Germany, France high on list for Norwegian state fund

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When word spread in 2010 of the intentions of Norway’s €860 billion sovereign wealth fund to increase its allocations to real estate, you could almost hear the rubbing of hands in anticipation among the world’s property advisors. Norges Bank Investment Management (NBIM), which is managing the deployment of the fund, now says it is stepping up the pace of investment, focusing on ten to fifteen cities worldwide but with a strong emphasis on the top European cities. The fund has about €33bn to invest in real estate.

In a recent interview with news agency Bloomberg, Karsten Kallevig, the fund’s head of real estate investment said that cities such as London, Paris, Munich and Berlin would be among top target destinations. The fund plans to increase its current allocation to real estate from 1.2% to the 5% mandated by the Norwegian parliament four years ago. The 39-year-old Kallevig, with one of the hottest seats in global real estate, came to NBIM from Grove International Partners after stints at Golman Sachs and Soros Real Estate Partners.

So far NBIM has indeed been active in investing across Europe and the USA, with Asia now featuring on the horizon. It is likely to be much more – the fund has invested about €10bn, but if it plans to reach its quota, this would mean more than €61m being invested between now and 2020.

The fund earned 11.8% on its real estate investments last year, ahead of the 8.3% returns on the IPD Global Annual Property Index, but it has so far been highly selective in its choices. It is targeting an overall annual return of 4%, but is looking for an extra mandate to invest in infrastructure and private equity to help spread its risk and “avoid making big mistakes”, according to Kallevig. Its transactions to date have largely been in joint ventures, in the USA with insurer MetLife and teachers’ pension fund TIAA-CREF in New York and Washington.

In Europe, NBIM has a €2.4bn joint venture with US-based Prologis to invest in European industrial property. It also owns part of London’s Regent Street with UK’s Crown Estate, and holds properties in Paris and Germany in joint ventures with AXA Real Estate. According to French media, it is also in exclusive negotiations with US private equity giant BlackRock to acquire the La Madeleine retail and office complex in Paris for €425m.

The Norwegians are not alone in their interest in more exposure to European real estate. A recent report from property adviser Savills shows that sovereign funds from around the world invested €5.5bn in Europe in 2013, fully 30% more than in the year before. The top destination countries for this fresh capital were the UK, Germany, Belgium, France, Ireland Italy, Netherlands, Sweden and Spain.

The Middle Eastern and Asian sovereign funds were frequently among the top 5 biggest investors in a number of markets - the Qatari funds in Italy, Spain and France, and the Kuwaiti and Abu Dhabi funds in the UK and France. Among portfolio buyers, they topped the respective lists with average investment sizes of €700m.

According to Savills head of European investment Marcus Lemli, “Sovereign funds tend to invest in low-risk core assets and as a rule invest from €200m upwards. But we’re also noticing that they’re expanding their investment horizon and are seeking out value-added potential in non-core deals and smaller job lots. We’re also seeing a lot of new players coming into the market.”