Samsung Securities recently announced the acquisition of the Amazon logistics center in Prague, Czech Republic on October 21, 2019, making it the fourth Amazon distribution center purchase in three years.
The South Korean brokerage firm has completed the purchase from AEW(www.aew.com), a US real estate investment company. Samsung Securities Co. Ltd. has bought Amazon’s only logistics center in Czech Republic for US $160 million. The logistics center is under a long-term lease with Amazon until 2030 and located near Prague Airport, allowing efficient coverage and services to Germany, Austria and Czech Republic.
This type of purchase, specifically corporate real estate, is not uncharted territory for the Korean firm. Between 2016 and 2018, Samsung Securities bought Amazon’s logistics warehouses in both Leicester, England for US $179.79 million and in Hannover, Germany for US $94.18 million, respectively. This latest purchase serves as its fourth acquisition of the retail giant’s distribution centers in Europe in three years, amounting to US $659.35 million.
As domestic South Korean financial companies have continued to invest in overseas real estate in recent years, there is growing concern about the sell-down risk and how this will be managed. South Korean IBs first need to restructure the acquired real estate asset into a fund, then resell the fund to the LPs.
According to the Korea Investors Service, domestic securities companies’ alternative investments in the first half of 2019 have increased to US $1.19 billion compared to the previous year. This reflects investments at just over 3-times higher than last year. Of these, 58% of the funds invested in real estate.
However, market chatter is rising calling for implementation of effective risk management strategies rather than rushing into overseas real estate assets as the local stock market relatively under-performs.
According to the global real estate services firm CBRE, the average return on investment for office properties in Europe last year was 3.7%, while logistics investment was up to 5.2%.
Samsung Securities plans to sell down the property through a five-year special purpose vehicle (SPV). Given one of the primary objectives of real estate investing is to secure a tier-1 tenant, acquisition of Amazon distribution centers may prove to be the main driver guiding South Korean investors to these type of deals.