[Edaily Marketin KIM SUNG-SOO Reporter] Korea Investment & Securities has completed the main project financing (PF) for a project to develop a 60MW artificial intelligence (AI) data center (DC) in Gunsan, North Jeolla Province. As this is a high-quality asset fully leased by KT Cloud, the company successfully secured funding even at a relatively low PF interest rate of “in the low 5% range” on a senior basis.

Data centers are closely linked to the government’s “productive finance” initiative, and with demand expected to grow significantly in the future driven by the growth of the AI industry, they are attracting attention as a “trillion-won market” in the domestic real estate finance sector.

657.6 Billion Won PF Deal Closed

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Senior Loan Rate in the “5% Range”

According to the financial investment industry on the 12th, Korea Investment & Securities completed the deal closing for the 657.6 billion won main PF (loan disbursement) related to the “Gunsan SGC AI Data Center New Construction Project” on the 30th of last month.

This project involves the development of an AI data center on the site of the Gunsan National Industrial Complex No. 2, located in the Bieungdo-dong area of Gunsan City, Jeonbuk Special Self-Governing Province. The site covers 115,702 square meters, and the total project cost is approximately 870 billion won. Hyundai Engineering is the general contractor.

Construction of a 60 MW (megawatt) facility is scheduled to begin within this month, and plans are underway to expand the capacity to 300 MW in the future.

Korea Investment & Securities is preparing the development in collaboration with the Jeonbuk Special Self-Governing Province, Gunsan City, and SGC Energy. To secure stable funding for the project, SGC Energy partnered with Korea Investment & Securities to establish the “SGC-KIS No. 1 Private Equity Fund” (PEF). SGC Energy contributed 86.9 billion won to participate as a limited partner (LP) with a 99.7% stake.

Korea Investment Securities, acting as both a financial investor (FI) and financial arranger, is responsible for investing in the project entity and arranging project finance (PF). The PF interest rate is in the low 5% range on a senior basis. The lease agreement has also been finalized. Since this is a high-quality asset fully leased by KT Cloud, the company successfully secured lenders even at a relatively low interest rate of “low 5%.”

The fact that Korea Investment & Securities both directly invested in the data center development project and arranged the project financing demonstrates that financial institutions view data centers not merely as loan products but as a new area for infrastructure investment.

For hyperscale (megasize) data centers, interest rate terms vary depending on the leasing situation, but senior PF loans typically range from the low 5% to the low 6% per annum, while mezzanine and junior loans are around 7–8% per annum.

Compared to office buildings, data center loan interest rates are not particularly high. For example, in Zones 3-8, 9, and 10 of the Seun Urban Renewal Promotion District in Jung-gu, Seoul, Shinhan Bank is providing project financing, with a senior interest rate of approximately 6.12%.

However, banks are generally willing to invest in large-scale data centers even at lower interest rates. This is because data centers are closely linked to the government’s “productive finance” initiative, and demand is expected to grow significantly in the future, driven by the growth of the AI industry.

Furthermore, there are concerns about an oversupply of office space in the Central Business District (CBD). Consequently, the asset management industry sometimes views the expected rate of return on data center development projects as higher than that of office projects.

The expected rate of return for a 40 MW (megawatt) data center is estimated to be around 20% based on the internal rate of return (IRR). This estimate assumes a total investment cost of approximately 600 billion won and a terminal cap rate (exit capitalization rate) of 5.25% for the asset’s sale value.

The “terminal cap rate” refers to the ratio of the sale price to the net operating income (NOI) expected when the real estate investment period ends and the asset is sold. Compared to the expected rate of return for office development projects, which is in the mid-10% range based on IRR, the expected rate of return for data centers is relatively high.

Infrastructure Assets… Exempt from ‘Real Estate PF’ Regulations

Another reason financial institutions prefer investing in data centers is that they offer an alternative to fund management constrained by project financing (PF) regulations.

Unlike traditional real estate project financing (PF), data centers are not directly subject to general real estate PF regulations, such as the “20% equity” requirement. Since data centers are classified as “infrastructure” assets rather than “real estate,” PF is structured as facility loans.

Furthermore, unlike general real estate development, data center development often involves global companies such as Amazon and Google, or large funds, providing sufficient equity. In cases where tenants have already been secured, financing is possible even with a low equity ratio.

Consequently, not only banks participating in senior loans but also capital companies are actively entering the market for mezzanine and subordinated loans.

An official from the financial investment industry stated, “Data center PF loans are closely linked to ‘productive finance,’ so banks are actively considering investments,” adding, “Demand for data centers is expected to remain high in the future as they align with government policies and the growth of the AI industry.”

Asset management firms are also taking action. Koramco Asset Management is planning to establish Korea’s first publicly traded REIT focused on data centers. Although a specific launch date has not been set, observers note that efforts to utilize data centers as a new class of REIT investment assets are gaining momentum.

An official in the financial investment industry said, “As the number of AI data centers increases in the future, the investment formula for real estate finance will also change,” adding, “A market is opening up where funds can be invested not only in buying and selling completed buildings, such as offices and logistics centers, but also in everything from project financing (PF) for data center development to stakes in operating companies and power and energy infrastructure.”

However, “securing power” and “public complaints and permitting issues” are cited as major risks in data center development projects.

While the government is encouraging the relocation of data centers to regional areas to alleviate the burden of electricity demand in the Seoul metropolitan area, there remains a strong preference for the Seoul metropolitan area as a location for data centers from a business viability perspective. Furthermore, data centers face the potential for public complaints from residents due to electricity consumption, heat generation, and electromagnetic waves.

Consequently, as the development of hyperscale (megasize) data centers in the Seoul metropolitan area becomes increasingly difficult, there is a growing trend toward developing small-scale data centers with capacities of 10 MW or less. The development of small-scale data centers, ranging from 400 to 500 pyeong, is also being actively pursued in existing facilities in downtown areas such as Gangnam and in heavy industrial zones.

An official from the financial investment industry stated, “Demand for data centers tends to be high because global companies like Amazon and Google often purchase them after completion,” adding, “Permits, power connections, and public complaints are key variables in project implementation, and land with secured permit approval sells at high prices.”