Korea Investment buys 99-yr leasehold of Brussels buildings for $454 mn

Korea Investment Management Co. has obtained a 99-year leasehold for €370 million ($454 million) of two buildings in Brussels used as the headquarters of Belgium’s foreign ministry, in the largest property investment by a South Korean investor in the European country.

The asset manager, a sister company of brokerage Korea Investment & Securities Co. Ltd., will raise €164 million from retail investors in March through public and private funds to finance the deal, the company said in a regulatory filing on Feb. 27.

For the remainder of the acquisition cost, it plans to borrow €230 million, about 60% of the property’s assessed value, in a three-year loan at a fixed rate of 1.18% per annum. The total financing includes advisory fees and other transaction costs.

Belgium’s large real estate assets are luring South Korean investors with relatively higher returns. Their annual returns amount to 7-8%, or 2-3% points higher than those of properties in other gateway cities in Europe.

Korea Investment, part of Korea Investment Holdings Co. Ltd., acquired the leasehold of Egmont I and Egmont II from Cofinimmo, Belgium’s second-biggest listed real estate investment trust company. They were built in 1997 and 2007, respectively.

It expects to earn annual returns of 6-7% for a five-year investment period.

Major tenants are Federal Ministry of Foreign Affairs and Foreign Trade and Development Cooperation.

The two buildings are under a lease agreement with Belgium’s Government Buildings Agency (GBA) which will last until the end of May 2031.

They have a rentable space of 70,238 square meters and are located in the central business district of Brussels where Belgium’s central bank, stock exchange and supreme court are based.

The seven-story buildings, valued at €388 million as at end-December 2017 by Savills, generate €13 million in annual rental income which will increase in line with consumer inflation.

Brussels’ commercial property market quadrupled to €4 billion in value between 2009 and 2016, driven by demand as an alternative to London as a European head office and rent increases.

Last year, Hanwha Investment & Securities Co. Ltd. acquired Square de Meeus 8, a 11-story office building in Brussels, in a consortium for €210 million.

The Public Officials Benefit Association, a South Korean retirement savings fund, bought an office complex in Brussels, Brederode, for $120 million via a separately managed account in 2017.

In early 2016, Korea Investment & Securities and a small-sized domestic asset manager made a joint acquisition of Astro Tower in northeast of Brussels for 230 billion won and resold the interests later to other domestic institutional investors.