The Real Deal New York

Korean firms invest in mezzanine debt for Manhattan office towers

The country was the fourth-biggest foreign investor in US offices last year
February 17, 2016 02:30PM


From left: 1095 Sixth AvenueAnd 787 Seventh Avenue

South Korea investors are pouring money into debt on Manhattan office towers — such as AXA Financial’s 787 Seventh Avenue — as the won stumbles and bonds yield record lows at home.

A group of Korean insurance firms invested about $220 million in mezzanine debt for AXA’s 54-story building in Midtown. In case of default, mezzanine loans are repaid after senior debt.

Korea was the fourth-biggest foreign investor in U.S. offices last year, according to JLL data.

Korean investors foray abroad has several factors, including a national pension fund with $413.2 billion in assets, and a 10-year won sovereign yields that fell 60 basis points last year as well as a benchmark share index of four percent, Bloomberg News reported.

U.S. property deals, especially in New York City and San Francisco, have become attractive investments.

“Real estate mezzanine debt is relatively safe compared with equity investment while offering higher yields than senior loans. It’s not easy to secure these deals given they’re scarce and the competition among investors is heating up,” Kim Chang Ho, the Seoul-based head of the global alternative investment team at the Teachers’ Pension, told Bloomberg.

CalPERS closed on the purchase of 787 Seventh for $1.9 billion in February, making it one of the largest-ever single-building sales in the city.

Last year, Shinhan Life Insurance, Hyundai Marine & Fire Insurance Co. and five other firms underwrote about $220 million in mezzanine debt for 3 Bryant Park, or 1095 Sixth Avenue. In the priciest single building deal since the GM Building, Canadian property investor Ivanhoé Cambridge, together with partner Callahan Capital Properties, closed on the acquisition of 3 Bryant Park for $2.2 billion last month from Blackstone Group. [Bloomberg News via Crain’s]Dusica Sue Malesevic