Korean investment banks seek to acquire German properties

The Investment Banking (IB) industry sources Sunday said that Korea Investment & Securities, Samsung Securities, and Meritz Securities are taking over real estates in major cities of Germany. Korea Investment & Securities Co. is in the final stage of buying International Business Campus (IBC) building complex located in Frankfurt within this year. Samsung Securities Co. and Samsung SRA Asset Management Co. have been selected as the preferred bidder to buy Commerzbank Tower in Frankfurt, the tallest building in Germany, at 900 billion won and the deal is under negotiation now. Meritz Securities Co. and other institutional investors signed a contract to purchase Deutsche Telekom’s headquarters in Bonn for 213.4 million euros (266.7 billion won) last month.

The investment on commercial real estate in Germany has been possible thanks to the depreciation of the euro. The euro against the South Korean won was close to 1,500 won in March 2014, and closed at 1,250 won on Friday after being dropped to 1,169 won in April 2015. "Due to the decreasing value of the euro, the foreign exchange hedge led to a premium of about 1.5 percent to won," said a manager of IB division at a securities company. In other words, a 5 percent return on German properties is converted to won with a worth of 6.5 percent, including 1.5 percent premium.

Another advantage of investing on German real estate is that a senior debt carries a low interest rate in Germany. Korean investment banks do not pay in cash when purchasing commercial buildings in Germany. They borrow 50 to 60 percent of the total purchase money from local banks at a mere 0.9 percent of interest, which is significantly low comparing to 3-5 percent in the U.S., expecting a higher return on investment. Many companies in Germany rent offices for more than 10 years in such commercial buildings in major cities of Germany, which is another benefit.

한정연기자 pressA@donga.com