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[K-Financiers] Mastern aims to broaden US portfolio

Despite rate hikes, investor bets big on stable returns of middle-market properties in US

March 13, 2023 - 16:13 By Im Eun-byel

This is the second installment of a series of interviews on chiefs who run overseas units of Korean asset management, banking and securities companies, examining their key strategies for global expansion. -- Ed.

Joseph Oh, CEO of Mastern America, speaks during an interview with The Korea Herald at the investment firm's headquarters in southern Seoul, Feb. 28. (Lim Se-jun/The Korea Herald)

Mastern America, the US arm of Mastern Investment Management, plans to open up its business to individual investors to tackle new markets in real estate investment.

Though real estate investment has conventionally been more focused on institutional investors, Joseph Oh, CEO of Mastern America, sees potential in a wider range of investors.

Oh is a property investment veteran, overseeing the corporation’s business in the US market, from on-site due diligence to deal-sourcing and portfolio property management.

“We see the potential in investment market for capitals owned by high net worth individuals. It is an untapped market,” Oh said in an interview with The Korea Herald at Mastern Investment Management’s headquarters in southern Seoul.

“Institutions usually go for properties worth $100 million or more and individuals go for properties less than $10 million. There is somewhat of a void for the market in between,” Oh explained, referring to the US middle-market sector, including office, retail and industrial properties valued at between $10 million and $75 million.

To tackle the market, the investment firm earlier this month signed a partnership with Koriny, a property tech firm based in the US, aiming to expand its portfolio range through the deal.

Mastern Investment Management, overseeing 30 trillion won ($23.5 billion) in assets as of end-February, is a big player in the real estate asset management scene here, running real estate funds and project financing vehicles.

Having launched its office in New York in 2021, the firm has been expanding its business, hoping to establish a firmer footing in the US market. Mastern America became the first Korean company to join the Association of Foreign Investors in Real Estate, which is focused on foreign capital flows into the commercial property in the US.

Despite Mastern’s ambition, the outlook for the real estate market remains gloomy. With the US Federal Reserve showing no signs of dropping its aggressive monetary tightening policy soon, the market remains slow.

The Korean currency weakened against the dollar and currency hedging costs jumped, making it not a favorable environment for domestic investors, Oh said.

“But the recent base rate hikes caused changes in the capitalization rate of the market, leading to a price correction of 15 to 25 percent,” Oh said.

“Amid strong inflationary pressure, the Fed is likely to further raise the rate at least twice, leading to more price correction. It is a good strategy to wait out for an investment case to go in at the right price,” he said.

Despite the consecutive base rate hikes, Oh is confident that US real estate maintains its appeal as a stable investment outlet.

“At times of high inflation and low growth, past data suggests US real estate is more profitable than other types of assets. It definitely has been recognized as an inflation-hedging asset,” Oh said.

“But, of course, one should make investments in promising sectors, not just any properties,” Oh added.

While he agreed data centers and life science laboratories are thriving sectors, Oh also recommended multifamily housing as a top investment outlet for the time being.

“Multifamily housing supply has been continuously tight. With high mortgage rates, the demand for rent is high,” Oh explained.

“Backed by the high demand, the rental levels are going up, reflecting that rent fees are highly correlated with inflation.”

He also mentioned student housing as another attractive investment option.

“When the economy is in a downturn, people return to schools, going to graduate schools for example. It is a defensive sector, also known as a ‘recession-proof’ industry,” he said.

Another choice of investment could be self-storage properties, Oh added.

“Self-storage is an attractive investment as its rent marks to market frequently. Monthly fees are charged through registered payment methods, making it possible to raise the net operating income at a fast rate,” he said.

In the future, Mastern America hopes to play bigger roles in the US real estate market, participating in deals as a developer, too.

“It takes a long time to refine the deal-sourcing capability and sharpen up the skills of real estate management,” Oh said.

“Maybe we could go into properties as a co-general partner or co-developer with local management companies, and eventually buy out a firm or create a joint venture in the mid- to long-term,” he said.

The growth is not limited to properties, but applied to customer range, too. Oh further hopes to expand the range of investors across Asia.

“That will be the edge of Mastern. For domestic investors, the wider range of investor profiles will give assurance on the investment. For Mastern, it will be a move to think outside the box of Korea, to be a truly global investment firm.”