NBIM completes global property jigsaw

Karsten Kallevig, chief executive of Norges Bank Real Estate Management, speaks to Arshiya Khullar on the fund’s debut Asia property deal and what took them so long.


It was nearly a decade ago that the Norwegian government reportedly announced the Government Pension Fund Global’s plans of foraying into global real estate investing. After striking its debut deal in Asia in December, the final piece of the jigsaw has at last been added.

But while some in the industry are wondering what took them so long to sign a deal in the region, Karsten Kallevig, chief executive of Norges Bank Real Estate Management, is seemingly unfazed.

“For an organization like ours, the risk of spreading ourselves too thin has a lot of downside to it,” he told PERE. “I find that for investors to really be comfortable with entering a new market, one needs to understand the supply situation and tenant dynamics, and that takes time. Given we have time, I would rather go about investing in a measured and focused way than cover an entire region at once.”

Timing aside, it is not surprising that NBIM, manager of the world’s largest sovereign wealth fund, chose Japan as its entry point into Asia, with the 92.75 billion yen ($823 million; 698 million) acquisition of a 70 percent interest in a portfolio of five Tokyo assets. It is partnering with Tokyo Land Corporation, which owns the remaining 30 percent, on the deal.

Priyaranjan Kumar, regional executive director for Asia-Pacific capital markets at Cushman & Wakefield, who has advised deals involving the Oslo-based fund in the past, said NBIM’s market selection is almost a process of elimination.

“They were always clear that the first deal in Asia must be in an approved market. There were many deals in other markets which possibly offered them better returns than Japan or Singapore,” he explained. “Where they are currently, they have ruled out other large markets such as China, Australia, Hong Kong and Korea.”

Kumar added that one of NBIM’s key considerations while picking deals is to ensure avoidance of capital loss on any proposal.

Back in 2015, NBIM was also understood to be part of a consortium that bid on BlackRock’s Asia Square Tower 1, which was ultimately sold to Qatar Investment Authority for $2.45 billion the following year. However, according to one person involved in the sales process, consortium members were concerned about the eventual capital loss due to the unfavorable rental cycle in Singapore’s office market at the time.

Outside of Asia, NBIM has real estate investments in the US and Europe. As of September, 2.5 percent of the fund’s portfolio was invested in unlisted real estate, while equities (65.9 percent) and fixed income (31.6 percent) comprised the bulk.

The expected real return for the fund overall is 3-4 percent, but it is not a target mentioned specifically in the mandate, an NBIM spokesperson clarified.

However, Kallevig said that rather than just focusing on returns, NBIM tries to have a more risk-adjusted investment approach.

“As per our mandate, real estate is more like a diversifier for the fund than a return enhancer,” he said.

“When we invest, we don’t want to get into a trading game,” he added. “We buy assets for a long-term hold. What you see in this case is that sometimes the returns can get washed out a little bit in that longer-term period.”

Though Kallevig did not reveal NBIM’s 2018 investment wish list, he said the scale of a market, and amount of deal flow in that market, are key factors guiding its market selection globally.

“At the city level, we would like to choose cities where there is economic growth, population growth as well as employment growth,” he said, on the other criteria influencing the fund’s investment strategy. “In addition, if you also have some supply constraints – relating to regulations or a difficult entitlement process, for example – then it is generally an interesting dynamic.”