The commercial real estate industry’s recent troubles have yet to deter Norway’s $1.4 trillion sovereign wealth fund, Bloomberg reports. Chief Executive Officer Nicolai Tangen said the fund will hold its position on CRE despite increased borrowing costs and decreased values surrounding the sector.
“We have seen a lot of the damage in this area,” Tangen told Bloomberg TV in a recent interview. “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 have hindered the wealth fund’s performance during the first half of 2023, forcing it to miss its benchmark by 23 basis points. The fund owned stakes in 390 properties at the end of last year, including buildings on Hudson Street in New York, Regent Street in London and the Sony Center in Berlin, Bloomberg reports.
Meanwhile, the fund’s $33 billion unlisted real estate portfolio dropped 4.6 percent in the six months through June due to increased office CRE vacancies, which dropped values sharply.
While the sovereign wealth fund has taken some hits on the properties portfolio side, Tangen noted its logistics properties “continue to perform pretty well.” After the SVB Financial Group’s Silicon Valley Bank collapsed, the fund took a hit, forcing Tangen to look for ways to limit exposure to “rotten apples” in the future. Part of that work has touched on property stocks, he told Bloomberg TV.
“We are continuously trying to find them and earlier in the year we were out of the Adani Group in India,” he said. “(The fund) has been out of a big Swedish property management company (SBB) which went bad.”
Meanwhile, Sweden’s CRE landlords are dealing with higher borrowing costs, which has hurt their ability to service debts following years of leveraged, growth, Bloomberg reports. The shift has led to credit-rating downgrades forcing companies to talk to bondholders about easing terms, property divestments and alternative ways to raise money.
The sovereign wealth fund was invested in 21 Swedish real estate firms at the end of last year and cut its stake in SBB in 2022 from 1.52 percent to 0.07 percent. It finished the year with $2 million in that stock. The fund is currently the world’s largest single equities owner. Stocks comprise 70 percent of its portfolio, along with property renewable energy infrastructure and bonds.
Most recently, the fund secured $143 billion in profit, partly due to U.S. tech companies’ growth and artificial intelligence development, Reuters reports.
“Now we are seeing that potential being realized and that is being priced in the stock markets of these companies,” sovereign wealth fund deputy CEO Trond Grande told Reuters.