Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Local financial institutions curtail overseas real estate holdings
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By Anna J. Park
By Anna J. Park
Before the COVID-19 pandemic impacted the global economy, overseas real estate or infrastructure investments were considered by local institutional investors as safe alternatives that ensure high returns amid low interest rates. Local institutional investors began to make large-scale investments in overseas real estate and the boom was in full swing from 2017 and 2019.
However, this concept changed completely due to the pandemic. Most overseas real estate investments included in the portfolios of local institutional investors are hotels in North America or office buildings in European countries. But the strengths of these alternative investments have weakened during the pandemic.
Some of these hotels and office buildings owned by local institutional investors stopped generating profits and became distressed, because the number of global tourists declined significantly and more people were forced to work from home instead of commuting to their offices during the pandemic.
The Drew Las Vegas Project is a prime example. The unfinished hotel and casino construction project resulted in losses of 300 billion won ($255 million) for local institutional investors, including Mirae Asset Daewoo, Hana Financial Investment and Hyundai Motor Group. The project was considered a safe bet a couple of years ago. But local institutional investors failed to respond swiftly to the pandemic and the project was unexpectedly suspended.
Such incidents prompted local institutional investors to sell some of their overseas real estate assets, hoping to reduce their exposure to uncertainties that began to rattle the global property market.
Local institutional investors succeeded a couple of months ago in recouping loans they extended to West Hollywood Edition Hotel and Residences, located in California, garnering a capital return of only two percent. Mirae Asset Securities and NH Investment and Securities had led the $182 million investment in 2019. They expected a higher return, but the two-percent profit is considered as a moderate success, considering the increased level of uncertainty in the global real estate market.
In July of this year, Shinhan Bank also sold to a U.S.-based asset manager all of the nonperforming loans (NPL) it held in a hotel in Chicago. The bank made the 70 billion won investment in 2017, but barely broke even after selling the property.
Local institutional investors may be excused for opting to reduce their exposure to soured overseas real estate investments during the pandemic. But some market watchers point out that the investors may be acting too defensively, compromising potentially lucrative opportunities.