IGIS Asset Management’s real estate fund that’s related to the ‘Mall of K’, a shopping complex based in Seoul, is facing an event of default (EOD) due to insufficient funds for upcoming loan interest payments. The shopping complex is known for housing Konkuk University CGV.
An EOD is when an event occurs that allows the lender to demand early repayment of the loan before its normal due date. It is also commonly referred to as the event of ‘loss of the benefit of time’ in a loan agreement.
According to the market industry, IGIS Asset Management, a financial investment company, has announced in a regular notice regarding its ‘IGIS Retail Real Estate Investment Trust 194′ that there will be insufficient funds to pay the loan interest due on the upcoming June interest payment day.
An official from IGIS Asset Management has stated that they are struggling to secure subordinated debt to pay off loan interest. They are facing difficulties in finding additional loans and are currently negotiating with major lenders to extend the payment day for the next loan interest.
Fund 194 was established in June 2018 with the Mall of K in Jayang-dong, Gwangjin-gu, Seoul, as its primary asset. The aim of the fund was to generate operational income and disposal gains for its beneficiaries. However, due to the COVID-19 pandemic, it is not even generating operational income.
The pandemic caused the vacancy rate of Mall of K, which was previously at 0%, to increase to 40%. Furthermore, the economic downturn in the commercial area around Konkuk University Station made it difficult to find potential tenants. This eventually led to a vicious cycle of falling rents.
“The cumulative impact of falling market rents, prolonged vacancies in competing commercial properties near the entrance to Konkuk university and persistently high interest rates made it difficult to cover the interest on the loan, which has risen sharply since the due was extended, and the essential costs for running the fund,” IGIS Asset Management stated.
If everything had gone according to plan, Fund 194 would have sold its asset before the maturity date of Jun. 29, 2023, and been successfully liquidated. However, due to the lack of interested buyers, this was not achieved. As a result, the fund’s maturity was extended for two years until Jun. 29, 2025, at last year’s general meeting of beneficiaries.
The market believes that the loss for investors in Fund 194 is inevitable. If the loan interest cannot be paid by the upcoming interest payment date, an EOD will occur under the loan agreement. In this case, the lenders will have no choice but to execute their security rights through asset disposal or other means.
Despite the company’s efforts to secure liquidity by signing a rent prepayment contract with CJ CGV, the operator of Konkuk University CGV, the yield is already negative. As of the end of last year, the recent one-year yield of Fund 194 was recorded at -15.01%. The last five years were at -3.50%, and the yield since inception was at -0.41%.
