Mirae Asset’s US real estate fund faces heavy losses

The key asset's value falls to 25% its purchase price; JLL, Shinhan Life and Korea scientists' fund are among the investors

Mirae Asset Center 1, headquarters of Mirae Asset Financial Group in Seoul (Courtesy of Mirae Asset)

Jong-Kwan Park and Jun-Ho Cha 1

2023-05-26 18:02:04 pjk@hankyung.com

Real estate

A private fund for US real estate managed by South Korea’s Mirae Asset Global Investments Co. has seen huge losses amid the tumble of the office market, investment banking sources said on Friday.

The fund, Mirae Asset Maps Frontier US Private Real Estate Trust No. 5, posted negative 70.2% as of May 26, according to Mirae Asset’s disclosure. The fund's maturity comes on the same day.

Among the investors are a unit of Jones Lang LaSalle IP Inc., Shinhan Life Insurance Co. and Korea Scientists & Engineers Mutual Aid Association (SEMA), according to sources.

Mirae Asset Global, an investment management arm within Korea’s Mirae Asset Financial Group, created the fund in 2015 when local institutional investors were aggressively pouring capital into the overseas real estate market. As the fund saw losses amid a downturn in the office market, Mirae Asset extended the fund's maturity in 2020 and 2022.

The fund may be terminated with investors' declaration of default, market insiders say.

PLUNGE TO ONE-FOURTH PURCHASE PRICE

Mirae Asset formed the fund as it acquired 1750 K Street Northwest, an office tower some blocks from the White House in Washington, D.C., for $115 million. The property was built in 1970 and renovated in 2010; it has 12 stories above ground and four floors underground with a total floor area extending to 165,604 square feet.

At the time of acquisition in 2015, Shinhan Life and SEMA respectively invested 24.8 billion won ($18.7 million) and 8.5 billion won in equities, and creditors including JLL backed the remaining funds for the deal. Mirae Asset targeted more than 8% in annualized returns.

The US office market suffered plunging values during the pandemic, with an oversupply of properties and remote work trends.

“The investors could have recovered at least half of their principal if the fund's liquidation was executed in 2020. The value of 1750 K Street has plunged to one-fourth its purchase price,” said an IB source.

Write to Jong-Kwan Park and Jun-Ho Cha at pjk@hankyung.com

Jihyun Kim edited this article.