(Bloomberg) -- The developer of one of South Korea’s most ambitious real estate projects is at risk of losing the land after missing interest payments for more than six months.
The Korean Federation of Community Credit Cooperatives, which led a consortium of lenders that provided a 370 billion won ($278 million) bridge loan to the developer HSD Co., said the parcel of land “must be put up for auction,” in an emailed response to questions from Bloomberg News this week.
HSD was founded in 2021 to undertake the development called Dadae Marine City, which includes plans for an apartment complex of up to 48 floors and a hotel at a former shipyard overseeing the ocean in Busan, South Korea’s second-biggest city. Three years on, the project including pre-sales of apartments hasn’t started and the development’s future under its original plan is in doubt.
HSD said on Thursday when contacted by Bloomberg News it has nothing to add beyond a July statement on its website where it wrote that it’s cooperating with lenders and is committed to signing a construction contract but financiers had refused to extend the loan’s maturity.
KFCCC’s auction plan comes as South Korean officials last week gave lenders with exposure to troubled real estate project finance loans until Sept. 6 to finalize their clean-up proposals, after growth in such debt outpaced regulators’ estimates. The financier’s move underscores the challenges lenders face in recouping credit provided to the property project-finance sector, where a series of high-profile credit events including a debt restructuring by builder Taeyoung Engineering & Construction Co. have rattled markets.
“Dadae Marine City has a good location as it’s one of the few places suitable for a massive development project in Busan,” said Lim Jae Man, a professor of real estate studies at Sejong University in a phone interview. “If it’s in trouble, many other projects outside the capital and its surrounding area are in deeper trouble.”
KFCCC said it has completed the “preparatory procedures to conduct an auction” but has yet to put the land up for sale. The lender has until mid-November to do so, based on revamped government guidelines.
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