A large logistics center in Cheongbuk-eup, Pyeongtaek, Gyeonggi Province, for which KB Real Estate Trust took on a completion guarantee, has been put up for public sale. As the prolonged slump in the real estate market has dragged on, KB Real Estate Trust failed to fulfill the completion-guarantee obligations for this development project and was sued for damages.
According to Onbid, the electronic asset disposal system of the Korea Asset Management Corporation (KAMCO), a public sale for a logistics warehouse and 10 parcels in Cheongbuk-eup, Pyeongtaek, Gyeonggi Province, is scheduled for Dec. 1. The warehouse up for sale is a basement level 2 to ground level 3 building with a total floor area of 71,870 square meters, and the land totals 26,643 square meters. The appraised value is 143.1 billion won, and the minimum bid is set at 89 billion won, or 59%.
The logistics center received use approval on Apr. 21, but it was put up for public sale at the request of the project financing (PF) lenders immediately after completion. Earlier, DAOL Investment & Securities, acting as the agent bank, arranged a total PF loan of 109 billion won in Feb. 2022. That included 47 billion won in senior financing from Meritz Financial Group, 16 billion won in mezzanine financing from Shinhan Capital, and 16 billion won in subordinated financing from Hana Securities. However, with an event of default (EOD) occurring, the public sale process began this month. There have been six failed auctions so far, and KB Real Estate Trust posted the third announcement on the 19th.
At first, the outlook was positive, with a forward-purchase agreement secured before completion. The logistics center market has been recovering recently, and the site features both cold storage and ambient storage, with docking available on every floor. It is also located within a 2-kilometer radius of the Cheongbuk IC in Pyeongtaek, Gyeonggi Province, allowing highway access within a 10-minute drive, and the Seohaean Expressway lies within 5 kilometers, giving it high marks for wide-area accessibility. This logistics center, a completion-guarantee type managed land trust project by KB Real Estate Trust, has Boas Development as the trustor and Saecheonnyun General Construction as the builder.
The crisis arose when Saecheonnyun General Construction failed to fulfill its completion-guarantee obligations. Construction was delayed past the scheduled deadline of Nov. 2023, and Saecheonnyun General Construction ended up shouldering nearly 100 billion won in PF loan debt. But Saecheonnyun General Construction lacked the financial capacity to bear this, and the company, a mid-sized builder ranked 105th in construction capability evaluation, ultimately filed for court receivership in Feb. last year and halted all construction.
KB Real Estate Trust and Boas Development selected an alternative builder and resumed construction, but the work had already been halted for a long time, pushing past the trust company's completion-guarantee deadline. In a completion guarantee, the trust company provides a guarantee and receives a fee in place of a small or mid-sized builder with low creditworthiness. If the builder's work is delayed or the builder goes bankrupt, the trust company assumes all debt. For this reason, the lenders filed a damages lawsuit of 10.4 billion won against KB Real Estate Trust in Sept. last year.
An industry official said, "Because financial holding company affiliates, including KB Real Estate Trust, were latecomers, they have aggressively jumped into completion-guarantee projects," adding, "With developers and builders suffering liquidity crises amid the downturn going bankrupt, nonperformance of completion guarantees is occurring one after another at business sites, and the fallout is severe."