Such is the lure of Australia's red hot real estate market that Korea Post Savings is shunning high-yield emerging markets real estate debt in China and India in favour of Aussie allocations.
By early next year, the investment arm of Korea Post is to set up a separately managed account (SMA) for real estate debt so it can make more timely and competitive investment decisions in the crowded property markets in the US, Europe and Australia.
It will also use it to seek niche opportunities.
In terms of Asian real estate investment, Korea Post Savings already has large exposure to the domestic market but has now started to look at the Australian market with a view to increasing its exposure there.
However, Lee Jin-ho, Korea Post Savings’ head of global real assets based in New York, during a panel discussion of AsianInvestor’s Private Assets Investment Week, said it could take some time.
Australia’s real estate market has been a strong defensive market with good fundamentals during the pandemic, asset managers told AsianInvestor recently.
Sectors like offices in Sydney and Melbourne, logistics opportunities on the eastern seaboard, and the multi-family sector, are all gaining traction from global investors.
Despite the higher return, Lee said Korea Post Savings would steer clear of Chinese and Indian markets.
“I think it really comes down to the cost of capital. Our cost of capital is relatively lower than those [bigger] pension funds and we don't really need those kinds of, let's say, double-digit high returns from these kinds of markets. We're getting enough from the current US and European market. And the Australian market is very attractive. I think those three markets, with our existing Korean market portfolio, would be enough to start with,” Lee said.
“We’re trying to broaden the strategy spectrum in debt investments, and we're asking managers for niche or specific strategies,” he said.
It has been doing many office deals, while also looking into hotel deals - if that hotel has a proven track record prior to COVID-19 - where it can have a senior position within a higher loan-to-value ratio, Lee noted.
“Construction loan is also an area we're trying to research, (and we're) hoping to be more active in that space,” he said. “We are also very interested in the mezzanine debt space, and we will continuously increase our exposure.”
“To put a diverse strategy in the portfolio is the most important thing that we need to do at the moment, especially when we are facing this kind of market uncertainty.”
According to its website, Korea Post Savings manages about 110 trillion won ($95 billion) of assets. Real assets account for about 5% of the portfolio. Lee told AsianInvestor in January that it has a plan to add $4 billion to real assets by 2025, mostly overseas debt, and to raise real assets positions to at least 10% of the portfolio over the next five years.
COMPETING FOR DEALS
Right now, Korea Post Savings’ real estate investment is a mix of direct investment and fund investment. In terms of direct investments, it tends to go for big ticket deals where the asset is in a prime location, top-tier market with low vacancy. The ticket size is normally between $50 million to $150 million, Lee said.
With direct investments, it will make a preliminary investment committee decision within a week or within 10 days after being offered a deal by a global or Korean asset manager, and then close the deal within six to eight weeks.
“We know that these days, with liquidity abundant in the market, we need to be more competitive. So we are considering having a separately managed account where we set investment criteria with us having a veto right,” Lee said.
“We're going to invite managers early next year to formulate separately managed account to shorten our internal process as well as to be more effective in deploying our capital,” Lee said.
For smaller deals and relatively more complicated strategies, it will utilize fund investments. “[In] this way, we can cover the whole spectrum of debt investments as well as efficiently deploy capital,” Lee said.