Wonju Mall Acquisition Spearheads Trend
Seoul, February 12, 2015 – The acquisition of the Wonju City Shopping Mall points to the trend for more master lease agreements of retail assets in Korea in 2015. Master lease agreements are an emerging alternative investment class in Korea which originated with master leased hypermarkets, and which with acquisitions such as Wonju Mall is now expanding into other retail assets such as shopping malls and department stores. Master lease deals started to gain popularity in response to investor demand and the scarcity of core office assets in Seoul.CBRE advised on the sale of the Wonju Mall, an 83,532 sq. m. en-bloc retail shopping center strategically located in Gangwon-do, South Korea’s most northeasterly province. The vendor was IGIS Asset Management, while the mall was sold to a Korean private REIT, JR AMC, for over KRW 167 billion (US$153 million). The sale closed in December 2014.
Don Lim, Senior Director of the Capital Markets Team, CBRE Korea, commented:
“We are expecting an extensive list of master lease deals for retail assets in Korea in 2015 including shopping malls and department stores. The sale of Wonju Mall is just the start of this trend. The scarcity of core assets in Seoul in recent years has driven investors to seek other product types, and master agreements for retail assets such as these is the most recent aspect of this. We don’t expect the shortage of core assets to let up in the near future.”
“Wonju is one of the first department stores sold with a master lease structure, and given the size of the deal will pave the way for other investors, serving as a point of comparison for similar purchases. Korean institutional investors are particularly interested due to the fact that these assets provide low risk and provide steady cash flows, matching their outlook, while still retaining attractive cap rates above 5%,” said Lim.
Master leased assets have long lease terms, often lasting from 10-20 years, and a relatively hands-free approach to tenant management. In Korea, this type of retail transaction also offers corporate bond-like security, as retail spaces have some of the country’s highest credit-rated tenants, such as Lotte Shopping (AA+), Tesco (AA-) and GS Retail. Wonju City Shopping Mall is master leased for 15 and 20 years by AK Department Store and Lotte Mart, respectively.
Lim notes that in line with this trend, the D-Cube Mall in Seoul’s Sindorim district is currently enjoying increased attention from international and domestic investors following the Wonju Mall. The property is likewise expected to be master leased.
First Venture into Retail for JR AMC
Wonju Mall was one of South Korea’s biggest single asset retail deals in 2014, and is the only national department brand in Gangwon-do, a province of 750,000 residents of which over 30% is within a five kilometer radius of the shopping center. Although located outside of Seoul, the substantial population and resulting demand is reflected in the sharp increase in sales revenue of both anchor tenants since the mall’s completion in 2012.
The retail center is JR AMC’s first venture outside its typical investment portfolio of offices and hotels, and likewise the trust’s first private acquisition through a bidding process.
Dae-jun Jung, Managing Director of JR AMC, commented:
“We’re very positive about the property’s future value-add through quality tenanting and expansion of upper floor levels. Building on the deal’s success, we’re looking to further bolster our retail presence by acquiring other similar master leased retail assets in Korea.”
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