As I’d noted in a prior post, Norway’s sovereign wealth-fund has been openly scoping American real estate. Citing positive growth projections for urban property holdings, Norges Investment Bank chief economist Yngve Slyngstad expressed unambiguous endorsement of the United States housing market, stating explicitly, “The U.S. is the next real estate market to invest in.” However, it appears Norway just actively began acquiring its first major American property holdings.
According to new reporting from Bloomberg, Norges Bank Investment Management has settled on a $600 million payment for a 49.9% stake in various properties throughout urban Boston, Washington D.C., and New York City. Citing disclosure from sales partner TIAA-CREF, the Bloomberg release notes that Norway’s sovereign wealth fund has expressed intention to further survey lucrative U.S. property investments. While TIAA-CREF declined to specify the possible focus of its partner’s future investments, the location and stake of Norway’s first ever investments in the American real estate market have become fully settled.
So, what might this ultimately mean for the U.S. property market as a whole? Considering that America’s real estate is collectively valued into the trillions, a $600 million investment in boutique urban property will have negligible impact on the greater market. That being said, major foreign purchase of American real estate points to a slew of possible market trends. First and foremost, it’s a sign that property investment (if intelligently managed) may be emerging as a source of asset growth. The property holdings are overwhelmingly commercial listings, and are spread throughout the Eastern Seaboard’s most business-friendly cities. The trinity of metros that Norges Bank Investment Management surveyed also has a well-earned reputation for attracting foreign business, potentially forecasting job growth throughout the three individual regions.
While the newly purchased real estate holdings are niche properties, the Bloomberg report validates a growing consensus that commercial real estate will likely emerge as the most stable property investments throughout 2013. It’s clear that America’s dreaded ‘shadow inventory’ of unsold residential listings is rapidly drying up, but the identity of the purchasers aren’t entirely certain. Certain reports have emerged suggesting that much of this purchasing wave is orchestrated by hedge funds and other major investment bodies, which is more indicative of regional market manipulation than it is of organic consumer interest.
That being said, commercial listings are substantively more likely to be purchased for utilitarian reasons. Considering that the U.S. jobs market is making a (nevertheless tentative) recovery, it’s unsurprising that property within urban job hubs are being scouted by monolith wealth funds. If there’s a concrete takeaway that can be derived from the recent TIAA-CREF/ Norges Bank Investment Management transaction, it’s that commercial real estate listings have outstanding value resilience among American real estate. Wary commentators have noted that price escalation in residential real estate mimics pre-bubble market trends, but if Norway’s recent purchases are any indication, commercial property has a much clearer, and more positive, long-term market outlook.