Morgan Stanley leaves Korean real estate market

Morgan Stanley is known to have withdrawn from Korea last year its real estate arm, Morgan Stanley Real Estate Investing after selling Seoul Square, a company source said Thursday

The source said all of the company’s departments related to real estate have been withdrawn from the Korean market as of Dec. 31 last year.

Foreign investment entities such as Lone Star, Macquarie and Prudential entered the Korean real estate market after the Asian-wide financial crisis hit in 1998, earning huge profits.

Lone Star purchased Star Tower in Seoul’s southern Gangnam district for 660 billion won (589 million U.S. dollars) from Hyundai Development Co. through its overseas operation Star Holdings SA in 2001. The U.S.-based fund earned profits of 240 billion won (214 million dollars) by selling the building to a Singaporean operation for 900 billion won (803 million dollars) in December 2004.

Macquarie also reaped more than 40 billion won (35.9 million dollars) in profits by purchasing a Daewoo Security building for 72 billion won (64.2 million dollars) in 2003 and reselling it for 112 billion won (100 million dollars) in 2007.

Prudential raked in 160 billion won (143 million dollars) by buying Seoul City Tower in Namdaemun in 2003 for 158 billion won (141 million dollars) and reselling it for 318.5 billion won (284 million dollars) four years later.

The failure of Morgan Stanley, however, has prompted real estate experts to say huge profits in Korea are unlikely for foreign investors unlike in the past. For example, much of the space in a large building in the heart of Seoul owned by a foreign investor has remained unoccupied for several months.

In addition, another building in Seoul’s downtown Jongno district owned by a foreign investor was put up for sale last year. With no one stepping forward to buy, however, the owner nixed the sale.

Kim Yong-hee, chief of the fund research team at Hyundai Securities, said, "The profitability rate was very high in the past due to lack of large-size buildings, but a decline in the rate has become inevitable from 2013 due to a glut of buildings," adding, "It`ll be difficult for foreign capital to expect high profits."

cpu@donga.com bright@donga.com