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Norway's oil fund makes first Asian property investment – Financial Times

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Shoppers take a photo of illuminations in Tokyo’s Omotesando shopping district © AP

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Norway’s $1tn oil fund is eyeing further property deals in Tokyo after making its first real estate investment in Asia.

The world’s largest sovereign wealth fund has been scouring the region since 2015 for property but concluded its first deal only on Thursday, buying a 70 per cent stake in five buildings in some of Tokyo’s biggest shopping districts.

Karsten Kallevig, head of the fund’s property business, told the Financial Times: “I’m certainly hoping there will be more deals. Tokyo will be one of our focus cities. In that lies an expectation or hope that will grow our presence there.”

The fund has become one of the world’s biggest property investors in just seven years, building a portfolio of $25bn in big European and US cities, starting with large parts of Regent Street in London.

But its search for property in Asia has been trickier than expected. It has offices in both Tokyo and Singapore and had previously stated that it hoped to do its first deal in 2015 or 2016.

But Mr Kallevig said a mixture of pricing, finding the right partner and attractive assets meant it had taken several years longer. “When you enter into a new market, things take a bit longer. There may be things that you are uncomfortable with that you become more comfortable with over time,” he said.

The oil fund is paying ¥92.75bn ($823m) for a 70 per cent stake in five buildings with its new joint venture partner, Tokyu Land Corporation, acquiring the rest and managing the properties. All five are in Omotesando, a popular shopping district, and include stores occupied by retailers such as Zara and H&M.

Mr Kallevig said the fund had found it harder in Singapore due to “different dynamics” but was persisting there. He added that rents were very volatile in the city state while capital values were more stable. “With pricing and opportunities . . . we have not been able to conclude on anything that for us provides the confidence to start investing there.”

The Norwegian fund has concentrated on central office and retail buildings in the world’s largest cities, as well as some logistics property in Europe. It currently holds just 2.5 per cent of its assets in property with the rest as shares and bonds. But it expects that to rise to 4 per cent by the end of 2019.

Mr Kallevig categorised the fund as a long-term investor that is looking to buy the highest quality assets. “We go into this assuming that everything we buy we will own forever,” he said.

The fund has started buying properties outright on its own but has tended to enter cities with local joint venture partners. Mr Kallevig said there were plenty of other possible partners in Tokyo, which he categorised as the world’s biggest single property market.

“We will try to be as disciplined in Tokyo as we have been elsewhere. We should only invest if we are convinced it is a good investment according to our strategy, good for the fund in the long time, not being caught doing deals for the sake of doing deals,” Mr Kallevig said.

He added that it was harder to go into other Asian cities because the distances between them were often very large, ruling out the use of Tokyo or Singapore as regional hubs. “Tokyo is the world’s largest metropolitan area. It’s a natural place to start. You have to debate scale, the practicalities — do you have an office — for other cities,” Mr Kallevig said.

This article has been corrected to reflect the fact that all five buildings are in Omotesando. A previous version stated that three were in Shibuya.