[Edaily Marketin KIM SUNG-SOO Reporter] The ripple effects of the Bank of Korea’s interest rate hike are shaking up “deal closings”—the final hurdle in the commercial real estate market. This is due to rising interest rates on senior secured loans, which are used in actual transactions in the office market.

Even after price negotiations between sellers and buyers have concluded and a preferred bidder has been selected, there have been a series of cases where transactions have been delayed or fallen through entirely due to deteriorating financing conditions.

Senior Secured Loan Rates ‘Jump’ to the 5.3% Range

According to the financial investment industry on the 3rd, in recent commercial real estate sales, there has been an increase in cases where office transactions that had previously stalled are re-entering the sales process, or where advisors are being replaced to find new buyers.

A prime example is Anam Tower, located at 702-10 Yeoksam-dong, Gangnam-gu, Seoul. Anam Tower is a building with six underground floors and 20 above-ground floors, located near Seolleung Station on Subway Line 2, with a total floor area of 44,083.78 square meters (approximately 13,335 pyeong).

Hanwha Asset Management, the owner of this asset, sought to sell it in 2023. At that time, NH REIT Management attempted to acquire the property at approximately 35.97 million won per 3.3 square meters, but the deal did not materialize. Since then, as market conditions have changed, the sale is proceeding again following the recent selection of Capstone Asset Management as the preferred bidder.

Suseo Rose Dale has also undergone several sale processes. Located at 280 Gwangpyeong-ro, Gangnam-gu, Seoul (724 Suseo-dong), Suseo Rose Dale is a large-scale mixed-use office complex comprising 8 basement levels and 20 above-ground floors, with a total gross floor area of 97,526 square meters (approximately 29,501 pyeong).

The lower floors (B1 through 10th floor, etc.) consist of large-scale office spaces, while the upper floors are comprised of officetels. The portion being sold consists of the office spaces spanning B1 through the 10th floor, covering approximately 55,462 square meters (about 16,777 pyeong).

This asset, held by Intrus Investment Management, was previously put up for sale in 2022 and 2024, but the process was withdrawn in 2022 during the selection of a sale advisor. The sale proceeded again, and in a bidding process last August, Stick Alternative Asset Management was selected as the preferred bidder at approximately 27 million won per 3.3 square meters.

Market analysts attribute this phenomenon of repeated office building sales to rising loan interest rates. Interest rates on senior secured loans in the office market have recently risen to the 5.1–5.3% range. Compared to the 3.8% range at the end of last year and the 4% range at the beginning of this year, this represents an increase of more than 100 basis points (bp, where 1 bp = 0.01 percentage point).

From the perspective of real estate investors, a rise in loan interest rates of about 1 percentage point (p) means more than just an increase in financial costs. As loan interest increases, the rate of return on investment decreases accordingly, which in turn lowers the price buyers can afford.

In effect, this widens the gap between the price sellers are seeking and the funds buyers can secure.

There are also cases where a sale fell through once and a new buyer is now being sought. The Sangam IT Tower, owned by CAC Asset Management, is one such example. The Sangam IT Tower is a building located at 434 World Cup Buk-ro, Mapo-gu, Seoul, consisting of five basement levels and 12 above-ground floors, with a total floor area of 46,152.27 square meters.

An attempt was made to sell this building last year, but the acquisition by Korea Land Trust did not materialize. Subsequently, Korea Investment Real Estate Trust was selected as the preferred bidder this year, and the deal is currently nearing closing.

Seller vs. Buyer: A “Gap” in Price Expectations

Development asset owners are also reworking their sales strategies. Benefos Seongsu, currently under development by Benefos, attempted a pre-sale last year, but the transaction did not proceed smoothly. Consequently, the seller has replaced its existing sales advisors—Savills and Samjung KPMG—with Cushman & Wakefield (C&W), Deloitte, and NAI Korea, and is now resuming the sale.

Benefos Seongsu is a large-scale, prime-grade office building currently under development by Benefos in the area around 278-3 Seongsu-dong 2-ga, Seongdong-gu, Seoul. Scheduled for completion this November, the building will consist of 6 basement levels and 18 above-ground floors, with a total floor area of 60,661.9 square meters.

The Yejeon Building in Jamsil is showing a similar trend. The Yejeon Building is a mid-sized office asset located at 7-26, Sincheon-dong, Songpa-gu, Seoul, with 5 basement levels and 16 above-ground floors, and a total floor area of 19,925 square meters (approximately 6,027 pyeong).

Owned by Eden Asset Management, this asset was put up for sale last year, but the acquisition by HHR Asset Management and Koramco Asset Management fell through. Recently, the company selected Colliers Korea as its new sales advisor and has resumed the sale process. Bidding is scheduled to take place sometime after the middle of this month.

Even large-scale assets for which a transaction previously failed to materialize are reappearing on the market. The Office Towers A and B at Yeongdeungpo Times Square, owned by Koramco Asset Trust, saw the transaction fall through in 2024 due to a lack of bidders.

Recently, JR Investment Management has been pursuing the acquisition again after securing EZ Financial Services as a strategic investor (SI). EZ Financial Services is a large independent insurance brokerage firm that allows customers to compare products from dozens of life and property & casualty insurance companies in one place and provides consulting services.

Consequently, analysts suggest that the bigger problem in the commercial real estate market these days is not a lack of buyers, but rather a shortage of available capital.

While it may seem that a deal would close if the price were right, in reality, rising loan interest rates have simultaneously reduced both available funding and expected returns on investment, leading to cases where deals cannot be closed.

In particular, since interest rates on senior secured loans—which were in the 3% range at the end of last year—have now surpassed the 5% mark, it is difficult to close deals by simply applying past price levels. This is because a dynamic has emerged in which sellers try to hold their prices, while buyers seek to lower them to account for higher financing costs.

An official in the financial investment industry stated, “When interest rates rise, the asset prices that investors are willing to consider change,” adding, “Even after a preferred bidder is selected, transactions can be delayed if financing terms do not align, so the likelihood of closing a deal has recently emerged as a key variable.”