[Edaily Marketin KIM SUNG-SOO Reporter] As State Tower Namsan, a landmark office building in Jung-gu, Seoul, has been put up for sale, observers suggest that the U.S. Federal Reserve’s (Fed) decision on whether to raise its benchmark interest rate could create uncertainty for the transaction.

If domestic Treasury bond yields rise due to a Fed rate hike, the interest rates on senior secured loans—which are used in actual transactions in the office market—will also increase. This is because if buyers’ financing conditions deteriorate as a result, price negotiations may need to be renegotiated, potentially delaying the transaction.

Final Preferred Bidder Expected to Be Selected Around the First Quarter of Next Year

According to the financial investment industry on the 12th, Mirae Asset Management recently selected a consortium consisting of Jones Lang LaSalle (JLL) Korea and Deloitte Anjin as the sale advisors for State Tower Namsan. Following the sale process, the final

preferred bidder is expected to be selected around the first quarter of next year

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State Tower Namsan is an office building located at 88 Hoehyeon-dong 2-ga, Jung-gu, Seoul. The building comprises 6 basement levels and 24 above-ground floors, with a total floor area of 66,799 square meters (approximately 22,070 pyeong), and is situated between Myeongdong Station and Hoehyeon Station on Subway Line 4. It is about a 5-minute walk from Myeongdong Station, offering convenient access to both the downtown business district and the Myeongdong commercial area.

Current tenants include the Korea Investment Corporation (KIC), global consulting firm Bain & Company, Pfizer Korea, and BMW Korea. The fact that this office asset has secured global corporations and financial institutions as tenants is expected to be a key evaluation factor during the sale process.

This building is held within the “Mirae Asset Mapscore General Private Real Estate Investment Trust No. 2-3,” in which KIC has invested its own assets. As of the end of last year, the fair value and book value of this fund totaled 169.895 billion won. Compared to the acquisition cost of 110 billion won, this represents an increase of approximately 59.895 billion won, or 54.45 percent.

It remains to be seen whether the book value, which has risen above the acquisition cost, will translate into the actual sale price. Since investor sentiment in the office market and financing conditions could determine the outcome of the sale, market attention is focused on the sale terms to be proposed by Mirae Asset Management and the evaluations of potential buyers.

Pressure on Market Interest Rates Amid Concerns Over a U.S. Fed “Big Step”

However, uncertainty in the commercial real estate market is rising as speculation grows that the U.S

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Federal Reserve (Fed) may take a “big step” next month by raising the benchmark interest rate by 0.5 percentage points (p) in a single move.

As the possibility of a Fed “big step” has been raised, market interest rates—including those on domestic government bonds—are facing upward pressure. When government bond yields rise, the interest rates on senior secured loans—which are used in actual transactions in the office market—also increase.

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

This effectively widens the gap between the price the seller desires and the funds the buyer can secure. Even after price negotiations between the seller and buyer are concluded and a preferred bidder is selected, there are cases where the transaction is delayed or falls through entirely if financing conditions deteriorate.

A commercial real estate industry insider stated, “When the likelihood of a U.S. Federal Reserve interest rate hike increases, potential buyers’ required rates of return also rise, which can make it difficult to proceed with a deal,” adding, “Since the sale price must be lowered to meet the higher required rates of return demanded by equity investors, sellers and buyers sometimes have to renegotiate the price.”