Norway’s $33 Billion Man Steps Up Search in Asia Real Estate Bet

Karsten Kallevig, the head of real estate at the world’s biggest sovereign wealth fund, has at least $33 billion to spend.

After getting the green-light in 2010 to expand into the property market, Norway’s $860 billion wealth fund has bought real estate in places such as Times Square and the Champs Elysees. It now has a strategy to focus on 10 to 15 cities globally and its efforts to enter Asia are about to intensify, Kallevig said.

“There should be a significant increase in pace just based on that,” the 39-year-old said in an interview at the wealth fund’s headquarters in Oslo on May 20.

For Kallevig, who joined the investor in 2010 from Grove International Partners, one of the biggest challenges will be to keep up pace with growth in the fund as he tries to fill a 5 percent allocation target for real estate assets. The property portfolio now stands at $10 billion, or 1.2 percent of the total. That may grow to more than $61 billion by 2020, based on government estimates if the 5 percent goal is met.

To “reduce the probability of making really big mistakes,” Kallevig said the fund is looking to invest in Washington, San Francisco, New York and Boston. In Europe, it’s targeting London, Paris, Munich and Berlin, he said. The fund can also seek out unique deals, like when it bought Credit Suisse’s Zurich office for $1 billion in 2012 and a shopping mall in Sheffield, England.

Saying No

“I’m sure we have missed out on a lot of great opportunities by saying no left and right, and we’re very aware of that,” said Kallevig, who’s inundated by sales pitches, some of which are handwritten and decorated letters from Africa. “At the same time, we haven’t wasted a lot of time.”

So far his strategy has paid off. The fund’s real estate investments returned 11.8 percent in 2013. The IPD Global Annual Property Index, which measures 25 countries, returned 8.3 percent in 2013.

While the fund doesn’t have a deadline to reach maximum allocation, “there’s a natural increase in pace because we’re active in more markets,” said Kallevig, who has a degree from the Massachusetts Institute of Technology and has also worked at Goldman Sachs Group Inc. and Soros Real Estate Partners.

His ability to pick deals will help shape the future of the fund, which is also lobbying for permission to invest in private equity and infrastructure to help it meet a return target of 4 percent. The government said earlier this year it will evaluate the real estate expansion before it decides on other asset classes.

Joint Ventures

Norway, western Europe’s biggest oil and gas producer, puts most of its petroleum revenue into the fund to shield the $500 billion economy from overheating. The investor got its first capital infusion in 1996, added stocks in 1998 and emerging markets in 2000. The government is allowed to use the targeted 4 percent return to plug budget deficits. The fund is mandated to hold 60 percent in stocks, 35 percent in bonds and the rest in real estate.

It owns property mostly through joint ventures in offices, warehouses and one shopping mall. The latest investment to be disclosed was an expansion to the U.S. west coast in January through a venture with MetLife Inc. The fund also owns properties with TIAA-CREF in New York and Washington.

In Europe, it has a partnership with Prologis Inc. and owns part of London’s Regent Street with the U.K.’s Crown Estate. In Paris, it holds properties with Axa SA, including buildings overlooking the Arc de Triomphe. It also owns properties in Germany.

‘Biggest Fear’

As the fund’s push into Asia takes shape, it will narrow its focus to two cities. The entry will be based on the same criteria it has used in Europe and the U.S., tapping cities with the best growth potential and where there are supply constraints, Kallevig said. He’s staying away from restaurants and hotels, which rely on an operational component, and will stick to investing in offices and logistics properties, he said.

“If you’re going to pick one or two, it’s just that combination -- what’s nice long term, what’s practical, what’s meaningful, where do we think it fits,” he said.

Kallevig said he’s hoping that an analytical approach will prevent the fund from spreading its resources over too many markets.

“My biggest fear for our portfolio is that we wake up in five, 10 years from now and we’re everywhere,” he said.

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