A Korean real estate fund manager is hunting for Canadian property and plans to invest up to $600-million over the next year.
Fresh off its first Canadian real estate investment in October, KTB Asset Management Co. Ltd. is scouring Toronto and Vancouver for offices, hotels, distribution centres and other large properties.
The interest from South Korea comes as investment wanes from China, one of Canada’s largest foreign investors in commercial real estate and a critical source of funding.
Over the past few years, China has become a dominant investor in Canadian commercial property with buyers such as Anbang Insurance Group outbidding other companies for office buildings and a retirement home.
Now that the Chinese government has cracked down on foreign purchases of real estate and reined in Anbang and other firms, there are fewer big Chinese buyers in Canada.
The Korean funding could help replace some of the lost capital from China. However, KTB’s typical investment is about $100-million, which is tiny compared with Anbang’s US$1-billion-plus acquisitions.
The Korean fund has US$10-billion in assets under management, US$2-billion of which are dedicated to real estate and infrastructure. The majority of its foreign assets are in the United States, such as a loan to Brooklyn Bridge Marriott.
But as the U.S. dollar strengthens and the Federal Reserve continues to hike interest rates, KTB has found Canada to be a cheaper place to do business in North America because currency hedging costs are higher south of the border.
“We are losing our appetite to invest in the U.S. market,” said Bill Cho, a KTB manager. “We are slowing down on the U.S. and focusing on the Canadian side.”
Its first Canadian stake was a $165-million loan to Hotel X Toronto, a 4½-star hotel with a rooftop pool and views of Lake Ontario.
Since KTB made the Hotel X loan, Mr. Cho said his firm has been inundated with requests to invest in everything from logistics such as warehouse space in Calgary to infrastructure in Vancouver.
The asset manager will initially focus on Canada’s top property markets of Toronto and Vancouver, both of which have rock-bottom office vacancy rates. KTB will first look for opportunities on the debt side for its $600-million before it considers equity.
“We want to see how that goes and if it’s right, there will be more Korean capital injection in Canada,” Mr. Cho said.
KTB, which has called Canada an untapped market, will not solely focus on the biggest Canadian cities as many foreign buyers do. It plans to expand to other regions and secondary markets. It is also looking for investments in roads, bridges, wind turbines and other infrastructure.
Based in Seoul, KTB will not consider adding a Canadian office until it amasses $2-billion in Canadian assets. When asked if that was possible, the fund’s head of global alternative investments Jaesang Eum said: “Maybe after two to three years.”
So far, Korean funds have not been major players in Canada. But that may soon change. In addition to KTB’s interest, South Korea’s massive national pension fund said it would boost foreign investments and increase holdings in real estate and infrastructure.
“[South Koreans] have determined that they need to diversify into other locations,” said Robin White, principal with commercial realtor Avison Young, which is opening an office in Seoul in November. “It’s just a matter of time before you see significant investment taking place in Canada.”
Korean investment is negligible to date. From 2016 through the first half of this year, foreigners spent $14.7-billion in Canadian commercial real estate, according to commercial realtor CBRE. Of that amount, a whopping $5.6-billion was from China and about $5-billion was from the Americas.
Although Canada is a small commercial real estate market compared with the United States, the robust economy and stable political environment has turned the country into more of a destination for foreign capital.
“A word that describes Canada is stability,” said Brian Kriter, an executive with commercial realtor Cushman & Wakefield. “That is putting Canada on a pedestal,” he said.