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INCHEON, SOUTH KOREA-Posco Engineering & Construction Co. has agreed to lease more than one million sf in two high-rise office buildings here that it will help develop as part of the international business district of New Songdo City, a 125-million-sf project that will take an estimated 10 years and $25 billion to build out. A subsidiary of Korean steel giant Posco, Posco E&C is developing the new business district in partnership with Gale International of New York.

Posco E&C’s current headquarters is located in Seoul. In 2009, when its new office towers are set to open, the company plans to relocate more than 2,000 employees to the new towers, one 35 stories and the other 22 stories. Gale and Posco E&C expect the lease commitment to have a positive impact on drawing further domestic and foreign investment.

All told, New Songdo City is slated to include 125 million sf of new development on 1,500 acres in Incheon, a western suburb of Seoul that sits on the Yellow Sea. It will include 50 million sf of office space, 30 million sf of residential space, 10 million sf of retail, five million sf of hotel space and 230 acres of public space.

Most of the commercial space will be part of the international business district that Gale and Pocso E&C will develop on 600 acres. The remainder will be used for the development of a convention center, road and utilities, two international schools, a central park and other urban infrastructures. The convention center, which is projected to cost US$125 million, got under way in March 2005.

The lease commitment is the first big news about New Songdo City since Gale and Posco E&C closed on $1.5 billion in financing in late June. About one third of the funds will be spent on the land acquisition and the remainder on infrastructure, Gale CEO John Hynes told GlobeSt.com at the time.

The financing represents 13% of the $20 billion that is to be raised over the next 10 years to fund the development. Moreover, said Hynes, it means the joint venture no longer will need to convince lenders for the office, residential and retail components that the infrastructure to support those phases will indeed be built.

“The successful land loan is a clear sign of major financial institutions’ belief in this project as being a sound and promising business venture,” he said. “The success of this financing also enhances the attractiveness of this project to international investors.”

Twenty-six financial institutions are participating in the syndicated financing, which was reportedly oversubscribed by some $3.5 billion. The three coordinating arrangers were ABN Amro, Kookmin Bank and Woori Bank. The rest of the group includes Kyobo Life Insurance and Korea Life Insurance and other major financial institutions such as the Industrial Bank of Korea and the National Agricultural Cooperative Federation.

Prior to landing the $1.5-billion land acquisition and improvement loan, the 2,145-unit first phase of 1st World, New Songdo City’s 12-building high-rise residential component, was pre-sold in just five days. “If we didn’t sell those units, you have to wonder if we would have gotten this loan done,” said Hynes.

The two towers are part of the three million sf of office space for which the Gale-Posco JV plans to break ground in January. The space will be housed in four towers that will be developed at a cost of about $975 million, which according to Gale will make it the largest private commercial real estate investment in China.

The largest tower, the 1.25-million-sf, 65-story Asia Trade Tower, will be South Korea’s tallest building. Designed by Kohn Pederson Fox, the architect of New Songdo City’s master plan, Asia Trade Tower will stand 984 feet and consist of 22 floors of commercial office space, 14 floors of five-star hotel space and two floors of upscale flagship retail stores topped by serviced luxury residential units. It will cost $450 million to develop, according to Gale International.

The second, third and fourth office towers will total 750,000 sf, 500,000 sf and 500,000 sf, respectively. The largest of the three will cost $225 million and the other two each will cost $150 million, according to Gale International.

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