Norges Bank: ‘We expect to be a net buyer of real estate’

The bank, which manages the world’s largest sovereign wealth fund, also plans to dispose of more properties than it had in previous years.

Norges Bank Karsten Kallevig
Karsten Kallevig: the former chief investment officer for real estate at Norges Bank Investment Management has now assumed a special advisor role

Norges Bank Investment Management expects “significant activity” in real estate in the years ahead, the investment management arm of Norway’s central bank said in a report last week.

NBIM – which manages Government Pension Fund Global, the world’s largest sovereign wealth fund – was first given the mandate to invest in the asset class 10 years ago. It currently has a real estate portfolio valued at Nkr 273 billion ($29.31 billion; €25.96 billion), or 2.6 percent of the fund’s Nkr 10.25 trillion in overall assets.

“In the coming years, we expect to be a net buyer of real estate, but with more disposal activity than during the first decade,” NBIM stated in its 10-year review of its investments in real estate. “Simply maintaining the portfolio’s relative share of a growing fund implies significant activity in the years ahead. We will continue to acquire properties and grow the portfolio while disposing of properties that are poorly aligned with our strategy in a given market.”

NBIM’s most recent property deals included the acquisition in March of a 39.9 percent interest in a strata title of the Otemachi Park Building, an office complex in Tokyo, in a joint venture with Mitsubishi Estate for ¥79.7 billion ($727.26 million; €644.07 million); and the purchases between January and August 2019 of ownership stakes in logistics assets in the UK, US, Spain and the Netherlands, in partnership with Prologis.

However, the sovereign wealth fund also made eight office disposals between 2018 and 2020 and sold various logistics assets over an unspecified period.

“In principle, we invest in properties with an expectation to own them indefinitely,” NBIM noted in its report. “We recognize, however, that changes in the market may lead to suboptimal allocation of resources. Our expectations about market opportunities embedded in our investment strategy may not materialize. In recent years, a comprehensive review of our portfolio, combined with changes in our mandate, has led us to dispose of office properties for the first time.”

In logistics, NBIM said it had sold 15 percent of its acquisitions since entering the sector in 2012. It said these assets were originally purchased as part of larger portfolios but that they had physical attributes that were operationally challenging or were in less desirable locations.

NBIM, which owns real estate assets outright and through joint ventures, says resource constraints also played a role in some of the disposals. “Managing properties ourselves necessarily requires more personnel,” the investor said. “In some instances, we have underestimated the resource demand associated with selected wholly-owned investments. This was a factor in disposing of two office properties in Munich and selling an ownership stake in the West One Shopping Centre on Oxford Street in London in 2019. Going forward, we will remain selective about choosing properties to manage ourselves, given the constraints on our internal resources.”

The sovereign wealth fund’s real estate portfolio is 73 percent owned through joint ventures. The remainder is wholly owned.

NBIM’s property platform is led by chief investment officer of real estate Karsten Kallevig, who joined in 2010 to help launch the business. The sovereign wealth fund’s real estate investments have generated an annual return of 7.7 percent after costs. NBIM was placed 12th in the PERE Global Investor Investor 50 ranking last year, with $28.64 billion committed to the asset class as of March 31, 2019.

In its 2020-22 strategy plan, the investor said it was targeting a property portfolio allocation of 40 percent offices, 20 percent retail, 20 percent residential and 20 percent logistics. Geographically, NBIM plans to focus its real estate investments in New York City, Boston, Washington, San Francisco, London, Paris, Berlin and Tokyo.