Norway’s $1.4 trillion sovereign wealth fund isn’t budging in its view on commercial real estate even as soaring borrowing costs and falling values ravage the sector, Chief Executive Officer Nicolai Tangen said.
(Bloomberg) — Norway’s $1.4 trillion sovereign wealth fund isn’t budging in its view on commercial real estate even as soaring borrowing costs and falling values ravage the sector, Chief Executive Officer Nicolai Tangen said.
“We have seen a lot of the damage in this area,” Tangen said in an interview on Bloomberg TV Wednesday. “We’ve had rates increasing already, we have seen higher vacancy rates, we’ve seen the whole Covid effect, we’ve seen the banks having troubles and so I suspect that we may have seen a lot of the bad news now.”
Poor returns in unlisted property and renewable energy infrastructure pulled down the wealth fund’s performance in the first half of the year, forcing it to miss its benchmark by 23 basis points. It owned stakes in 390 properties at the end of 2022, including buildings on Hudson Street in New York, Regent Street in London and the Sony Center in Berlin.
The fund’s 345 billion-krone ($33 billion) unlisted real estate portfolio fell 4.6% in the six months through June as higher vacancies in the office sector, and in the US in particular, pushed values down sharply, it said.
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While not all the bad news has been priced in yet, “we for sure have taken some pretty big write downs on property portfolios, so there’s already quite a bit of damage in there,” Tangen said. The fund’s investments in logistics properties “continue to perform really well.”
After the fund took a hit on the collapse of SVB Financial Group’s Silicon Valley Bank, Tangen told lawmakers in April that he was focused on minimizing exposure to so-called rotten apples going forward. Part of that work has touched on property stocks, he said on Wednesday.
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“We are continuously trying to find them and earlier in the year we were out of the Adani Group in India,” he said, adding that the fund has “been out of a big Swedish property management company which went bad.”
Tangen was speaking about troubled landlord SBB, more formally known as Samhallsbyggnadsbolaget i Norden AB, according to the fund.
Sweden’s commercial landlords are particularly under pressure from higher borrowing costs that hurt their ability to service debts after years of leveraged growth. That’s led to credit-rating downgrades and pushed companies into talks with bondholders on easing terms, as well as property divestments and other ways of raising cash.
The fund was invested in 21 Swedish real estate firms at the end of 2022 — the most recent available data. It had cut the stake in SBB during 2022 to 0.07% from 1.52%, finishing the year with $2 million in that stock.
Created in the 1990s to invest Norway’s oil and gas revenues abroad, the fund — also known as Norges Bank Investment Management — is the world’s biggest single owner of equities. While stocks make up 70% of its portfolio, it also invests in property, renewable energy infrastructure and bonds. It discloses a list of individual holdings once a year.
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