Saturday 1 December 2012

U.S. Real Estate is Next to Boom; Just Ask Norway

Norway’s $660 billion sovereign wealth fund, the world’s largest, plans to invest about $11 billion as it enters the U.S. real estate market.

The fund, mandated by the country’s finance ministry to eventually put 5 percent of assets in property, wants one-third of that, or 1.7 percent, to be in the U.S., said Yngve Slyngstad, chief executive officer of Oslo-based Norges Bank Investment Management, which oversees the pool. The fund held 0.3 percent in real estate, 60.3 percent in stocks and 39.4 percent in bonds as of the end of September, according to its quarterly report.

“The U.S. is the next real estate market to invest in,” Slyngstad said yesterday in an interview at Bloomberg LP’s headquarters in New York.

Sovereign wealth funds, or state-owned investment pools, are seeking to diversify their risk by expanding investments beyond stocks and bonds. China Investment Corp., which oversees about $482 billion in assets, in 2010 helped refinance a Manhattan office tower co-owned by private-equity firm Carlyle Group LP. (CG) Norway, seeking higher returns and lower risk after record losses in 2008, gave approval in 2010 for its fund to invest as much as 5 percent of its value in real estate over several years.

The fund is focusing on conservative property investments, such as large office complexes in major cities and developed malls, Slyngstad said in the interview. It has already bought commercial property in London, Paris, Frankfurt, Berlin and Sheffield in the U.K., and on Nov. 29 made its first real estate investment in Switzerland, buying a Zurich office complex from Credit Suisse Group AG (CS) for 1 billion Swiss francs ($1.08 billion).

Higher Yields
As sovereign wealth funds become more active buyers of real estate, investors such as Blackstone Group LP (BX) expect to increase sales of property holdings. New York-based Blackstone, the largest alternative-asset manager, has $54 billion of real estate assets, including office developments, shopping centers and hotel chains such as Hilton Worldwide Inc.

“The other trend that will be helpful for us to exit some of the larger things we own, particularly the higher-quality assets in the gateway cities, is the rise of the sovereign wealth fund,” Jonathan Gray, Blackstone’s global head of real estate, said last month at the Bloomberg Commercial Real Estate Conference in New York. “Sovereign wealth funds are enormous pools of capital around the world,” and real estate offers higher yields than government bonds, along with a hedge against inflation.

Largest Funds
More than 60 percent of sovereign wealth funds invest in real estate, either directly or indirectly through other funds, according to Preqin Ltd., the London-based research company. Larger government pools are more likely to make property investments, Preqin said in an April research note, with 83 percent of those managing at least $250 billion being active in the asset class.

Norway, Europe’s second-biggest oil and gas exporter, generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA (STL), the country’s largest energy company. The fund last month said it returned 4.7 percent in the third quarter, after a decline of 2.2 percent in the previous three months.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

For the original post visit: http://www.businessweek.com/news/2012-11-30/norway-wealth-fund-to-invest-11-billion-in-u-dot-s-dot-property

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