A real estate investment trust (REITs) that invested in a logistics center in Anseong, Gyeonggi Province, is facing potential losses on concerns about the tenant's financial distress. As the possibility of the tenant entering rehabilitation proceedings surfaced, disruptions to the logistics center's operations were expected, and the REITs recently failed to repay principal and interest on a collateral loan that came due.
However, the likelihood of an immediate public auction has diminished. The REITs is currently negotiating terms to extend the loan maturity with the lenders. Given that vacancies in the cold-chain logistics center market remain burdensome, the industry expects the lenders are more likely to opt for management through loan term adjustments rather than a public auction.
According to the REITs industry on the 31st, K-1 No. 17 Consigned Management REITs is said to have received a notice of anticipated rehabilitation proceedings from the tenant of the Anseong Juksan Logistics Center in Juksan-myeon, Anseong. As a result, uncertainty over the operational stability of the logistics center has grown.
A Korea Real Estate Investment & Trust Co. (KOREIT) official said, "The logistics center uses a master lease structure," and added, "We have not yet seen the tenant enter rehabilitation or any material asset management insolvency, but we are taking preemptive measures."
The Anseong Jukjeon Logistics Center has a total floor area of 54,946 square meters and consists of Centers 1 and 2, from one basement level to two above-ground floors. It is equipped with both cold-chain and ambient facilities. Hantoshin purchased the logistics center asset from Rich Development in 2022 for 173.8 billion won.
The largest shareholder of K-1 No. 17 Consigned Management REITs is CAC Private Equity Real Estate Investment Trust No. 3, with a 45.66% equity stake. CACP Investment Management, a real estate specialist asset manager, has invested indirectly. Lotte Card and Hana Securities are also major shareholders, each holding 18.11%.
The borrowing fund at issue amounts to 118.3 billion won. The loan was extended by Tongyang Life Insurance, IBK Pension Insurance, Suhyup Bank, and Shinhan Capital, with the logistics center as collateral. It has a bullet repayment structure, and the maturity date was on the 26th. However, the REITs failed to repay principal and interest on the maturity date.
The REITs' profitability has also deteriorated. According to the investment report, cumulative operating profit from Aug. last year to Jan. this year was 1.92849 billion won. By contrast, interest expense over the same period reached 4.29299 billion won. With interest expense far exceeding operating profit, the REITs posted a net loss of 2.36398 billion won.
With operational instability growing due to the tenant issue and profitability worsening, it appears that loan repayment or refinancing was difficult. When a collateral loan becomes distressed, the asset typically can enter public auction procedures. However, for now, the lenders have agreed to negotiate an extension of the loan with the REITs, and the public auction process has been halted.
A Korea Real Estate Investment & Trust Co. (KOREIT) official said, "At the lenders' request, the public auction has been halted."
The industry believes the market conditions for cold-chain logistics centers also likely influenced the lenders' decision. Even if the asset goes to public auction, if it is hard to fetch fair value, adjusting terms to maintain the loan may be the choice that minimizes losses.
Even if the REITs clears the immediate risk of a public auction, challenges remain. The key is to secure a new, high-quality tenant. The logistics center market has recently shown signs of recovery centered on high-quality assets with good location and tenant stability. However, assets with a high share of cold-chain space, like the Anseong Juksan Logistics Center, still face significant supply-demand pressure.
Cold-chain logistics centers have a much higher vacancy rate than ambient logistics centers. According to the commercial real estate services corporations R Square, at the end of last year the vacancy rate for logistics centers in the greater Seoul area was 13.3% for ambient and 37.3% for cold-chain. The vacancy rate at cold-chain logistics centers is close to three times that of ambient facilities.
KB Real Estate also forecast this year's vacancy rate in the greater Seoul area's Grade A logistics market at 30% for cold-chain and 6% for ambient. That suggests the oversupply impact in cold-chain logistics centers has yet to be resolved.