Norges Bank Investment Management, which manages the world’s largest sovereign wealth fund Government Pension Fund of Norway with more than $1 trillion in assets, is growing its exposure in the industrial sector to diversify a real estate portfolio majorly comprised of office holdings.
NBIM announced last week that it will acquire a 45 percent stake in a $1.99 billion industrial portfolio from Denver-based Black Creek Group’s Industrial Property Trust REIT. The Norwegian fund invested $896 million for its stake through a long-standing joint venture partnership with the industrial real estate specialist Prologis. The Prologis US Logistics Venture was created in late 2013, according to a spokesperson from NBIM. Prologis will hold the remaining 55 percent interest and manage the 127-property portfolio on behalf of the venture.
Though NBIM has a history of investing in the US logistics sector and finds logistics to be an attractive real estate sector generally, the latest acquisition is driven by NBIM’s goal to diversify its portfolio, the spokesperson told PERE. Indeed, the office sector continues to make up a large portion of NBIM’s global real estate portfolio, with a 59.3 percent exposure reported at the end of 2018. Logistics investments, by comparison, made up 21.6 percent of the total portfolio. Within the US real estate portfolio, office assets accounted for 71.8 percent while logistics accounted for 28.2 percent of the investments, according to a 2018 year-end report.
The IPT portfolio acquisition follows a series of industrial property purchases made earlier in the year. In April 2019, for example, NBIM partnered with Prologis to acquire seven logistics properties in the US, Spain and the Netherlands.
Prologis first announced the IPT portfolio acquisition in July 2019, according to an SEC filing. Prologis and affiliates, which includes the Prologis US Logistics Venture and the open-ended fund Prologis Targeted US Logistics Fund, acquired the 236 US industrial properties in a cash transaction valued at $3.99 billion, including debt in July 2019. Of the 236 assets, 127 properties will be owned by the NBIM-backed Prologis US Logistics venture while the remaining 109 assets will be owned by Prologis’ open-ended fund, Prologis Targeted US Logistics Fund, once the transaction is closed in the first quarter of 2020.
Some of the IPT assets have major geographic overlaps with Prologis’s existing portfolio, according to Eric Frankel, senior analyst for industrial, self-storage and towers at research firm Green Street Advisors. He expects Prologis, through the venture and open-ended fund, will sell off assets that do not overlap, which will likely account for roughly 20 percent of the acquired IPT portfolio.
Frankel believes Prologis’s decision to acquire the portfolio was driven by a desire to achieve scale in the overlapping markets and the REIT’s strong valuation. Prologis declined to comment for the story.
“With REITs, it’s all about relative pricing,” he added. “[Prologis] has a strong cost of capital which incentivizes them to grow their portfolio.”
He also added that the IPT portfolio was an attractive buy because it is difficult to acquire high quality assets in bulk, as reflected in the strong pricing.
Though Black Creek Group previously considered taking IPT public, the firm ultimately agreed to sell the REIT’s assets to Prologis and affiliates.
“This was definitely a more efficient transaction for both parties,” Frankel said. “An IPO would cost a great deal of money and there are a lot of execution risks and there is much less [risk] for this type of transaction.”