New route: NBIM chief executive officer Nicolai Tangen during an interview in London. The Norwegian sovereign wealth fund is dipping its toe into development projects as it prepares for a series of key lease expiries across its UK portfolio. — Bloomberg
LONDON: Norway’s US$1.6 trillion sovereign wealth fund kicked off a glitzy property-buying spree in London more than a decade ago. Now it’s trying to figure out ways to keep the shine on some of those increasingly tired trophy buildings.
For starters, Norges Bank Investment Management (NBIM) is dipping its toe into development projects as it prepares for a series of key lease expiries across its UK portfolio.
The fund has already taken back a part of Bank of America Corp’s (BofA) London office campus for a comprehensive overhaul.
That could be a precursor to answering the far larger question of what happens if the lender chooses to vacate altogether when its main lease runs out in 2032.
“It’s providing valuable insight and research for us,” Michael Carter, a senior asset manager at NBIM, said in an interview.
“We’re getting down to the bones of that building, which was constructed in the same form as the main BofA building.”
It’s a phenomenon that’s playing out across London.
First Brexit, then the pandemic, and now higher interest rates – all these events have disrupted the plans of premium real estate investors.
Overseas funds with few people on the ground are being forced to contemplate complex redevelopments of buildings, some of which they had expected to sell long before their leases ran down, reducing their value.
Like many sovereign investors with large cheque books and small real estate teams, NBIM initially targeted either joint ventures with established players or premium buildings with long leases to top tenants.
Those low-risk buildings typically require little management, allowing funds without a real estate track record to scale large portfolios without having to employ hundreds of asset managers.
But a decade on from NBIM’s acquisition, the lease on BofA’s London campus has about eight years left and is edging towards the point at which such a large occupier must contemplate whether to stay or go, given the scarcity of alternative buildings big enough to accommodate it.
The fund had considered a sale of the building but halted the process in the summer of 2022 after Russia’s invasion of Ukraine and rising interest rates upended the commercial real estate market.
“It was an opportunity where we thought if we could sell it at a certain price, we’d be better off deploying the capital elsewhere,” Carter said.
“Actually, things had transpired to move against us. We said that’s fine. We were always happy to own the property, keep it, work through the business plan, and maintain it for a period.”
Other funds are confronting similar challenges. The Qatar Investment Authority faces the prospect of both Credit Suisse and HSBC Holdings Plc vacating their respective Canary Wharf headquarters.
Malaysia’s Permodalan Nasional Bhd is overhauling the former European Bank of Redevelopment and Construction building at 175 Broadgate.
It also owns One Silk Street, which will require a substantial upgrade after law firm Linklaters soon vacates the premises.
NBIM operates under a strict investment mandate laid out by the government, which allows for a maximum of 7% in unlisted real estate. — Bloomberg
