Norway's Oil Fund invests in London property

Norway's Central Bank (Norges Bank) (photo), which manages the Norwegian Government Pension Fund Global, has agreed to buy a 150-year lease on a 25 percent stake in The Crown Estate’s Regent Street properties in London.

The purchase price is expected to be £448 million, or approximately 4.2 billion Norwegian kroner. A final agreement and completion of the transaction is anticipated by the end of March 2011, giving the fund, also called the National Oil Fund, its first investment in real estate after the Norwegian government on 1 March gave permission to invest in the asset class.

“A move into real estate will strengthen the fund, which today is solely invested in stocks and bonds,” says Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM).

Regent Street is one of London’s busiest shopping streets with retailers including Apple, Burberry, Banana Republic and Hamleys. The properties in the Regent Street portfolio, which consists of 113 buildings spread over 39 blocks, are owned by The Crown Estate on behalf of the United Kingdom.

The partnership would give the fund 25 percent of the properties’ net income, which would mainly come from office and retail space rent. The Crown Estate would retain 75 percent of the income.

“The Crown Estate would continue to be responsible for the management of the portfolio, while NBIM would take part in significant capital decisions,” says Slyngstad.

The Norwegian fund got a mandate on 1 March to gradually invest as much as 5 percent of its assets in real estate through a corresponding decrease in fixed-income investments. Real estate investments will mainly be in unlisted real estate, well-developed property markets and traditional property types, initially in Europe. The fund’s investments consisted of 60 percent equities and 40 percent fixed-income securities at the end of the third quarter.