The government will fully launch a 12 trillion won "Future City Fund" to support smooth financing for first-phase new towns and other aging planned cities. After selecting an asset manager, it plans to establish a parent fund in March next year. The Future City Fund is a policy fund created to stably procure early-stage project costs, construction costs, and more for redevelopment projects in aging planned cities that require large-scale resources.
The Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (HUG) said on the 29th they will release, starting on the 30th, a notice to select an asset manager for the first parent fund as the initial step to create the Future City Fund. The government will conduct the main bidding from the 13th of next month to Nov. 23 and select a preferred negotiation partner around December. It then plans to establish the first parent fund in March next year.
The Future City Fund will consist of a loan-type fund that provides project cost loans to operators of redevelopment projects for aging planned cities. Based on HUG's AAA-rated guarantee, it will secure interest income and actively attract private investment. HUG will guarantee the loans, and separate vehicles will be created for a parent fund that manages overall cash flows and for child funds that lend to individual project districts, enhancing project stability.
The Future City Fund allows the parent fund to directly lend up to 20 billion won for initial project costs and also serve as a primer for raising capital for future child funds by purchasing 10%–20% of revenue securities.
The asset manager to be selected this time will oversee the Future City Fund, including attracting investments for the establishment of the first parent fund and preparing guidelines for the stable management of child-fund capital. The investment target is the first parent fund of the Future City Fund, sized at 600 billion won. It will directly provide loans for initial project costs to business sites that have selected a builder after designation as a redevelopment zone and purchase revenue securities of project-district child funds that make HUG-guaranteed loans.
Eligible participants are collective investment business entities that can manage general private collective investment schemes under the Capital Markets Act.
Given that the Future City Fund is created to attract capital for investments guaranteed by the public sector, the ministry and HUG plan to focus on an asset manager's stability, track record, and its fundraising capability when selecting the manager.
Quantitatively, they will assess the manager's assets under management and award extra points if the average total net worth of all funds managed over the past three years is at least 6 trillion won and the average total net worth of real estate funds is at least 1 trillion won. In addition, managers wishing to participate in the selection for the Future City Fund must submit letters of intent (LOIs) totaling at least 600 billion won. If they can submit binding letters of commitment (LOCs), additional points will be given according to the committed amount.
Once the Future City Fund is up and running, it is expected to reduce financing risks through stable funding support for operators and improve negotiating power on construction costs with builders, thereby enhancing the profitability of redevelopment projects for aging planned cities.
Currently, in many of the leading districts of first-phase new towns, numerous complexes are rapidly pushing projects forward, including submitting special redevelopment plans to municipal advisory committees, and the first demand for initial project cost loans is expected to arise in the first half of next year.
An official at the Ministry of Land, Infrastructure and Transport said, "By establishing the first parent fund of the Future City Fund in the first quarter of next year, we plan to carry out related procedures without a hitch so that financial support can be provided in a timely manner," adding, "In addition, by continuing administrative and financial support for the redevelopment of aging planned cities, we will swiftly implement the resident proposal method included in the Sept. 7 package and proceed without delay with the groundbreaking of 63,000 dwellings planned by 2030."