Blackstone in Due Diligence for Korea’s Biggest Real Estate Sale of 2023

Blackstone has entered the final stages of a deal to sell Arc Place, a trophy office tower in Seoul, in what would rank as Korea’s largest real estate sale of this year, according to sources familiar with the discussions.

The US private equity giant has selected fund manager Koramco REITs Management and Trust as the preferred bidder for the 24-storey tower in the Gangnam business district, with the unit of local real estate investment conglomerate Koramco said to be paying in the neighbourhood of KRW 750 billion ($555 million) for the property.

Blackstone has been actively shifting away from owning desk space in recent times, with chairman and CEO Steven Schwarzman emphasising in an analyst call in April that his firm has “minimum exposure to traditional US office.” In an earnings call on Thursday, Blackstone president and chief operating officer Jonathan Gray underlined the company’s commitment to alternative strategies which have the potential to counter the current market slide.

“Against the backdrop where the cost of capital has risen considerably, it is critical to own high-quality businesses with secular tailwinds or assets that benefit from higher rates, like floating rate credit,” Gray said. “The majority of the equity portfolio is in logistics, data centres and student housing, which continue to benefit from robust fundamentals.”

37% Mark-Up

Koramco bid the equivalent of just under KRW 12 billion per square metre for the 62,748 square metre (675,414 square feet) property, to best offers from Mirae Asset Global Investments and D&D Investment, a real estate asset management unit of SK Group, according to an account in local media outlet KED Global.

The tower at 142 Teheran-ro in Gangnam is home to international tenants including Warner Brothers Entertainment, Dyson, eBay and regional ad agency ADA. Local occupiers Lotte Capital and tech unicorn Viva Republica also call the tower home, according to local directories.

Blackstone had purchased the building, then called Capital Tower, from Mirae Asset Global Investments for a reported KRW 470 billion (then $430.9 million) in 2016 before rebranding it as Arc Place in 2018 following a repositioning of the asset.

In local currency terms, Blackstone would be securing a nearly 37 percent mark-up over its purchase price, while that gain would be around 22 percent in US dollar value.

Seoul Outperforms

The Arc Place sale comes as Seoul’s offices continues to outperform other markets in Asia Pacific, with average rents having risen 12.9 percent in the 12 months ending 30 June, according to JLL, on a combination of tight vacancy and a recovering economy.

While trades of office assets fell 56 percent in Asia Pacific during the second quarter of this year, compared to the same period in 2022, investment in South Korean office properties rose 15 percent over the same period, according to MSCI.

Over the past year, while capital values of office assets have fallen in nine out of 13 major markets in Asia Pacific, properties in Seoul’s central business district appreciated by 4 percent, according to JLL.

That performance pushed sales of Korean office assets to $3.8 billion in the second quarter, ranking it second worldwide for investment volume in the sector, MSCI’s figures show. That momentum looks set to continue with the firm’s analyst, Lynette Ng, saying in a research note last month that, “As of mid-September, closed deals and pending deals in South Korea represented 18 percent of global office volume, the highest recorded share since our comprehensive tracking of the market began.”

Out of Office

The move to sell Arc Place comes as Blackstone has been reducing its office holdings globally in favour of alternative sectors such as rental housing, warehouses and data centres, with the company headed by Stephen Schwarzman having agreed to sell a Sydney office asset to a Mitsubishi venture earlier this month, and also nearing a deal in talks to sell a San Francisco complex to Gaw Capital.

In Sydney, Blackstone last week was revealed to have agreed to sell its 50 percent stake in a commercial complex in the central business district to a venture backed by Japan’s Mitsubishi Estate for A$388.6 million ($245 million). The Manhattan-based firm, which sold its stake together with partner Mirvac, had acquired its half of the 60 Margaret Street office tower and its MetCentre retail companion, for A$388.6 million in 2018.

Mingtiandi confirmed earlier this month that Blackstone is in exclusive due diligence to sell North Park, a combined office and retail complex in San Francisco’s Embarcadero area to Hong Kong’s Gaw Capital for around $90 million. Schwarzman’s fund management firm had purchased what was then known as Embarcadero Square from Gaw Capital in 2018 for $245 million.

“What you own matters,” a Blackstone representative told Mingtiandi in response to queries regarding the San Francisco disposal. “We aim to invest in sectors with strong fundamentals propelled by macro demand trends, which is why the majority of the real estate we own is in sectors like logistics, student housing and data centers.”