Karsten Kallevig has enjoyed a fortuitous start to his time as global head of real estate at Norges Bank Investment Management, the advisor to Norway Government Pension Fund Global.
Within a few days of joining on 1 September, a letter arrived from The Crown Estate, the property portfolio of the UK government, to say the Norwegian sovereign wealth fund had progressed to a shortlist of four to buy a 25 percent stake in Regent Street for £448 million (€523 million; $719 million). In early November, Norges Bank was selected as the winning bidder and completed its first property deal last month.
Kallevig may have been lucky to arrive on the scene when he did but, as PERE previously reported, he is no slouch when it comes to real estate. Just 36 years old, he cut his teeth in the industry in 1999 at Soros Real Estate, which later became Grove International Partners. In 2006, he became head of transactions for the firm in Japan, where he secured some important deals.
Speaking to PERE from his Oslo office, Kallevig said perhaps unsurprisingly that the people that have influenced him the most to date are the partners at Grove. “I have only worked with the same group of people all along, so it has to be that group of people,” he quipped.
Apart from the two Richards who founded Grove – Georgi and Mulley – Kallevig also is thankful to other senior figures at the firm, such as managing partner Dang Phang, senior partner Michael Kandarakis and Germany head Markus Hens.
Having left the private equity real estate world for that of the LP, Kallevig’s new task is to figure out how best to invest $26 billion – or up to 5 percent of the $524 billion sovereign wealth fund’s assets – in global real estate. And although he admires a great many people at opportunity funds, for the moment, he is pursuing a more direct strategy of investing in structures such as joint ventures with long-term capital partners and asset managers.
“I am not making a judgment call on opportunity funds, whether they are good or bad,” Kallevig said. “They can generate very good returns, and there are a lot of very good people who, at some point, I would love to work with. In fact, there are a great number of ways we could work with them, including joint ventures. At this stage, however, we are just starting out building a portfolio, and I just think that actively looking to invest in opportunity funds, core-plus and so on is starting at the wrong end of the spectrum right now.”
To some extent, Norges Bank’s strategy is dictated by the size of its cheque book. With a mandate of at least $500 million per deal, being an LP in a fund doesn’t make much sense. “We would BE the fund,” he added.
Practical issues also govern the approach. Apart from Kallevig in Oslo, the entire property investment team presently consists of just three professionals in London. So perhaps it was no coincidence that the first deal for Norges Bank took place in London.
According to Kallevig, the next markets the advisor will be looking at are France and Germany, the next two largest property markets in Europe. This practical approach means Norges Bank may miss out on some great opportunities, but “running around the entire world probably doesn’t make sense either,” he added.
“It is very hard to time the market perfectly when deploying $26 billion of capital,” Kallevig said. “That means whether the right moment to go into London was 2009 or 2010 is not really the point. I am much more concerned with finding the right partners. That is why the Regent Street deal was a fantastic piece of luck – to be able to do something like that with The Crown Estate.”