Korean real estate funds and REITs that invested in overseas office assets are facing mounting pressure from unexpected FX settlement payments, triggered by the sharp depreciation of the Korean won against the US dollar and euro.

These funds had entered forward exchange contracts as part of their hedging strategy—but now, as the won weakens, the cost of those hedges is exploding.

Because many of these vehicles are not structured to raise fresh equity from existing investors, they’ve been forced to turn to high-interest bonds and short-term loans to plug the gap—putting their dividend capacity under further strain.

On July 15, JR Global REIT disclosed that it had signed forward hedging contracts at the time of its investment in Belgium’s Finance Tower.

With the EUR/KRW rate jumping from 1,370 at the time of acquisition to over 1,600 this July, the REIT is now on the hook for hundreds of billions of won in FX settlement liabilities.

It plans to issue 70 billion yen (~$460 million) in corporate and short-term bonds to secure liquidity, including a two-year bond with a coupon of 6.3% by the end of July.

The Finance Tower, acquired in July 2020 for KRW 810.2 billion (~EUR 723.9 million) via JR’s sub-REIT No. 26, was financed with local debt at a fixed 1.05% rate. But the FX hedge mismatch has left the vehicle with a significant liquidity hole.

A similar scenario is unfolding at Korea Investment Real Asset Management. In 2019, it acquired the landmark 195 Broadway office building in Manhattan for $475 million.

The fund hedged the currency exposure at 1 USD = 1,085 KRW, but by June 2025, the actual rate had soared to 1,356 KRW—leaving a settlement gap of KRW 26.2 billion (~$19 million). With only KRW 680 million in cash available, the fund must now negotiate with Standard Chartered Bank to cover the remainder—subject to a 6.57% interest rate.

KB Star REIT, meanwhile, incurred a KRW 58.7 billion (~$42 million) FX settlement loss related to its acquisition of a Brussels office in 2022. To cover it, the REIT issued KRW 60 billion in short-term debt at 4.3%.

“Real estate is a fundamentally illiquid asset class, and many of these funds hedged currency exposure based on five-year investment horizons,” said a senior executive at a local asset manager.

“But delays in exit timing due to market conditions have exposed them to settlement risks they hadn’t fully priced in. Unlike domestic deals, offshore investments carry this additional FX dimension that can catch even sophisticated players off guard.”