Political and administrative officials at Oslo’s City Hall are alarmed, and accused of lacking control, after newspaper Dagens Næringsliv (DN) revealed a pattern of suspicious real estate deals over the past week that’s left the city paying inflated prices for public housing units. All purchases of residential units for welfare clients have been halted and an investigation is underway.
It’s the second time in less than a month that municipalities in Norway have been found to have poor control over real estate projects. DN first revealed suspicious building permit approvals in the island community of Tjøme. Now questions are flying over how and why four people employed by the City of Oslo to acquire public housing units have paid inflated prices totalling more than NOK 200 million (USD 26 million). The condominiums and residential buildings involved were offered directly to the city and “off market” by two sellers with a history of bankruptcies behind them.
Both of them are now under investigation by Norway’s tax crime unit (Skattekrim) after raids on their homes and offices. They were identified as real estate developer Øyvind Hornnæss, who’s been involved in a long string of bankruptcies, and Swedish carpenter Carl Thomas Andersson, both of them documented by DN to have worked together on several of the sales of housing units to the City of Oslo. DN reported how their history of bankruptcies has prompted local courts to determine that Hornnæss and Andersson, who have continued to drive expensive cars and live well, are unsuited for operating a business. The city did business with them nonetheless, using taxpayers’ money.
An employee hired for the city’s housing acquisitions team is also under investigation, after having been involved in many of the questionable purchases of housing units from Andersson, Hornnæss and other so-called “middlemen” at prices that rose by hundreds of thousands kroner just weeks after they’d taken control of them. The city’s public housing and real estate operation (Boligbygg) has decided to launch an external probe into the questionable purchases and halted all further purchases in the meantime. Calls are going out for futher independent inquiries.
Raymond Johansen, leader of Oslo’s city government for the Labour Party, initially refused to comment on the revelations brought first in a lengthy story by DN last weekend and then in a series of stories since. He later issued a statement that information revealed in DN about the city’s expensive purchases of housing units was “extremely serious.” He has turned responsibility for the situation over to another Labour Party colleague, Geir Lippestad, a lawyer himself who’s now in charge of the city’s business and ownership issues. Lippestad, Johansen wrote in an email to DN last Monday, “has assured me that he is following the situation closely so that we get all the facts on the table.”
Opposition politicians, meanwhile, are not satisfied by the initial investigations. “It seems to me that Lippestad hasn’t had complete control over what Boligbygg has been doing,” Henrik Gjerding of the Progress Party told DN. “For 2018 there’s an investment framework of NOK 1.4 billion (USD 177 million) for Boligbygg. It’s DN’s work that has uncovered deals worthy of criticism. This is becoming a scandal.”
Lippestad, meanwhile, claims the city is taking the extensive examples of how the city has paid high prices for real estate “very seriously” indeed. Andersson and his partners alone have sold 51 apartments directly to Oslo’s Boligbygg for a total of NOK 222 million, and logged gains on the sales of around NOK 40 million. An attorney used by both Andersson and Hornnæss, Frode Vilster Sørli, has confirmed to DN that he earned NOK 16 million himself in the past year by helping to facilitate the direct sales to the City of Oslo. Boligbygg, meanwhile, lacks documentation tied to many of the sales, including appraisals, emails and other documents that should have given insight into how the deals were done.
Lippestad, best known in Norway for having defended mass murderer Anders Behring Breivik, has told reporters he became aware that an external investigation was underway into the questionable housing purchases in September. By that time, DN had been working on the story for months. Lippestad told newspaper Aftenposten that “the information published in DN (in its initial story on October 13) is much more serious than what was presented to me.” He stressed that most of the city’s real estate purchases are conducted in the open market, and he wants the city to deal with “serious players and buy real estate at the right prices.” Instead, Boligbygg reportedly has purchased property offered directly to its acquisitions team by sellers with a history of bankruptcies who also had only held the property for a matter of weeks and raised its price considerably (see photo captions below for examples).
The suspicious real estate deals were conducted by men who met in one case in a parking lot in suburban Asker and spoke through the windows of their expensive cars. That meeting involved a member of the city’s housing acquisition team, Geir Fredriksen, whose home was raided by tax authorities on Friday the 13th. Fredriksen has denied doing anything wrong.
The sheer scope of all the deals at inflated prices is especially sensitive. It comes at a time when Oslo residents are receiving property tax bills that have risen substantially since Johansen and his left-green political colleagues in city government introduced property tax in 2015. The tax increases have been blamed both on the city’s decision to raise the tax rate from 2- to 3 percent of tax value but also because of rising housing prices, which jumped as much as 23 percent in 2016 alone. DN could document that the city itself has contributed to the rise in housing prices by paying inflated prices.
“Where is the respect here for the public’s money?” complained Carl O Geving, the chief executive of Norway’s real estate brokers’ federation (Norges Eiendomsmeglerforbund). “There are all indications that the city hasn’t only bought real estate at market price, and contributed to the price pressure, but in fact has bought overpriced property. That seems highly speculative and doesn’t build any confidence.”
The brokers’ federation had already accused the city of fueling Oslo’s sky-high real estate prices even before DN broke news of the emerging “scandal.” The city acquisition team’s mandate to buy 600 condominiums with allocated funding has meant that other buyers bidding for property have faced “a city with strong financial muscle,” Geving told DN. That’s been refuted by Boligbygg’s real estate director Tom-Erik Holte, who claims the city’s real estate purchases make up a “marginal” share of the total annual transactions in the Norwegian capital “and our purchasing strategy isn’t as price-driving as the brokers’ federation claims. As to whether Boligbygg has purchased overpriced housing, and to what extent, that will be examined more closely.”
Aimed at spreading welfare clients around town
Boligbygg’s active purchases of residential real estate in Oslo started when the city, while still run by a Conservatives-led government before they lost the election to Labour in 2015, entered into a compromise with Labour and the Socialist Left parties in order to win approval to build a new Munch Museum on Oslo’s eastern waterfront at Bjørvika. To compensate for the pending loss of the existing Munch Museum in the east-side Tøyen district, the city promised to invest heavily into upgrading Tøyen. The city’s top Conservative politicians also went along with a demand from rival Labour and Socialist Left politicians to buy far more housing units for welfare clients who need subsidized housing in Oslo’s more affluent west-side districts. The goal was to better spread Oslo’s “socially challenged” residents who live in public housing around town.
The housing acquisition team was set up and launched into action, armed with a billion-kroner budget to buy residential real estate in west Oslo. Since 2015, however, DN has uncovered 34 transactions that were not conducted on the open market, but in deals done directly with the seller. In 2016, after Labour’s new government had assumed political power in Oslo, a string of purchases was suddenly made from so-called “middlemen” like Andersson who had only held the property for a few weeks. DN documented several such deals in its articles.
One of the deals, the purchase of a residential building in Oslo’s Ullern district for NOK 105 million, finally reached the city council, because its value exceeded the NOK 50 million limit needed for political approval. On May 23, Johansen and Lippestad gave the green light for the purchase and it was approved by the city council three weeks later. The item came up on the city council’s agenda at the end of a long evening, with DN reporting that Oslo Mayor Marianne Borgen of the Socialist Left party, which rules with Labour and the Greens, had even stated that she hoped “there wouldn’t be any big debate” over the purchase, “so we can be finished here by 10pm.”
There was no discussion. The city politicians approved the sale, apparently not realizing or having been told that it was being sold to the city by a serial filer of bankruptcies (in this case, Andersson) who had bought the building less than two months earlier for NOK 85 million, and sold it through a company that DN reports had only existed for three days when the sales contract to Boligbygg was signed. Andersson is thus believed to have pocketed a gain of NOK 20 million in the space of around six to seven weeks.
The administrative leaders of Boligbygg have been unable to clarify how all the business done with Andersson and other “middlemen” has come about. Boligbygg’s chief executive, Jon Carlsen, told DN that “there can be sides of this (the purchases of property directly from sellers and outside the open market) that are problematic, but we don’t have a complete overview.” As for all the lack of documentation of deals done, Carlsen admitted that “we have not done what we should, and must improve our routines.”
Boligbygg officials have said they have asked employees to “go through their email” to dig up agreements on sale, purchase and prices. Few if any exist. The emails “may have been deleted,” Kristin Øyen, communications director for Boligbygg, told DN.
The investigations may be able to answer questions around the purchases. Lippestad has promised that “no stone will go unturned” in the city’s quest to find out how “routines” could have failed so badly, and how Boligbygg officials seem to have lost control over how the city’s public housing money was being spent.
“We see that it’s necessary to go through the risk picture and strengthen our internal control over what can be problematic,” Carlsen told DN. “We have not had the control we should have had.” Mayor Borgen now claims she’s taking the suspicious housing purchases seriously, that Lippestad is in charge of following up, and that Norway’s economic crime unit Økokrim “has been alerted.”
Boligbygg itself has ordered an investigation, while opposition politicians are already claiming they’ll have no faith in it. “We demand an external investigation, that municipal auditors launch a thorough probe,” Gjerding of the Progress Party told DN. Ola Kvisgaard of the Conservative Party went further:
“It’s clear that somehow or other, the city has been cheated,” he told DN. “In addition there’s the question about how much cooperation there has been (with city employees) and if there have been disloyal workers in the city.” Kvisgaard claims the city has “not had control over its processes and the taxpayers’ money has been put into play. This is misuse of your tax money, and mine.”