di Cormac Mac Ruairi
Nordics Editor, Property EU
Norway’s state-owned pension fund has been busy of late. While the property world was networking and pondering the future of the industry at Expo Real in early October, the oil-fuelled investment vehicle for Norway’s tiny population was finalising mega transactions.
A day after the fair ended, Norges Bank Investment Management, which runs the fund, announced it was acquiring Bank of America Merrill Lynch’s London HQ from Singaporean sovereign wealth fund GIC for £582.5 mln (€739.5 mln).
Norges followed up a week later with the acquisition of two office buildings in Munich for €176 mln. The fund has also been actively adding to its logistics platform through its joint venture with Prologis. Their PELP vehicle acquired a 42,000 m2 facility in the Dutch town of Born. The ticket size was rather modest, with Norges paying around €12 mln for its 50% stake. However, it was only a small part of a much larger picture; a month earlier the JV acquired a portfolio of 152,000 m2 of logistics facilities and development land in Madrid and Barcelona.
A PENSION FUND APART
The pace of investment activity is not characteristic of the pension world which tends to operate a more measured real estate strategy focused domestically, with foreign investments mostly carried out through non-listed funds.
But Norges is no ordinary pension fund. First of all, it sits on the cusp between a pension fund and a sovereign wealth fund. Unlike other state-owned pension funds that are funded by employee contributions, Norges invests the country’s North Sea oil revenues for the benefit of the country’s five million people.
Secondly, Norges is far bigger than most traditional pension funds. A pension fund survey based on 2013 annual reports for PropertyEU’s latest Top 100 Investors and published at Expo Real, makes that abundantly clear: Norges had a total AUM of almost €600 bn compared with €323 bn for Dutch heavyweight civil service fund ABP. That said, ABP is the leading pension fund investor in real estate with €32 bn of property holdings at end-2013.
Norges, which began direct property investment in 2010, is playing catch-up. Its property AUM swelled from €4 bn in 2012 to €6 bn last year as its real estate portfolio grew at a faster rate than any other retirement scheme in Europe during 2013. Further deals in 2014 will see the AUM expand significantly by the end of this year as it seeks to grow the property holdings to 5% of its assets within the next few years.
Norges and ABP are similar in the sense that they both invest globally in real estate. Aside from its European investments, Norges has also ploughed equity into US offices. In September the Norwegian fund invested €1.2 bn to acquire a 45% interest in a three-asset office portfolio in New York and Boston.
It is not all about the ability to write huge cheques; performance is reflected in returns. Here, too, Norges is no laggard. Our pension survey puts Norges in 7th place for returns in 2013. The Norwegians reported an 11.80% return on property, up from 5.80% the year before. ABP, by contrast, saw its returns drop from 16.20% in 2012 to 1.30% last year.
Sweden’s AP National Pension funds were the strongest performers last year, taking the top three places in the returns ranking. AP 4 was the best performer overall, booking a return of 27.20% on its SEK 15 bn (€1.7 bn at end-2013) real estate holdings.
The Swedes also stand out as pioneers in expanding pension fund investment in real estate. As AP2 explained in its annual report, forest and agricultural assets are contributing most to the diversification of its portfolio.
In the last few years, the AP funds have also expanded their international horizons. AP1 and AP2 established Cityhold, a vehicle that has acquired prime properties in London, France and over the last 11 months in Germany. In October Cityhold announced it had bought the incomplete, 18,000 m2 Burstah building in Hamburg for an undisclosed price.
FLYING THE FLAG
GIC, the Singaporean SWF, has also been active in Europe recently, selling Bank of America Merrill Lynch’s London headquarters to Norges. Around the same time GIC rearranged its retail holdings by acquiring the remaining 50% interest it did not already own in the Roma Est Shopping Centre in the Italian capital for an estimated investment of €200 mln. Days later the fund sold the 40% it has held for six years in the Iso Omena shopping centre in Espoo, Finland to joint venture partner Citycon. It had acquired the stake just under €132 mln in 2008. Citycon had purchased the centre the year before for €329 mln.
If the global SWFs and pension funds keep up this pace of activity to absorb their ever-expanding coffers, Europe will see a bonanza of deals by the end of the year.