage is also considered a major candidate. This is a prime location near Gangnam Station, spanning about 13,000 pyeong. The Lotte Chilsung site has a book value of about 400 billion won, but its market value is estimated at 3 to 4 trillion won, leading to significant tax and project cost burdens upon development. Project REITs could provide a solution to these issues. Lee Kyungja, head of the alternative investment team at Samsung Securities Research Center, said, “We are preparing for development through the project REIT structure. Discussions with the Seoul Metropolitan Government regarding floor area ratio and other matters are necessary, but if things go smoothly, final approval could be obtained as early as this year.”

Location map of Lotte Chilsung site in Seocho-gu, Seoul. The Lion Mising site is nearby. Seocho-gu and Samsung Securities.

There is also interest in whether stalled projects that ran out of funding after approval can be revived through project REITs. The area around Daechi-dong, Gangnam-gu, near Samseong Station (Bichui Town), managed by Daishin REITs Management & Trust, is a prime example. This site, valued at 225.4 billion won, was even put up for auction after failing to repay a bridge loan. There is speculation that the project could be normalized by attracting equity investment through a project REIT instead of additional loans.

Lee Jin, head of policy research at the Korea Developer Association, said, “Non-housing projects that have not been able to transition from bridge loans to main project financing are positively considering project REITs. If funding is secured, even just reducing joint guarantee or default risks would be a great help for developers.”

Other candidates include land donated to universities, and in the provinces, Hanwha Solutions’ “New On City,” a 1 trillion won mixed-use development project near Ulsan KTX Station, is being mentioned as a potential project REIT. A Hanwha Investment official said, “PF projects face risks due to the sunset clause on tax benefits. We are keeping project REITs open as an option when reviewing development projects.”

Seoul Complex Development Boom May Unleash 290 Trillion Won in Assets

The market sees this system as a catalyst for converting “book assets” that large corporations have been holding onto into “real value.” According to Samsung Securities, as of the end of 2024, the total assets of Korea’s 12 major conglomerates amount to about 2,207 trillion won, with real estate-related assets (tangible assets and investment real estate) accounting for an average of 13.2% (290 trillion won). In comparison, the proportion of real estate assets among major Japanese companies is only about 2-5%, indicating that Korean companies are excessively concentrated in real estate, resulting in low capital efficiency.

Lee Kyungja of Samsung Securities said, “A significant number of sites that have not been utilized for a long time due to tax burdens are in prime locations in Seoul. Recently, development plans for railway and terminal sites such as Yongsan Station, Seoul Station, East Seoul Terminal, Gangnam Express Bus Terminal, and Sinjeong-dong West Truck Terminal have begun to take shape, fueling the complex development boom in Seoul.” She added, “With the tax deferral benefits of project REITs, companies now have an incentive to utilize sites that were previously non-earning assets. As these projects are being pursued in complex development formats, it is expected to help ease the housing supply shortage in Seoul.”