South Korean investors support New York deal

A group of South Korean institutional investors has helped finance HNA’s acquisition of a commercial building from Brookfield.

Meritz Real Estate Management has provided $226 million of mezzanine debt to help finance China-based HNA Group’s $2.21 billion acquisition of an office building in New York.

The 10-year loan delivers an annual return of around five percent. It is a part of the mezzanine tranche of the whole $1.75 billion syndicated loan extended to the Chinese conglomerate. Other lenders include JP Morgan, Barclays, Societe Generale and JP Morgan, according to local news reports.

The 1.8 million square foot building at 245 Park Avenue, constructed in 1967, includes 68,000 square feet of retail space. Its anchor tenant is French bank Société Générale, which is leasing the space from JPMorgan. Ninety five percent of the property has been rented with a 10-year leasing period for the majority of the tenants.

Investors participating in the $226 million financing vehicle led by Meritz are mainly South Korean pension funds and insurance companies.

Meritz confirmed the investment but declined to disclose further information.

HNA Group opted to acquire the property from Brookfield Asset Management and New York State Teachers’ Retirement System (NYSTRS) in March this year. Brookfield purchased the building with balance sheet capital in 1996 and NYSTRS bought a 49 percent stake in the Class A building for $438 million in August 2003, valuing the tower at $894 million, according to data provider Real Capital Analytics.

In the current low-interest rate environment, many Korean institutional investors seeking yield and cashflow have been turning their eyes to commercial real estate loans in major US cities while staying away from equity investments.

Meritz RE Asset Management is a subsidiary of Korea-based Meritz Financial Group. Last year, it invested in a $100-million senior loan secured by an office tower in Silicon Valley leased to Google, according to local news reports.