The Seoul Square building frequently dazzles with its ever-changing digital mural and its appearances in Korean media. But it also holds an altogether darker reputation – of being a harbinger of the next market downturn.
The office trophy asset stands 23 stories tall and is regarded as a modern landmark in the country’s capital. The large square building lights up after 8pm every day to become one of the world’s largest LED canvases, depicting the works of artists. As such, it is considered a great marketing tool given its location across from Seoul Station, which provides express trains straight to the Incheon International Airport.
To Korean soap opera aficionados, it is most notable for providing the office setting for Korean drama “Misaeng: Incomplete Life.”
Built in 1970, Seoul Square was originally named the Daewoo Building after the Korean conglomerate that financed its construction and took the office as its headquarters. At the time, it was the tallest and most expensive office building in Korea. It housed the Daewoo Group for more than three decades before the conglomerate ran into trouble in 1998, racking up debt and relationship trouble with the Korean government as part of the 1997 Asian financial crisis fallout. By the following year, the Daewoo Group went bankrupt with around $75 billion in debt and the office was seized by creditors.
Come 2006, a different Korean conglomerate bought the building from Daewoo’s creditors. Kumho Asiana Group, an organization known for construction, transportation and IT businesses, held the office building for just a year before handing it over to US investment bank Morgan Stanley as it too found itself struggling with liquidity issues.
To compound the pattern, Morgan Stanley, like the building’s owners before it, took it on moments before a financial downturn. The bank bet big on the asset at the peak of the market in 2007, agreeing on a price tag of $1 billion – the most ever paid for an office building in Seoul at the time. Its infamous opportunity fund, Morgan Stanley Real Estate Investing Fund VI, which would later report losing around 60 percent of its investment, shelled out $350 million in equity. It borrowed the rest from Korean banks to acquire the asset through subsidiary KR1, according to The Korea Times newspaper.
Morgan Stanley spent two years renovating the space, adding the giant digital mural on the face of the building and remodeling the interiors with a smooth marble finish. However, rent performance never kept pace and, to make matters worse, vacancies were high.
Having made little progress, Morgan Stanley exited the investment and handed the building to Keppel Capital’s asset management arm Alpha Investment for 800 billion won ($701 million; €622 million) in 2011. Though Alpha has also struggled to fill the space, it eventually signed a 20-year lease with WeWork in 2018, bringing the vacancy rate down to 3 percent, according to The Korea Economic Daily newspaper.
Now, in the midst of one of the longest market expansions, a new owner comes into view. In late March, a joint venture between Singapore-based ARA Asset Management and NH Investment & Securities, one of Korea’s largest securities firms, paid approximately $874 million for the Seoul Square Building, according to real estate transactions data provider Real Capital Analytics.
‘Past performance is no indicator of future outcomes’ is a saying the building’s latest owners will be hoping rings true this time around, even if the noise about the next downturn keeps increasing.