Many Companies in Debt Sell Office Buildings First

Many insolvent companies that have had to go through corporate restructuring added the sale of their company building to their plans. However, these companies did not want their plans to become known because their customers might think, “How can we trust a company without an office building with our money?”

The former Kookmin Investment and Securities building, currently owned by Woori Wealth Management, was sold to Hyundai, and became home to Hyundai Investment and Securities. But as the company’s debts piled up, it became the property of Prudential Investment and Securities. This company, during the days of Kookmin Investment and Securities, suffered when a rumor floated around that the building was up for sale, and the company’s customers tried to retrieve their money, worried that the company was going bankrupt.

Daehan Investment and Securities, which was acquired by Hana Bank, announced during the first half of 2003 that they would sell their headquarter building to repay public debt early, then changed their plans when employees protested the sale.

Many Sales Made for Restructuring Purposes-

When companies go through restructuring, many list their company building as the first asset to be sold.

In December of 2000, Tongyang Group sold its Yeouido headquarters, where Tongyang Major and Tongyang Cement were located, to Lonestar for 65 billion won. Then they rented the building until February of this year, when they moved to the Alpha Building in Jongno-gu, Soeul. Affiliate companies were situated in different places until they acquired the building in Yeouido in the 1990s. However, they had no choice but to sell the building due to corporate restructuring.

Hansol Group sold their Yoeksam-dong building to a Hong Kong investment company in February 2003, and since then, Hansol Paper Company and other subsidiaries leased office space. The company did not attach the condition that they would buy back the building. Since the real estate prices have surged, the company seems to be regretting the sale.

Hanwha Group sold their 28-story building to a corporate restructuring real estate investment company, CR REITs. They sold the building for 186 billion won, but attached a condition that they would buy the building back four years later, which is next March.

The Hanwha building in Yeouido, for which Hanhwa president Kim Seung-youn had a special attachment, was sold to CR REIT for 138.1 billion won, on the condition that Hanwha would buy it back in five years.

Dacom, an affiliate of LG, sold the Gangnam building to a mid-sized construction company last year to reduce their debts, and has rented seven floors of it.

Building Sales Can Be Stepping Stones for New Businesses-

Recently, SK Corporation put its building on the market to finance its acquisition of Inchon Oil.

The building, which will be sold under a “sale and lease back” contract, is expected to be sold to a consortium led by Merrill Lynch for approximately 450 billion won. The contract also attaches a condition for buyback at an undetermined date in the future.

An official of the company said, “By selling the building, we can enter into new businesses without borrowing money from the bank.”

Sales of office buildings may provide a company with funds to enter into a new business, but some question whether companies really need to sell their buildings when interest rates are so low.

Young-Hae Choi yhchoi65@donga.com aryssong@donga.com