Brokerage firms choose to sell buildings for higher profitability

Shinhan Financial Investment headquarters on Yeouido, Seoul / Courtesy of Ssangyong Engineering

By Anna J. Park

With the country's real estate prices continuing to soar, major securities firms are choosing to sell their own buildings and remain as a tenant, so they can divert their profits to investment banking or prop up trading to yield higher returns.

Shinhan Financial Investment is currently in negotiations with a consortium of IGIS Asset Management and KKR to sell its office building in Seoul's Yeouido financial district, where the brokerage company's headquarters has been located for the past two decades.

Shinhan Financial selected the IGIS-KKR consortium as its preferred bidder on May 11 to sell the building for around 640 billion won ($506 million). The sale is expected to yield a profit of over 400 billion won considering the building's book value.

A company official explained that the cash inflows would be diverted to the firm's capital for developing other key businesses.

"With the capital increase, we plan to seek new opportunities for further earnings, particularly in the areas of investment banking and proprietary investment. The capital will also be used in developing new business," an official from the company said.

If Shinhan Financial's sales deal is completed, only three of the country's 10 largest brokerage companies by owned capital size ― Korea Investment, Kiwoom Securities and Daishin Securities ― would still own their office buildings.

Yuanta Securities Korea has also decided once again to remain as a tenant of its Seoul headquarters building, as it renounced exercising its right to preemptively purchase the building during the building's sale negotiation process in March. Capstone Asset Management purchased the building from NH-Amundi Asset Management for around 300 billion won in a deal completed earlier this month. Yuanta Securities sold the building in 2012, and has remained as a tenant there since.

NH Investment & Securities headquarters in the Parc1 complex on Yeouido, Seoul / Courtesy of NH Investment & Securities

NH Investment & Securities also sold its Yeouido headquarters building to Mastern Investment in 2019 for around 255 billion won. The brokerage company is now located in Tower 2 of the Parc1 complex on Yeouido. Although the securities company managed the Parc1 project financing investment, it holds only a portion stake of ARA Asset Management fund, which acquired Tower 2 of Parc1 for around 1 trillion won in November 2020.

Meritz Securities sold its two Yeouido office buildings in 2018, and has since been a tenant at IFC Seoul. KB Securities also sold its Yeouido building in 2018. Hana Financial Investment sold its Yeouido headquarters building in 2015, and decided to renounce its right to preemptively purchase the building in 2020.

Market watchers view these moves as the savvy financial companies' decision to reduce their risk exposures to the real estate market that has been rising too steeply.

"Brokerage firms aim to increase businesses in the investment banking sector, which tends to yield higher returns at higher risks, instead of being content with rent profits," a market insider pointed out, explaining that annual returns of rents from office buildings remain at around 4 percent to 5 percent.

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