One out of four business sites put up for court auctions or public auctions due to troubled real estate project financing (PF) has remained an unsold distressed property for more than a year. Business sites in the bridge loan stage before full-scale groundbreaking, as well as those in prime commercial districts in key regions including Seoul, have not found new owners for an extended period.
According to an analysis by ChosunBiz on the "list of PF business sites for sale" released on Oct. 31, among 236 business sites subject to court or public auction, 63 sites (26.6%) had not been sold for more than a year. Excluding these, 61 sites (25.8%) had gone through at least one public auction process but were not sold. In other words, half of the business sites up for court or public auction have failed at least once to attract a bid.
There were 12 new listings in October where a public auction notice was posted or a public auction began for the first time. There were 48 business sites with no public auction schedule, and 16 business sites where public auctions were effectively halted due to lawsuits, sale negotiations, or permitting changes. Thirty-three are undergoing court auctions at local courts. The remaining two completed public auctions and found tenants to move into the buildings.
Most distressed business sites that have gone unsold for more than a year are located in provincial areas and are in the bridge loan stage, either without permits or yet to break ground. Initial funds needed for the projects, such as land acquisition costs, were covered with high-interest bridge loans from secondary financial institutions, but losses occurred before moving to the main PF stage, when full-scale construction begins. Even when public auctions were held at prices below appraised value, no buyers emerged due to a slump in the construction market and falling real estate demand in provincial areas.
There are cases that failed to sell even though they are in prime locations in major cities, including Seoul, or even after completing buildings. On a 301-pyeong (996.4 square meters) plot of land right next to Itaewon Station on Seoul Subway Line No. 6, an office building was planned, but the project became distressed after failing to extend the bridge loan maturity. Public auctions were held three times—in April and August last year and in March this year—but there were no successful bidders. The land, appraised at 62.6 billion won, did not sell even at the minimum bid price of 36.3 billion won.
An officetel with 20 floors located a 10-minute walk from Yeonsan Station in Busan once proceeded to pre-sales, but all nine rounds of public auctions from Feb. last year through Sep. this year failed. A 512-room hotel in Naju, South Jeolla Province, which drew attention as the largest business hotel in the region, was completed, yet all four public auctions held since Apr. last year failed.
As distressed properties pile up, the number of business sites subject to court or public auction rose from 195 in Jan. to 236 last month. Financial institutions are supporting investors who acquire distressed business sites, but the number of troubled sites continues to increase. According to the financial authorities' business viability assessment, as of the end of June, loans requiring attention or at risk of default stood at 20.8 trillion won, accounting for 11.1% of total PF exposure (186.6 trillion won).