Australia, Asia real estate whet Korean pension funds' appetite

South Korean pension funds and insurance companies are raising their bets on real estate as they diversify their US and Europe-focused portfolios into Australia and Asia, while increasing their appetite for distressed assets.
 
They believe the global real estate market is bottoming out on the back of falling interest rates. It is time to ramp up exposure to real estate equity investments, as well as to value-add and seek opportunistic assets, said senior alternative investment managers at ASK 2024, a global alternative investment conference.

"In 2022, we stopped all real estate investments in view of our liquidity situation, but resumed them in 2023 mainly through listed products such as REITs (real estate investment trusts) and through lending," said Harry Song, head of overseas real estate investment at the Public Officials Benefit Association (POBA), at ASK 2024 on Thursday.

POBA is setting its eyes on Australia's real estate market, Song told a panel discussion at the conference, hosted by The Korea Economic Daily, Korea's largest business and financial media group.

This year, POBA committed an additional 1.5 trillion won ($1.1 billion) to real estate funds, including 90 billion won into Starwood Capital’s debt fund dedicated to Australia in June.

"We put developed markets ahead of other regions, but we're seriously looking at Asia's, particularly Australia's [real estate] debt market," said Park Jun, a senior alternatives manager at Hyundai Marine & Fire Insurance Co. 

The Korea Teachers’ Credit Union (KTCU), with 40 billion won in assets under management, committed 110 billion won to PGIM Inc.'s debt fund investing in Australia this year.

Greg Hyland, head of CBRE’s capital market investments for Asia Pacific, said in a panel discussion that the Australian and Indian housing markets are now attractive after their valuation adjustment.

The annualized cap rate of Australian real estate, or net operating income divided by its asset value, recently shot up to an average of 6%-7% from 3%-4%, he added.

HOUSING, DATA CENTERS

By segment, residential properties, logistics and data centers as well as renewable facilities are at the top of their real estate lists.

"We may need to add data centers to our portfolio next year. We are willing to invest in a fund with data centers in its portfolio," said Kim Hyungon, a senior manager overseeing the KTCU's infrastructure assets, referring to its real estate investment plan.

DIFFERENT STRATEGIES FOR OFFICE BUILDINGS

But Korean large asset owners express different views on office and commercial markets.

Some of them will continue to shun the sectors after sharp valuation drops in those asset classes aggravated their liquidity problems amid a reduction in their subscribers' deposits in the wake of the COVID-19 outbreak.   

"We are making efforts to artificially reduce exposure to office assets and instead, we are looking to residential and industrial buildings as alternatives," said Hyundai's Park. 

"Offices are going through a very difficult time and the retail sector does not look bad now. But it's not easy to buy them," noted POBA's Song.

In 2024, real estate was the worst performer for the Government Employees Pension Service (GEPS), for which property assets accounted for more than half of its alternatives before the COVID-19 pandemic.

However, the GEPS is turning aggressive in bottom-fishing office assets. It recently committed to value-added and opportunistic real estate funds after raising its exposure to properties this year in a defensive strategy.

Hyundai Marine is chasing undervalued office buildings in good locations, as well.

"We are optimistic about the real estate market thanks to interest rate cuts and are interested in special situation investments," said Hyundai Marine's Park. "There will be rare opportunities to buy prime assets [at discounts in 2025]."

Lotte Insurance Co. is exploring equity investments in distressed properties such as sharply discounted commercial buildings in central business districts, in addition to non-performing real estate loans, said Park Jaehyun, managing director of its financial investment division, during a panel session on Wednesday.

Write to Yeonhee Kim at yhkim@hankyung.com
 


Jennifer Nicholson-Breen edited this article.