With its new mandate in mind, Norway has wasted little time investing in the United States, snapping up not only the stake in Times Square Tower but also entering a joint venture with asset manager TIAA-CREF. That deal, which closed in February, saw the fund acquire a 49.9 percent interest in a $1.2 billion portfolio of five office properties in New York, Washington, D.C., and Boston.
Having previously partnered with other sovereign wealth funds, including the Future Fund of Australia, TIAA-CREF already understood the advantages of working alongside the national pension funds, including a similar investment timeline.
“We have been engaged in discussions with the Norwegians for many years,” Mr. McAndrews said. “Our shared perspective is the duration we want to hold an asset–we both have long-term outlooks for our investment horizon.”
In New York, the joint venture’s portfolio includes 470 Park Avenue South and 475 Fifth Avenue, with the latter deemed one of the more intriguing acquisitions in the mind of analysts.
“[475 Fifth Avenue] is very much a transitional asset,” Mr. Fasulo said. “It was basically bought as a vacant building, and they’re in the process of refurbishing it. Understanding how they valued that property will be interesting–that might be the upside for Norges in the entire deal.”
Norway’s investment success does not come without its controversies. Leading up to state elections held last month, the country’s sovereign wealth fund, including its real estate investments, dominated much of the conversation. Oil Minister Ola Borten Moe went as far as to propose a separate real estate portfolio with increased exposure to U.S. property investment in an interview with The Wall Street Journal.
The Ministry of Finance, which mandates the country’s investment strategy, balked at the idea.
“In my view, splitting the Government Pension Fund into several smaller management units would not represent an improvement,” State Secretary Hilde Singsaas of Norway’s Ministry of Finance, said in a statement emailed to The Commercial Observer.
“Splitting the fund could be a relevant issue if we wanted different parts of the fund to follow different strategies, but that is not the case for our fund,” she added. “We have one strategy for the entire pension.”
Despite resistance, with victory for the country’s center-right government in elections held on Sept. 9, the possibility of splitting up the fund remains a possibility. NBIM declined to comment on the possibility of altering its investment strategy.
Though Norway has made headlines in recent months, the country’s sovereign wealth fund is not the only–or even the first–to make a foray into the U.S. real estate market.
As early as 2011, the Chinese Investment Corporation, with approximately $575.2 billion in assets under management, acquired a stake in 650 Madison Avenue in partnership with AREA Real Estate Finance. The trophy property has since been agreed to be acquired by Crown Holdings and Highgate for $1.3 billion.
Earlier this year, the Kuwait Investment Authority, with $386 billion in assets under management, got involved in one of New York’s most high-profile development projects, investing in Related Companies’s $15 billion development of Hudson Yards on Manhattan’s Far West Side.
Elsewhere, the Abu Dhabi Investment Authority has been assembling a large real estate team with an impressive pedigree, including hiring Tom Arnold from Cerberus Capital Management as the fund’s head of real estate in the Americas in 2009.
“[Sovereign wealth funds] are much savvier than they were 20 years ago about real estate,” Mr. Fasulo noted. “At this type of level, most of the major sovereign wealth funds are realizing the need to have expert subject matter staff, and from what I’ve seen they’ve hired the right people.
ADIA’s real estate investment mandate boasts a minimum allocation of 5 percent of assets under management and a maximum of 10 percent. With a real estate strategy that stretches nearly 30 years, ADIA has gone as far as to branch out toward managing properties.
“I think once you have enough of a portfolio, it makes sense to build a whole platform around it,” Mr. Fasulo said. “Abu Dhabi has gone through that process of the last several years and has put together a team to manage the assets.”
The appetite for foreign investment in United State real estate could be set to escalate with industry participants rallying behind the possible reform of the Foreign Investment in Real Property Tax Act. The tax, instituted in 1980 during the Farm Crisis, imposes as much as 35 percent in capital gains taxes on international investors with an interest in commercial property and demands the withholding of 10 percent of a property’s sale price to ensure the payment of those taxes.
One of the proposed reforms would exempt foreign pension funds from the 10 percent withholding, which would free up capital for reinvestment in the market.
“FIRPTA does drive minority interest transactions, and I do think it will be at least partially repealed over the next few years,” Mr. Fasulo said. “That could unleash a wave of new capital”
In the meantime, joint ventures, such as those employed by Norway and others, could be the most advantageous entrance to the U.S. market, both for sovereign wealth funds and their partners, who are able to partially exit their investments and allocate assets elsewhere.
“By venturing these assets, it allows us to invest in other assets and spread our risk through other markets and other sectors,” Mr. McAndrews noted. “It is critical to have lifetime partners, so when other large investments come on the market, we can venture them in strategic investments like with Norway.”
