TIAA-CREF plans to follow its sale of stakes in five U.S. office properties to Norway’s sovereign-wealth fund with joint investments in more U.S. real estate, an executive of the New York-based retirement account manager said.
The Norwegian fund was “interested in coming into the United States with an office mandate, targeting certain gateway cities which are very high on our target-market list,” Suzan Amato, managing director and head of TIAA-CREF’s global real estate joint ventures, said in a telephone interview. “So we started with these five buildings, but we plan to go shopping together with them immediately.”
Norges Bank Investment Management, the Oslo-based manager of the world’s largest sovereign wealth fund, agreed to pay about $600 million for a 49.9 percent stake in the buildings in New York, Washington and Boston, it said today in a statement. The purchase was its first real estate investment in the world’s largest economy. TIAA-CREF, the seller and manager of retirement accounts for employees of non-profit institutions, retained 50.1 percent of each property and will manage the portfolio.
Amato declined to say how much the partners plan to invest in the coming months, or identify what markets or types of commercial real estate they intend to target, beyond the three cities involved in today’s deal.
“At this point the partnership is focused on the three gateway cities we’re taking about,” she said. Gateway cities are generally on a coast and attract foreign businesses.
“This is a very long journey,” Karsten Kallevig, chief investment officer for real estate at Norges Bank Investment Management, said in a phone interview. “We have an allocation of up to 5 percent of the fund and the fund keeps growing.”
The joint venture may invest in U.S. shopping malls by acquiring shares in listed real estate investment trusts, Kallevig said.
“Shopping centers are interesting,” he said. “If you want exposure to really good shopping centers in the U.S., then perhaps buying listed shares might be the best way of going about it.”
The Norwegian fund, which has already purchased commercial real estate in London, Paris, Frankfurt, Berlin, Zurich as well as Sheffield, England, is focusing on conservative investments, such as large office complexes in major cities and developed malls, Yngve Slyngstad, chief executive officer of NBIM, said in a November interview.
The wealth fund bought a 50 percent stake in the Meadowhall Shopping Center in Sheffield for 348 million pounds ($545 million) in October. Its first U.K. deal was the 448 million-pound purchase of a 25 percent stake in London’s Regent Street in November 2010, the same year it gained permission to invest in real estate.
Norges Bank plans to invest as much as $11 billion in the U.S. and to raise the proportion of its holdings in real estate to about 5 percent from less than 1 percent at the end of September. About a third of that will be in the U.S., Slyngstad said in the interview.
The properties in the deal announced today are located at 470 Park Ave. South and 475 Fifth Ave. in New York, 1101 Pennsylvania Ave. and 1300 I Street in Washington, and on 33 Arch St. in Boston. The joint venture plans to acquire more U.S. offices, particularly in the same three cities, according to the statement.
The fund will probably form other ventures with U.S.-based partners such as pension funds, insurance companies and other listed companies, Kallevig said in the interview.
“Large investors, with a long-term view, which have some kind of operating or management expertise” would be ideal, he said.
Manhattan office vacancies and rents were little changed last year as leasing by media and technology companies helped stem financial industry cutbacks, Cushman & Wakefield Inc. said in a report last month. The brokerage predicted an increase in vacancies this year as two new skyscrapers at the World Trade Center are completed.
The Washington market will see rising vacancies, currently at 13 percent, and falling rents because of uncertainty over federal budget cuts, Cushman said.
The properties in the Norwegian deal are well-positioned to maintain or grow in value, even if their markets remain flat for the near term, said Amato of TIAA-CREF. The Park Avenue South property, which is near East 32nd Street, is on a stretch of the avenue that is seeing rising demand from technology firms squeezed out of the Flatiron District to its south, she said. The 475 Fifth Ave. building is across from the main branch of the New York Public Library.
“These properties and the ones we’ll look to buy in the future are positioned for the long term,” she said. “That’s very much the objective of the mandate we’ve engaged.”
TIAA-CREF, which has about $19 billion of equity in real estate, is interested in adding other foreign investment funds as partners, Amato said. The list currently includes the Australian government future fund, and APG Groep NV of the Netherlands, Europe’s largest pension fund asset manager.
Norway, Europe’s second-biggest oil and gas exporter, generates money for the wealth fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 percent stake in Statoil ASA, the country’s largest energy company.