South Korea’s NongHyup Financial Group and a number of local institutional investors will invest 600 billion won ($526.2 million) in a high-rise office building in lower Manhattan, New York City, in the form of mortgage-backed debt with an aim to raise annual returns of 4 percent.

According to multiple sources from the investment bank industry on Tuesday, the financial group’s two insurance units - NongHyup Property & Casualty Insurance Co. and NongHyup Life Insurance Co. - and other local institutional investors including brokerage and insurance firms are planning to invest 600 billion won in 200 Liberty Street, a skyscraper located across the World Trade Center site that was severely damaged in the September 11 attacks in 2001. The Korean investors have set a target of generating an annual return of 4 percent based on their investment in senior mortgage-backed bonds issued on security of 200 Liberty Street building.

In general, investors investing in mortgage-backed bonds raise profit by providing loans to real estate purchasers and receiving interest payment from them. In addition to senior bonds, there are mezzanine and subordinated bonds depending on the level of investment risk and expected earnings. Investing in mortgage-backed debt brings lower profitability as to purchasing the actual stake in a property but it guarantees lower risk.

200 Liberty Street that was built in 1986 is a prime office building located on the street across from the World Trade Center site. The 40-story office building rests on a total floor area of 151,200 square meters and is valued at 1.2 trillion won. The building has been rented out to multiple tenants including law firms and financial institutions, and its vacancy rate is only 4 percent. Currently, 200 Liberty Street is owned by Brookfield Asset Management Inc., a global alternative asset manager.

Meanwhile, local institutional investors including insurers have increasingly been engaged in investing in mortgage-backed debt as part of an alternative investment option amid the protracted low interest rate environment. Loan investments have been highly preferred by local investors as they are less affected by fluctuations in real estate price and bring stable returns.

In August, local insurers including Shinhan Life Insurance Co. and Hyundai Marine & Fire Insurance Co. invested 360 billion won in 10 Hudson Yards, a skyscraper in Manhattan’s west side, in the form of mezzanine loans. Also, in June, six local insurance firms including NongHyup Life Insurance purchased 240 billion won worth of senior mortgage-backed bonds backed by the Atlantic Building in Washington D.C.

By Kang Doo-soon and Song Kwang-sup

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