UPDATED: Norway’s so-called “oil fund,” which continues to be pumped up with revenues from the country’s oil industry, has added three new high-end real estate investments to its growing portfolio of exclusive property. In the past two weeks, the arm of Norway’s central bank that runs the fund (NBIM) has agreed to pay nearly NOK 8 billion for commercial buildings in London, Paris and Boston, and concerns are rising that the oil fund is paying too much.
Prices have risen by double-digit figures in the prime Mayfair-Regent Street area of London where the oil fund is now a major real estate owner and landlord. “The prices that the oil fund is paying seem high,” Professor Colin Lizieri, an expert on real estate at Cambridge University who once advised the oil fund, told newspaper Dagens Næringsliv (DN) on Wednesday. “There will always be a risk that an investor, also NBIM, is buying real estate that’s too expensive.”
From Beacon to Bond Street
The Boston deal consists of a 47.5 percent stake in an office building at One Beacon Street, which the fund and its partner in the deal, MetLife, took over on July 22. MetLife has a 52.5 percent stake and NBIM (Norges Bank Investment Management) paid USD 122.3 million, or around NOK 755.5 million for its stake. MetLife, the Boston-based insurance firm, will manage the building.
On July 31, the oil fund also took over full ownership of Le Madeleine, a 31,500-square-meter office and retail building on the Boulevard de la Madeleine in Paris. NBIM paid EUR 425.6 million (NOK 3.46 billion) for the property from BlackRock Europe Property Fund III. The building will be managed by AXA Real Estate.
The oil fund announced over the weekend that it also had agreed to buy a 57.8 percent stake in Pollen Estate, which owns some of the most expensive real estate in London. Pollen Estate, which NBIM noted was established in 1812, consists of 43 buildings in London’s West End, mostly between Regent Street and Bond Street and running through the exclusive Mayfair district.
NBIM announced that it signed a contract August 8 to pay GBP 343 million (NOK 3.6 billion) for its new stake in Pollen, making the oil fund landlord over 67,800 square meters of office and retail space reportedly including the Saville Row tailor shops. Pollen Estate will continue to manage the property.
The seller was Church Commissioners for England, which also sold a 6.4 percent stake in Pollen Estate to the Crown Estate, which already has a partnership with the oil fund regarding ownership of Regent Street property. The remainder of the Pollen Estate is held by Greenwich Hospital (10 percent) and members of the Pollen family (25.8 percent).
Investing for the future
Norway’s oil fund, one of the largest sovereign wealth funds in the world, was set up to save the country’s oil profits for future generations. It’s mainly expected to finance pensions, with most of its assets placed in stock market investments and only a relatively small but growing portion in real estate.
Lizieri, the Cambridge professor, told DN that the oil fund now has “an extremely difficult job ahead of it” to manage all its exclusive real estate investments. NBIM has invested NOK 60 billion (nearly USD 10 billion) of the fund’s assets in real estate just in the last three years. That’s a lot of money for a relatively small team of NBIM employees to look after, Lizieri said. The fund has a lot of money, however, and more is literally flowing in every day.
The fund earlier has restricted itself to owning portions of properties, but now has invested in full ownership both in Paris and in another property in Switzerland last year. A spokesman for NBIM declined to elaborate on the reasons for opting for 100 percent ownership, which carries more risk, other than to tell DN that the fund was taking a “more active role in the development of real estate the fund owns.”
Asked about the potential for returns on the property investments, Thomas Sevang of NBIM responded that there “were no expectations for returns on the real estate portfolio.” At least they haven’t been specified.