The city of Stockholm was once again giving out bottles of its “own brand” of water at this year’s MIPIM.
Investors never lost their thirst for the stable Swedish capital, a city where rents are rising (see box, below), prime yields are falling, banks are willing to lend and Nordic investors are leading the pack. But international investors’ thirst for prime assets is not being quenched, and their expected move to Sweden’s secondary market, where there is more distress and opportunity, is yet to evolve.
Situations such as that involving UK investor Boultbee last year, whose retail portfolio is now in the hands of Royal Bank of Scotland, could result in non-core properties being put on the market by banks.
“It’s not exclusively a Nordic thing,” says Tonny Nielsen, Aberdeen’s head of investment for the Nordic region. “But banks are moving again.
“They have two options. They can sell properties, or bring in an asset manager.”
Looking after Boultbee’s assets
In February, a new management board was put in place to look after Boultbee’s CentrumKompaniet portfolio of 10 shopping centres in Stockholm. What the new board, led by restructuring and insolvency lawyer Lars Söderqvist, does with the portfolio remains to be seen. Boultbee paid €1bn for the assets in 2007. European Fund Management, which asset-manages Boultbee’s investments in Sweden, has kept its contract for the shopping centres.
Nielsen, meanwhile, thinks it is time for investors to consider more risk-taking.
“If you do things properly, you should be able to handle that,” he says. “Maybe it is time to take a step down from prime and take more risk.”
Aberdeen was recently appointed asset manager for a distressed Nordic property portfolio previously managed by Danish company Property Group. The portfolio, valued at €537m, includes retail and residential assets and is located mainly in Denmark, Sweden and Finland.
Portfolios that require work continue to emerge. Often these are bought at auction, and often the buyer is Swedish fund manager Hemfosa and the seller Landic. Even before the latest tranch – the Kefren Properties IX AB – is marketed, the prediction is that Hemfosa will be the taker. The 830,000 m2, 150-asset portfolio is likely to be auctioned for around SKr3.6bn (€400m) this month and consists mainly of offices.
For optimists, Boultbee’s sale earlier this year of two malls, the Gallerian and Punkt shopping centres in Vasteras near Stockholm, for SKr850m (€95m) to US private equity firm Carlyle could be a sign of things to come, with more international money changing hands. Both properties are in need of extensive refurbishment.
US firm Cornerstone is raising capital for a new €500m fund targeting the Nordics. The Nordic Social Infrastructure Property Fund will target Sweden, with room for investment of up to 20% in Finland, Denmark and Norway. The fund is aimed at core assets let to government tenants.
Another way to enter Sweden could also be through investment in an existing firm. Swedish investment firm Norrvidden, which has SKr6.4bn (€660m) of assets, was last month put up for sale by its owners, private equity firms Altor Equity Partners and Bure Equity. Norrvidden, which has offices across the north of Sweden, last year reported rental income of SKr700m from its 840,000 m2 portfolio.
The message from agents with offices in Sweden is that the country is “back on the map”. And the investors targeting Sweden know their way around, be they domestic or pan-Nordic.
“The wave is certainly coming again,” says Peter Helfrich, ING Real Estate’s country manager for Sweden. “We will try to avoid places where the other investors are. The pan-European foreign funds are looking at bigger cities and many of the domestic investors are office-focused. So we should look elsewhere.
“We are here, we know the markets well, so prime retail in secondary cities will be our aim.”
However, Helfrich has not ruled out bidding on assets from Boultbee’s CentrumKompaniet portfolio.
“There are four assets which can be regarded as prime,” says Helfrich, who does not rule out bidding. “We bid before the crisis and I really believe in the portfolio.
“We had a plan for the assets and we would still consider it.”
Little appetite for the unusual
There is little appetite for the unusual. Unibail-Rodamco’s efforts to sell properties from its pan-European Quid portfolio have had limited success. UK-based Grosvenor is understood to be close to sealing the Swedish assets it acquired from the portfolio. However, shopping centres with attached hotels are not so popular. The malls, which include Eurostop hotels, are not on the radar of those looking to cherry-pick from the Quid portfolio.
Orion Capital Managers’ investment director, Rami Badr, says that the firm is looking for ways into the Nordics, possibly through a partnership with a local player in joint venture, and acknowledges the difficulty in finding product.
“It has been difficult to find the right kind of opportunistic deals,” Badr says. “We are investing for our €1.3bn fund and we have no limits or preference. It really depends on the opportunity and on the price.
“You are competing with local players, and some of these local Scandinavian funds are backed by international money.”
With prime yields having edged closer to 5%, competition for Swedish assets has been increasing.
“Norwegian investors are the ones we see the most of here,” says Mats Hederos, AMF Fastigheter’s chief executive. “Their own market is quite small, so they are active in Sweden and are welcomed here.”
Tom Lindahl, owner and managing director of Tenzing AB, agrees.
“We will see more Norwegian money come into Sweden,” he says. “For now, there are few non-Nordics.
“The niche international retail players are back. German open-ended funds are still here and have an appetite.”
Around 80% of investment by Swedish institutional investors is domestic, according to the Investor Universe Sweden Survey 2011 by funds body INREV. The Swedish institutions’ preference for their own market is, says INREV research director, Lonneke Löwik, a result of caution and a “strong domestic economy”.
“This adds to the desire to stay at home,” says Löwik, who points to the experience of Swedish investors in the 1980s. Those who went abroad then, at the peak of the market, suffered.
For their international counterparts, the difficulty in finding product is not the only issue. The strength of the Swedish krona is also a concern. “It is a bit strong right now,” says Lindahl. “That has resulted in some Germans selling.”
A recent report by Stockholm-based advisory Nordier predicts that the “days of off-market deals are over”. The report also highlights the currency factor for investors entering Sweden.
“The Swedish currency has strengthened and indications are that it will become more expensive this year,” the report says.
