As Shinsegae Property, the real estate development company owned by Shinsegae Group, prepares to sign a contract to take over operations of Coex Mall and CALT Mall in southern Seoul, questions remain about the future profitability of the project.

Shinsegae Property was named the preferred bidder to oversee operations of the malls’ 327 stores for the next 10 years through a master lease. It was the only bidder for the contract after Hyundai Department Store and Aekyung Group dropped out, most likely because of the high commissions asked by the malls’ owner Korea International Trade Association.


Shinsegae is expected to pay 60 billion won ($54.9 million) each year -- the requested minimum revenue guarantee from KITA -- although estimates of lease profits from last year only reached 50 billion won.

The real estate company said in a statement that it will “respect existing lease contracts” with current stores in the mall, implying that it is unlikely to immediately pursue raising rent for revenue.

However, the larger problem is that shop owners are heavily protesting those existing contracts. Many of the existing leases have what is called a minimum revenue guarantee, which requires store operators to pay a fixed rent to Coex Mall although their monthly revenue does not match the standard set for a proportional commission.

Since last year, store owners at Coex Mall have claimed that the drop in sales following a large-scale remodeling of the complex has led to continued net losses because of the fixed rent.

A spokesman for KITA declined to confirm to The Korea Herald how many of the shops’ leases included the minimum rent provision, although he said Shinsegae Property was informed about the current structure of the leases.

“Since Shinsegae is still a preferred bidder and has not officially signed the contract, we provided the company with as much information as we could while respecting individual storeowners’ requests for confidentiality,” he said.

If Shinsegae retains existing contracts, it is likely to face strife with the storeowners’ association at Coex Mall with the same complaints. A spokesman from the Shinsegae Group declined to comment on the company’s stance regarding store leases.

Meanwhile, the due diligence stage of the negotiations has been extended, according to spokesmen from KITA and Shinsegae Group, with a contract date yet to be confirmed.

“The negotiations were supposed to be completed in about two weeks, from Aug. 1 to Aug. 16,” the KITA spokesman said. “However, the talks are getting longer and they may extend as long as the end of August.”

By Won Ho-jung (hjwon@heraldcorp.com)