SK ecoplant has decided to abandon the apartment project it planned to develop in the station area of Mongchontoseong Station in Songpa District, Seoul, and sell it to a REIT (real estate investment trust) funded by the government. SK ecoplant provided credit support for loans exceeding 100 billion won together with major investment firms for the project, but, amid concerns about unsold units, it gave up after years of delays without even breaking ground. The plan to sell apartments in an area dense with entertainment venues dragged on for years, and in the end, rental housing will be created with government money.
According to the development industry on the 17th, the development and construction rights for the "Bangidong lot 56 apartment construction project" in Songpa District are expected to be transferred to a public-supported private rental housing REIT by the end of this month. The project calls for building two towers with six basement levels and 27 above-ground floors, totaling 472 apartments and ancillary welfare facilities, on lot 56 in Bangidong and 10 adjacent parcels near Mongchontoseong Station on Seoul Subway Line No. 8.
In 2023, SK ecoplant established "K Square Eco Songpa PFV" with investors including Koramco REITs Management and Trust and Management, KB Securities, and NH Investment & Securities to carry out the project. A project financing vehicle (PFV) is a special purpose company (SPC) set up to raise and operate funds for specific projects such as large-scale real estate development. SK ecoplant's equity share was 19.9%, while NH Investment & Securities (14.9%), KB Securities (14.9%), Koramco REITs Management and Trust (10%), and Koramco Asset Management (0.3%) also hold equity.
The PFV received a 234 billion won bridge loan for land acquisition, and SK ecoplant provided credit support to assume responsibility if the loan was not repaid. The asset management company (AMC) role was assigned to Koramco Asset Management, and construction was to be handled by SK ecoplant, which was one of the investors.
However, the project was delayed for three years and is scheduled to be sold in a block sale to a REIT this month. An industry source said, "Within this month, a public-supported private rental REIT (real estate investment trust), capitalized by the housing & urban fund and mandated to Korea Housing & Urban Guarantee Corporation (HUG), plans to acquire the land and development rights," adding, "The PFV will be liquidated, and under REIT regulations, only SK ecoplant among the investors will hold a portion of the REIT equity."
The project, which had aimed to proceed with sales, will be converted entirely for rental housing. The asset management company role will be handled by HL REITs Management, and SK ecoplant will step away from construction. An industry source said, "SK ecoplant and other investors decided to wind down the project due to concerns over potential unsold units and the burden of mid-100 billion won PF loan credit support."
At the outset, SK ecoplant planned to apply a building coverage ratio of 58.5% and a floor area ratio of 674.98% to create 472 units, of which 323 would be sold to the general public and 149 supplied as station-area long-term jeonse housing (known as Shift). Station-area long-term jeonse housing refers to dwellings for which the Seoul city government grants floor area ratio incentives to private development projects within 350 meters of subway stations, and in return, part of the increased housing is supplied as jeonse to people without homes for up to 20 years at 80% or less of market rates.
However, as the risk of unsold units surfaced, the bridge loan could not be converted into a main PF for years, and SK ecoplant and others that provided credit support exceeding 100 billion won concluded they could not continue the project.
Some argue it was a development project that failed from the start to take location and other factors into account. Because the project site is in one of the three Gangnam districts near Jamsildong in Songpa District and close to Mongchontoseong Station on Seoul Subway Line No. 8, they say the risk of unsold units was not properly considered.
Although within the same legal dong, housing demand is high in Bangi 1-dong, which is close to Bangidong's cram school district and prestigious school zones. By contrast, Bangi 2-dong, adjacent to Seokchon Lake, Bangidong's food alley, and Sincheondong, is an area dense with bars and motels and other entertainment and lodging facilities, so housing demand is quite low. Taking out loans exceeding 200 billion won to sell apartments in Bangi 2-dong indicates that a precise analysis of the location was not properly conducted.
A real estate industry source said, "Given that it is an area dense with entertainment and lodging facilities for adults, it is not an easy environment for selling apartments, and it seems this was not taken into account."