South Korea investors flee low yields for headier U.S. returns

Westin St. Francis San Francisco

South Korea's institutional investors are bullish on U.S. real estate, which is why, according to Bloomberg, some are investing here while fleeing record-low bond yields and falling shares at home.

A group of Korean insurance companies is reportedly investing about $220 million in a mezzanine loan for the 54-story AXA Equitable Center in Manhattan, while The Teachers' Pension is underwriting a combined $100-million mezzanine debt along with other domestic funds for the 32-story Westin St. Francis hotel in San Francisco, the fund's first investment abroad in such loans.

Korea reportedly has a national pension fund with $413.2 billion in assets. "It's hard to make money from the stock or bond market,'' Kim Chang Ho, the Seoul-based head of the global alternative investment team at Teachers' Pension, told Bloomberg. "Real estate mezzanine debt is relatively safe compared with equity investment while offering higher yields than senior loans. It's not easy to secure these deals given they're scarce and the competition among investors is heating up.''

Consider Korean fund manager Mirae Asset Global Investments Co., which bought the Fairmont San Francisco Hotel for $450 million in November, while the Lotte Group acquired the New York Palace Hotel for $805 million last year.

"Major cities, such as New York and San Francisco, in the U.S. are considered the safest market globally considering the nation's stable economic indicators," said JoAnn Hong, a research and consultancy director at Savills Korea Co. in Seoul. "More Korean investors are interested in overseas real estate investment in developed nations because the economic recovery at home is slow and the local commercial real estate market is small apart from the office market."