By Yoon Ja-young
Struck by economic hardships, cash-strapped conglomerates are selling off their office buildings, which are getting the spotlight in the real estate market as they offer stable rent.
Samsung Engineering announced last month that it will sell its headquarters building in Sangil-dong, southeastern Seoul. The sale is part of a restructuring plan for the company, which sustained operating losses of 1.5 trillion won in the third quarter.
The shipbuilding industry and steel industry, hit hardest by the global recession, are the most active in selling their buildings.
Daewoo Shipbuilding and Marine Engineering (DSME), which sustained 5 trillion won in operating losses in the second and the third quarters, is also selling its 17-story building in downtown Seoul. The shipbuilder selected Mirae Asset Global Investments and Kiwoom Asset Management as preferred bidders. When the deal is complete, DSME is expected to receive around 180 billion won.
STX Group, which is going through corporate restructuring, also sold its R&D center in southern Seoul to Pacific Asset Management Corporation for 56 billion won.
Dongkuk Steel sold Ferrum Tower, its headquarters building in downtown Seoul, to Samsung Life Insurance in April. The company which was hit by a slowdown in the steel industry pulled in 420 billion won through the deal.
The large office buildings are mostly bought by real estate funds as well as institutional investors who have been seeking alternative investment tools.
The buildings are getting the spotlight for a number of reasons. First of all, they are found in prime locations in Seoul’s busiest districts.
“They have an excellent location,” said Yoon Yeo-shin, CEO of Genstar Property. “It is difficult to build a sizable new building in such a good location. That’s why institutional investors and asset management companies are interested in those in core areas.”
They also find these buildings attractive as they offer stable rent while the interest rate is at a historically low level. While the biggest concern for building investors is that the building may become vacant due to difficulties finding tenants, there is no such concern for these conglomerate buildings as they usually continue using office space through a lease-back option. It compares well against the high vacancy rate of office buildings in Seoul which stood at 8 percent in the third quarter.
Industry analysts expect more conglomerate buildings to be put up for sale as the government has restructuring plans for insolvent companies.
Yoon said he sees both sellers and buyers increasing in this market. “After the financial crisis, conglomerates learned how crucial it is to get cash and liquidity,” he said. “Many are consulting with us to sell the diverse buildings they have. Foreign investors are also paying attention to these assets.”