International

NBIM turns developer on trophy properties

London properties

The $1.6 trillion sovereign wealth fund has already taken back a part of Bank of America Corp’s London office campus for a comprehensive overhaul

Norway’s Norges Bank Investment Management (NBIM) is dipping its toe into development projects as it prepares for a series of key lease expiries across its UK portfolio.

The $1.6 trillion sovereign wealth fund has already taken back a part of Bank of America Corp’s London office campus for a comprehensive overhaul. That could be a precursor to answering the much bigger question of what happens if the lender chooses to vacate altogether when its main lease runs out in 2032.

It is providing valuable insight and research for us, Michael Carter, a senior asset manager at NBIM said in an interview. We are getting down to the bones of that building, which was constructed in the same form as the main Bank of America building.

It is a phenomenon that is playing out across London. First Brexit, then the pandemic and now elevated interest rates – all these events have disrupted the plans of premium real estate investors. Overseas funds with few people on the ground are being compelled to contemplate complex redevelopments of buildings, some of which they had expected to sell long before their leases ran down, lowering their value.

Like many sovereign investors with large cheque books and small real estate teams, NBIM initially targeted either JV with established players or premium buildings with long leases to top tenants. Those low risk buildings typically require little management, allowing funds without a real estate track record to scale large portfolios without having to employ hundreds of asset managers.

But a decade on from NBIM’s acquisition, the lease on BofA’s London campus has around eight years left and is edging toward the point at which such a large occupier must contemplate whether to stay or go given the scarcity of alternative buildings big enough to accommodate it.

The fund had weighed a sale of the building but halted the process in the summer of 2022 after Russia’s conflict with Ukraine and increasing interest rates upended the commercial real estate market.

It was an opportunity where we thought if we could sell it at a certain price, we’d be better off deploying the capital elsewhere, Carter said. Actually things had transpired to move against us. We said that’s fine. We were always happy to own the property, keep it and work through the business plan and maintain it for a period.

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