Morgan Stanley set a record for real estate purchases in South Korea with its agreement to buy Daewoo Engineering & Construction Co’s Seoul HO

Morgan Stanley set a record for real estate purchases in South Korea with its agreement to buy Daewoo Engineering & Construction Co’s Seoul head office for 960 billion won (S$1.58 billion), brokers said.

The Government of Singapore Investment Corp (GIC) set the previous record in December 2004 by paying about 880 billion won to buy Star Tower in Seoul from Dallas-based Lone Star Funds, said Steven Craig, from Jones Lang LaSalle Inc, the world’s second-largest commercial real estate broker.

The purchase extends a global acquisition spree in which Morgan Stanley has bought offices, hotels and residences. Morgan Stanley, the biggest real estate investor among Wall Street banks, is buying into a market where demand for office space is likely to outstrip supply for the next three years, driving up rents.

‘Rent escalation for office buildings in Seoul has been 3 per cent to 5 per cent per annum for more than five years, and we expect it to continue,’ said Sean Kim, associate director of Colliers International’s Korea office, in a telephone interview.

The price per square metre paid for the Daewoo building is about 75 per cent higher than that paid for the Star Tower, according to local real estate brokers. At 23 storeys and 132,560 square metres, the Daewoo building is roughly half the size of the 45-storey Star Tower, which has 212,500 square metres.Morgan Stanley is paying about 24 million won per pyung, compared with the 13.7 million won per pyung that GIC Real Estate paid for Star Tower, said Mr Craig at Jones Lang LaSalle. One pyung equals 3.3 square metres.

‘One wonders what Star Tower would go for if it came back onto the market today,’ Mr Craig, a Seoul-based member of Jones Lang LaSalle’s investment sales department, said via e-mail. ‘With market vacancy touching 1.3 per cent, it would definitely be a lot more than US$1 billion.’

Mr Craig said the price Morgan Stanley is paying excludes a reserve for capital expenditures to refurbish the Daewoo building. ‘It will be a very substantial number because a very large renovation programme is required,’ he said.

Morgan Stanley spokeswoman Alyson D’Ambrisi didn’t immediately respond to a request for comment placed after regular New York business hours. Lay Choon Mah, a spokeswoman for GIC Real Estate, declined to comment.

JPMorgan Chase & Co arranged the transaction for seller Daewoo Engineering.

Source: The Business Times, 12 July 2007