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More big firms putting guesthouses up for sale

Apr 25,2007
Amid the winding, narrow roads and high walls of Seongbuk-dong, a neighborhood nestled in the mountains behind Gyeongbok Palace in northern Seoul, lie the guesthouses of many corporate leaders.
One is called Yeon Gok Weon, which LG Electronics Co. used as a guesthouse and business meeting place. It’s where the LG Group’s founder, the deceased Chairman Koo In-hoe, used to live. The house was converted to a guesthouse beginning in 1988, named after the pen names of Koo and his younger brother.
In July of last year, the house was quietly sold to a construction company for 3.8 billion won ($4.1 million) by the new owners of LG Electronics, the Hurs.
Figures from the Financial Supervisory Service show that in the past year, publicly listed companies have increasingly been selling their private, non-commercial real estate. Last year, such companies made 29 real estate sales, compared to 15 cases in 2005. In 2003, only two cases were noted.
Most of the companies quoted “financial structure improvements” or acquiring “operating finances” as the reason.
Some analysts suggest that the recent real estate sales are happening because the companies, like many homeowners, don’t think prices will rise anymore. “Companies that own a lot of real estate in the Seoul and Gyeonggi province area greatly benefited from skyrocketing real estate prices. It is a good time to sell,” said Noh Geun-chang, a researcher at Korea Investment Securities. Noh pointed out that many companies are suffering from poor operating profits and that selling real estate could help boost those figures.
A lawyer at Kim & Chang in Seoul, who refused to be named, said management costs and loan interest on non-commercial real estate are not counted as “official costs.” For that reason, the company does not have to pay the capital gains that it would on other real estate.
Posco also got rid of its guesthouse called Yeonggwangwon in Seongbuk-dong last year. “We only need guesthouses in Pohang and Gwangyang,” said a Posco spokesperson who declined to be named.
The LG guesthouse sold for well below market value, according to a real estate broker in the neighborhood, who wished only to be identified as Jeong. He said the sale wasn’t even known in the area until recently and that the home sold for less than half of what would be considered market price. “I’ve been doing business here for 40 years and that house was on the market about five years ago at that price,” he said.
An LG Electronics employee, speaking on condition of anonymity, said, “At the time, the eldest of the Koo family was very upset about selling the house and the sale was put off.”
However, now that the Koos are no longer a part of LG Electronics, the company has more immediate things to think about, the employee said.
“Vice Chairman Kim Ssang-su himself said that he wanted the house sold immediately and that the person who opposed the sale no longer is in the company.”
For LG, however, selling real estate was a way to improve its performance, as could be seen in its most recent first quarter performance report released Monday.
For the first time since the Koos and the Hurs parted into the LG Group and GS Group, LG Electronics recorded a quarterly operating deficit.
“LG’s sales of its real estate seem to be a way of earning credibility from its shareholders,” one analyst said.
wohn@joongang.co.kr


By Wohn Dong-hee Staff Writer/ Sohn Yong-seok Forbes Korea [wohn@joongang.co.kr]



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