CEO profits in troubled real estate market

Hanmi Financial Group President Kim Jae-dong / Courtesy of Hanmi Financial Group

By Nam Hyun-woo

In December, Hanmi Finance and Investment (F&I) purchased three studios and one penthouse in a fancy apartment complex in Dongja-dong, central Seoul, for 2.4 billion won. The combined value of these properties was assessed at 4.3 billion won, but the company could purchase them at the lower price because of pending legal hassles over their liens.

Properties tied up in liens may incur extra costs to those who purchase them, but the company saw how this could be favorable to it and won the suits in April to receive ownership of those properties. Recently, the company received an offer to sell the penthouse alone for 2.7 billion won.

The company invested some 58 billion won in nine similar problematic properties between September and December last year. The appraised price of those properties now reaches 110 billion won.

This is what Hanmi Financial Group President Kim Jae-dong calls “low risk, high return” ― what every investment company dreams of.

“By doing what others won’t do, we could enjoy solid profit,” Kim said during an interview with The Korea Times on April 28. “Someone calls this the insight of a CEO, but I would rather say this is a very basic principle for a businessman.”

Established in 2007, Hanmi F&I, the group’s flagship unit, exactly occupies a niche in the real estate non-performing loan (NPL) market. The real estate NPL market is heavily controlled by F&I companies, such as United Asset Management Corp. (UAMCO), which invest in a massive pool of NPLs. For a smaller number of NPLs, private investors join their hands to invest in individual NPLs. Hanmi F&I also does this, but takes a more specialized approach that is not available to private investors.

Through some 120 lawyers, certified appraisers, contractors and real estate experts, the company reviews cases in four steps to assess whether it can solve the problems lowering the target properties’ price and profit from them. In making nine investments throughout the fourth quarter of 2015, it reviewed some 520 cases.

“We purchase properties at a price some 30 to 40 percent of their appraised value. By solving problems pending on them, we raise their value up to 80 to 90 percent of the appraised price and sell them,” Kim said.

Since the company, which officially began making investments last year, has not sold all of the properties it invested in last year, it cannot determine the exact amount of its net profit, but Kim anticipates at least 52 billion won as appraised profit, adding that his business is now stable.

“One of the strengths of our business is that it is not heavily affected by general ups and downs in the real estate market,” Kim said. “In fact, the bad economy is in our favor, because we don’t run the risk of losing money.”

Kim said his business will invest up to 450 billion won by the end of this year. Also, by opening an Internet broadcasting channel, the company will spread its business knowhow to subscribers for the overall growth of the real estate NPL market, Kim said.

“Lone Star Funds and some other foreign investors made a huge amount of money after investing in Korea during the 1997 Asian financial crisis. Through organizing funds globally, the company seeks to push for investment in real estate NPLs outside of Korea,” he said.

The company also seeks to join the government’s project to restore some 450 abandoned properties across the country.