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Mirae’s US Real Estate Fund Facing Termination As a Result of Declining Values Across the Sector

Mirae Asset Global Investments, Mirae Asset Maps Frontier US Private Real Estate Trust No. 5, Jones Lang LaSalle, Shinhan Life Insurance Co., Korea Scientists & Engineers Mutual Aid Association, Amazon, Seattle, Vulcan Real Estate, Hyatt Regency Lake Washington, Renton, SECO Development, Fairmont Hotel, San Francisco, Woodbridge Capital Partners, Oaktree Capital Management, San Jose, Anbang Insurance Group, Bay Area, Ritz-Carlton, Half Moon Bay, Four Seasons, Silicon Valley

By The Registry Staff

Mirae Asset Global Investments Co., a leading South Korean financial firm, has faced significant losses in its private fund for US real estate due to the decline of the office market, according to a recent report in The Korea Economic Daily, citing sources in the investment banking industry. The fund, known as Mirae Asset Maps Frontier US Private Real Estate Trust No. 5, has reported a staggering negative return of 70.2 percent as of May 26, just as the fund is set to mature. Mirae has made a number of significant investments in properties across the West Coast.

Several notable investors have been affected by this downturn, including a unit of Jones Lang LaSalle IP Inc., Shinhan Life Insurance Co., and the Korea Scientists & Engineers Mutual Aid Association (SEMA). These investors joined the fund as part of a capital influx into overseas real estate by Korean institutional investors when it was established by Mirae Asset Global, a subsidiary of Mirae Asset Financial Group, in 2015. Recognizing the challenging market conditions, Mirae Asset had previously extended the fund’s maturity in both 2020 and 2022.

Industry insiders suggest that if investors declare a default, the fund could potentially face termination. This grim possibility arises from the fund’s inability to recover from losses incurred during the office market downturn in North America. The situation is particularly disheartening for Mirae Asset since the fund was initially created when the company paid $115 million to acquire an office tower located at 1750 K Street Northwest in Washington, D.C., just a few blocks away from the White House. The property, built in 1970 and renovated in 2010, spans 12 stories with an additional four floors underground, encompassing a total floor area of 165,604 square feet.

In 2015, Shinhan Life and SEMA invested 24.8 billion won ($18.7 million) and 8.5 billion won ($6.4 million), respectively, in equities for the acquisition of 1750 K Street. The remaining funds required for the transaction were backed by creditors, including Jones Lang LaSalle. Mirae Asset aimed to achieve an annualized return of over 8 percent for the fund’s investors.

The COVID-19 pandemic inflicted significant damage on the US office market, primarily due to the growing trend of remote work and increased vacancy across the sector as a result of that. Consequently, the value of properties, including 1750 K Street, plummeted. If the liquidation of the fund had been executed in 2020, investors could have recouped at least 50 percent of their initial investment, according to one source. However, the value of 1750 K Street has now dropped to a mere one-fourth of its purchase price, added a source within the investment banking industry.

Mirae has made a number of investments across the West Coast markets, as well. According to previous reporting by The Registry, in June of 2022, the company paid $520 million to acquire an eight-building, 1.16 million-square-foot industrial portfolio occupied by Amazon in Southern California and Utah.

In June 2016, Mirae purchased the 317,800-square-foot Amazon Phase VIII office building in Seattle for $246.8 million from Vulcan Real Estate. In addition, in November 2019, the company provided a $130 million floating-rate loan for refinancing the Hyatt Regency Lake Washington, located in Renton, WA. The borrow was SECO Development.

In Northern California, Mirae invested more in the hospitality industry. In October of 2015, the firm paid $450 million to acquire the venerable Fairmont Hotel in San Francisco from Woodbridge Capital Partners and Oaktree Capital Management who had owned the property for only about three and a half years and paid $200 million plus another $20 million in renovations in 2012. In August of 2019, Mirae paid $22.5 million for a hotel development site in San Jose, which has since fallen into foreclosure. However, one of its largest acquisitions was the September 2019 acquisition of a 15-hotel portfolio for which Mirae paid $5.5 billion to China’s Anbang Insurance Group. In the deal, three Bay Area hotels also traded, the Westin St. Francis in San Francisco, the Ritz-Carlton in Half Moon Bay and the Four Seasons Silicon Valley.