Meet America's #2 Real-Estate Buyer, Norway

Where Monopoly money comes from.

As far as Europeans go, Norway has a maverick, independent streak. It is not a member of the European Union, let alone a user of the euro. Unlike most of its neighbors, it has a petroleum-based economy. The latter has given rise to a fairly sizable sovereign wealth fund (SWF) officially known as the "Government Pension Fund Global" as oil proceeds have been saved over the years. Depending on the source quoted, its holdings range from $820 billion to a cool $890 billion--supposedly worth $178,000 for each Norwegian. [Can I retire as a Norwegian?] As you would expect from these smart, non-subprime-loving folks, it is a well-run SWF to boot.

Critics, however, point to its preference for investing mostly in the developed world where returns are rather lower. You can see this from the nifty interactive map on the SWF's site. However, this criticism has not dissuaded it from buying more blue-chip properties all over the world in accomplishing their version of "diversification." Take, for example, the United States:

Norway has vaulted to the top ranks of foreign U.S. commercial real estate buyers as its $870 billion sovereign-wealth fund, the world’s largest, acquires buildings from New York to San Francisco. The country has spent more than $3.2 billion on U.S. real estate this year, including the assumption of debt, according to research firm Real Capital Analytics Inc. and statements from the wealth fund. That makes it the biggest international buyer after Canada. The total is more than double the amount spent in all of 2013, when Norway ranked No. 6 for property purchases.

Norway, which has a smaller population than New York City, is spending billions of dollars on properties globally as its wealth fund seeks to meet a target to invest as much as 5 percent of its assets in real estate. In the U.S., prices for top-quality buildings in major markets are being driven up by foreign funds that often are willing to accept lower yields than domestic buyers in return for a safe place to put their money, according to research firm Green Street Advisors Inc.

“There’s an element of perceived safety in a hard asset in the United States, in New York City, that is harder to replicate in other alternatives,” said Michael Knott, a managing director at Newport Beach, California-based Green Street. Investors such as the Norwegian fund “have the ability to hold indefinitely and probably not be troubled at all by a low going-in yield.”

In a sign of the times, Norway is even buying prime London properties from Singapore's SWF:

Norway’s sovereign wealth fund, the world’s largest, agreed to buy the Bank of America (BAC:US) Merrill Lynch Financial Centre in London for 582.5 million pounds ($944 million) as it expands its bet on the U.K. capital.

The fund acquired the 585,000 square-foot (54,000 square-meter) office complex at King Edward St. from GIC Pte, Singapore’s wealth fund, Oslo-based Norges Bank Investment Management said today in a statement. GIC bought the property from Merrill Lynch & Co. Inc. in 2007 for 480 million pounds.

Norway’s $860 billion wealth fund formed a new real estate group in July to speed up its property investments and is seeking to invest almost $10 billion annually over the next three years. The fund owns properties on Times Square in New York and the Avenue des Champs-Elysees in Paris, as well as in Boston, San Francisco and Zurich. 

Gemany, too, has seen Norwegian investment as of late:

Norway's $840-billion sovereign wealth fund purchased a 94.9 percent stake in several firms that own two office buildings in Munich's Lenbach Gärten quarter, the fund said on Tuesday. The fund purchased the stakes from AM Alpha GmbH for a total consideration of 176.1 million euro, including 75 million euro of third-party debt, it said in a statement.The buildings have 29,000 square meters of total leasable area and are primarily leased to McKinsey & Company Inc. and Condé Nast Verlag GmbH.  

I've been to Norway twice and had a Norwegian boss to boot.  They are easygoing but highly focused folks, so I'm sure their real-estate investments have been thought through. In this day and age, investors for the long haul are to be welcomed like the Norwegians.