Losses from overseas buildings haunt financial firms
Mirae Asset says process of housing new tenants for State Street going smoothly
Financial services companies in Korea are drawing concerns over the risk of potential massive losses from their overseas real estate investments as the slowdown in the global property shows no sign of letting up.
Mirae Asset Global Investments has invested in several office buildings abroad, including State Street Financial Center in Boston.
The investment, worth 180 billion won ($134.9 million), was made in 2017 on behalf of the land ministry’s real estate-related fund, for which Mirae Asset Global Investments serves as one of five outsourced chief investment officers (OCIOs).
The term refers to a third-party firm that serves as an extension of the client asset owner.
According to industry sources, the value of the building plummeted by more than 30 percent from 2017, as State Street, a U.S. financial firm that was housed in the building, moved out and the vacancy rate increased at a sharper pace as a result.
A source said the vacancy rate was “as high as 100 percent at one point.”
Mirae Asset Global Investments put aside concerns over investment losses when asked by The Korea Times, Tuesday.
“The process of housing new tenants is going smoothly, although the vacancy rate temporarily increased after State Street moved out,” it said.
The company also said, “It is simply not true that we suffered a loss from the entire amount of investment.”
Citing the need for confidentiality, it did not give further details.
ARA Korea, a Seoul-based a real estate investment trust management firm, meanwhile, is facing a loss from a prime office building in Fornebu, a city near Norway’s capital of Oslo.
ARA Korea spent 23 billion won to buy 25 percent of the common shares of the building.
The company expected to secure an annual return of 8 percent, as the building was wholly leased by Norway’s largest energy firm Equinor. It was considered a safe and lucrative investment.
The value of the building then declined to 500 billion won, down from 590 billion won at the time of the contract date. The property’s creditors required an additional capital injection from shareholders to avoid a loss, which they failed to secure, according to market insiders.
IGIS Asset Management posted an 80 percent loss in the Frankfurt-based skyscraper Trianon building in 2023 after investing 500 billion won, as the building’s value fell due to high interest rates and other unfavorable property market conditions.
The Financial Supervisory Service (FSS) said last month that domestic financial companies invested a combined 56.4 trillion won in alternative real estate abroad as of September 2023, while their delinquency risk reached 2.46 trillion won.