A fire that broke out at the HYL Icheon Sujeong Logistics Center in Bubal-eup, Icheon-si, Gyeonggi Province has created a complicated post-crisis scenario for its owner KKR and asset manager Create Asset Management.

The logistics center, developed through a PFV (Project Finance Vehicle) structure, is now facing forced loan repayment demands from lenders, a costly rebuild, and potential disputes over master lease obligations.

The property was developed via PFV by Metheus Asset Management in 2021 under the name 'Metheus Icheon Logistics Center PFV,' capitalized with KRW 34.3 billion (approx. USD 25.41 million)—comprising KRW 24.7 billion in common equity and KRW 9.6 billion in preferred equity.

Goldman Sachs, a key foreign institutional investor, held 75% of the common and 60% of the preferred shares, with the remainder held by Metheus General Private Fund No. 6, which included entities affiliated with Hanyang Foundation (Hanyang Academy).

Hanyang Industrial Development, also affiliated with Hanyang Foundation, was appointed as the general contractor for the development, making the foundation a central player—simultaneously acting as investor, builder, and eventually tenant through its logistics subsidiary, HYL.

In 2023, Metheus sold the completed asset to Fund No. 187—a vehicle set up by Mastern Investment Management—for KRW 150 billion (approx. USD 110 million). Hanyang Foundation reinvested in the new structure, taking KRW 25 billion in common equity. Qatar Investment Authority (QIA) had originally committed to provide KRW 55 billion in preferred equity, but pulled out during final negotiations.

Upon QIA's last-minute walkaway, Goldman Sachs stepped in to fill the gap—an unusual move that reflected its desire to keep the transaction on track and protect its earlier development-stage investment in the project. Rather than risk a broken deal and the reputational cost of a stranded asset, Goldman Sachs converted from seller to financier, anchoring the preferred tranche that was critical to the closing.

Soon after, Logos Investment Management acquired Goldman Sachs' preferred shares by launching a new fund. The asset management mandate was also transferred to Create Asset Management, a firm under KKR’s umbrella, consolidating control over the asset.

In the face of soft leasing conditions in 2023, Mastern secured a master lease agreement with HYL, a logistics subsidiary of Hanyang Foundation. The lease included a joint guarantee of up to KRW 46 billion (approx. USD 34 million) by Baeknam Tourism, another affiliate of the foundation and owner of the President Hotel in Seoul. HYL’s shareholder structure includes Hanyang Asset Holdings (70%) and Baeknam Tourism (30%).

Due to the building’s fire damage, it is considered economically unviable to reuse, necessitating full demolition and reconstruction. The lender consortium, which had provided KRW 88 billion (approx. USD 65.19 million) in project financing, is now expected to demand full repayment of principal and interest. Insurance proceeds are expected to cover part of the loss, but the remaining burden will fall on KKR and its backers.

A key challenge lies with HYL. Legal interpretations may vary on whether the master lessee is still obligated to pay rent for an unusable facility.

Compounding the problem is HYL’s financial distress. In 2024, the company recorded an operating loss of KRW 16.9 billion (approx. USD 12.5 million), primarily due to vacancy in its master-leased logistics assets. Its cash reserves at year-end 2024 stood at only KRW 480 million (approx. USD 0.36 million), raising significant concerns over Baeknam Tourism’s ability to fulfill its joint guarantee obligations.

This case underscores the inherent risks of multi-layered deal structures where key stakeholders are tightly interwoven. In this transaction, the seller, buyer, contractor, tenant, and asset manager were all deeply entangled—none more so than Hanyang. Through its affiliates, Hanyang played multiple roles: equity investor during development, general contractor for construction, and long-term master lessee post-sale.

While the master lease structure may have helped close the deal in a sluggish market, it now poses new challenges in a non-operational asset. The potential for legal disputes over rent obligations and the burden on guarantors highlight the downside of such entanglements. This is a textbook case of how complex deal architectures—initially designed to align interests—can instead amplify risk when disruptions occur.

Glossary of Terms:

• PFV (Project Finance Vehicle): A special purpose company established for a specific project, often used in real estate development and infrastructure projects to manage finances and risks.

This article was published in Corebeat on May 15, 2025.