[10-Year Urban Logistics Stalemate]②‘Land of Glory and Shame’ Marred by Approval Corruption

After the Pi City Approval Corruption Scandal

Approval "Ping-Pong" Between Seoul City and Harim

Clashes Over Floor Area Ratio and Traffic Issues

The site of the "Urban High-Tech Logistics Complex" in Yangjae-dong, Seocho-gu, Seoul, often referred to as "the last golden land in Gangnam," stands as a story of ill-fated development reflecting the shadows of Korean real estate. After the Yongsan Intercity Bus Terminal relocated to Seocho-dong in the 1980s, the freight functions were moved to Yangjae-dong, and the site was used as a cargo terminal starting in 1989. Later, when Jinro Group, the operator, went bankrupt, the land was auctioned off by the court, and in 2004, Pi City, the developer, won the bid and began pushing forward with development plans.

By 2006, Pi City had completed the site acquisition and embarked on a major integrated distribution facility project. The mega-project was planned to have six underground and 35 above-ground floors, with a total floor area of 750,000 square meters and a total project cost exceeding 3 trillion won. However, the project was unstable from the outset due to the longer-than-expected administrative approval process. During that period, the global financial crisis struck, causing a sharp downturn in the real estate market and further deteriorating project conditions.

Pi City Approval Corruption Scandal Involving Key Lee Myung-bak Administration Officials

Ultimately, Pi City's project financing (PF) loan of 1.045 trillion won became a major stumbling block. The longer construction was delayed, the more interest expenses ballooned, and construction companies that had provided payment guarantees collapsed first. In 2010, Daewoo Motor Sales and Sungwoo Construction entered workout procedures one after another, effectively halting construction.

Aerial view of the Pi City site, the former cargo terminal site in Yangjae-dong, Seoul, during the past development promotion stage (Photo by The Asia Business Daily DB)

Then, in August 2010, when the PF loan matured, the creditors filed for bankruptcy with the court, and after multiple twists and turns, corporate restructuring proceedings began. However, the project rights and the site were eventually transferred to the creditors. Even though there were attempts to restart the project with new contractors, suspicions of corruption that surfaced during the approval process dealt the final blow, effectively nullifying the project.

During this process, allegations emerged that Choi Seejoong, former chairman of the Korea Communications Commission, and Park Youngjoon, former Vice Minister of Knowledge Economy—both key figures in the Lee Myung-bak administration—had received bribes from Pi City in exchange for approvals. The case escalated into a major high-level power corruption scandal, widely known nationwide as the "Pi City Approval Corruption Case." With a series of arrests of developer and financial sector officials, the project ground to a complete halt.

Ambitious "Urban Logistics Innovation"—A Fast Start

The turning point came in 2015. At that time, the Park Geun-hye administration introduced a new policy concept called the "Urban High-Tech Logistics Complex" to respond to the rapid increase in parcel volume and the expansion of e-commerce. The plan was to transform outdated urban logistics facilities into integrated complexes combining logistics, distribution, IT, and residential functions to boost delivery efficiency.

To enable this, the government revised the "Act on the Development and Operation of Logistics Facilities" to institutionalize the system, and in 2016, it established implementing regulations and detailed guidelines. The policy stipulated that part of the development profit would be recovered for public facilities, with the amount capped at up to 25% of the land price. At the same time, regulations restricting business types on existing logistics sites were lifted. High-density developments combining logistics, commercial, office, and residential functions in a single building were also permitted.

In May 2016, Harim Group acquired the Yangjae cargo terminal site through its affiliate, NS Home Shopping. The government promptly designated the site as one of six national pilot urban high-tech logistics complexes. At the time, there were high expectations for project acceleration, with forecasts that construction could begin as early as 2017 if the development plan and approval process proceeded smoothly.

Harim planned to build a super high-rise integrated complex on the site. The underground levels were to house advanced logistics facilities, while the above-ground areas would combine workspaces, R&D, commercial facilities, hotels, and performance venues. Residential facilities were also included. The project aimed not just to establish a logistics base but to reorganize the city's very functions.

Six-Year Standoff With Seoul—Clashes Escalate to the Board of Audit and Inspection

However, the project immediately clashed with the Seoul Metropolitan Government. The main point of contention was the floor area ratio (FAR). Harim pushed for high-density development with an FAR of up to 800%, citing the pilot nature of the urban high-tech logistics complex. In contrast, Seoul City insisted on a 400% FAR and building height restrictions based on existing urban plans. The city argued that high-density development was inappropriate since the Yangjae area already suffered from chronic traffic congestion. Seoul also cited fairness issues and the risk of preferential treatment if only a specific developer were allowed to build super high-rise structures. In the end, neither side yielded.

The development plan submitted by Harim was repeatedly rejected or returned with requests for revision by Seoul City, resulting in what became known as an "approval ping-pong." The approval process virtually stalled, and the project drifted.

The conflict escalated beyond administrative procedures to the Board of Audit and Inspection and the courts. In 2021, Harim filed a petition for a public interest audit, claiming Seoul City's administration was unjust. The Board of Audit and Inspection found issues with certain administrative processes, and negotiations entered a new phase. After Mayor Oh Sehoon's inauguration, Seoul City's position was partly relaxed, and the project began to move forward again. In 2023, the Seoul Metropolitan Logistics Complex Planning Committee conditionally approved Harim's development proposal. Harim offered about 560 billion won in public contributions and traffic management measures. In 2024, Seoul City gave its final approval for the development plan.

However, a new round of legal disputes has emerged, most notably over a road within the Yangjae-dong site. In 2021, Harim Industrial filed a lawsuit against Seoul City for the return of unjust enrichment. The land in question was previously designated as a donation for public use by Pi City on the premise of logistics complex development. Harim argued that since the development had been canceled, the obligation to donate the land should also be void. Seoul City, on the other hand, countered by citing the previous owner's relinquishment of usage and profit rights.

In the first trial, the court ruled in favor of Harim, ordering a payment of approximately 36.2 billion won. However, the appellate court overturned this, ruling in favor of Seoul City. The Supreme Court then remanded the case, and upon retrial, the court again sided with Harim, ordering a payment of about 60 billion won. The case is currently awaiting a final Supreme Court decision.

Although the development plan has received final approval, the project has yet to gain momentum. Last month, the Seoul City Architecture Committee voted for a "re-review" of Harim's proposed plan. The industry regards this as an effective demand for a comprehensive redesign, making the construction timeline uncertain once again.

This content was produced with the assistance of AI translation services.