Will Swedish investors have a significant presence in the international property scene over the next five years, or is it a case of once bitten, twice shy?
When restrictions on foreign investment were lifted in the late 1980s, Swedish investors piled into other European property markets, buying everything from trophy buildings in Madrid to risky development projects in London and fringe office blocks in Brussels. When the recession bit, rapid overseas expansion was the undoing of high-profile property companies like Aranas and Reinhold. Funds such as AP Fonden, Trygg-Hansa and SPP were also badly hit.
Six years on, the Swedish investors that survived the experience are still trying to unwind their pan-European holdings. Some large lots have been sold by Swedish investors in the last four months. In Belgium, Diligentia sold North Plaza A and B to Kredietbank in December for SKr 630m. The 28,000 m2 of offices were sold at a SKr 23m discount to their book value.
And insurance company Skandia sold two buildings at the end of last year in Madrid, Paseo de Recoletas 33, to Pricoa, and Principe de Vergara 108, to La Caixa. Both were sold slightly above book value. It is negotiating with a number of interested parties for its 32,000 m2 property at 278-280 Paseo de la Castellana, the headquarters of Spanish oil company Repsol.
But while the Swedes may be circumspect about the euro, they are nevertheless European in outlook. Gunnar Dahl, managing director of the Scandinavian International Property Association, says: “The euro will change the behaviour of investors, as it takes away currency risk and varying interest rates.”
Diligentia, for example, is poised to spin off its international property into a separately-listed company, reinforced by the properties it acquired last year with its takeover of Hufvudstaden International.
Göran Westerberg, communications director at Diligentia, says the intention is to take the Hufvudstaden properties in Paris and London and combine them with the best assets owned by Diligentia in Belgium and Luxembourg to create “a very focussed company that will invest in top quality office buildings in London, Brussels and Paris”.
The new company, which has yet to be named, will be one of the largest owners of European property. The exact size of the portfolio will not be announced until March, but it will contain the bulk of Diligentia’s international properties, valued at September 30 at SKr 8.5bn, and nearly all of Hufvudstaden International’s SKr 2.7bn portfolio. Hufvudstaden’s German and Japanese investments will not be included in the new company.
And Skandia, too, remains committed to a presence outside Sweden. It aims to sell the remaining properties in London and Lisbon owned by its non-life fund, but will increase the allocation to overseas property in its principal life fund, says Bo Liljedahl, manager of overseas investment. It currently has around 4% of its property portfolio invested in Austria, London and Denmark, worth a total of around SKr 650m.
“Skandia will be still quite a sizeable force as a Swedish investor in Europe,” predicts Liljedahl.
Trygg-Hansa intends to keep hold of its London properties, which account for around 10% of its SKr 10bn portfolio, says senior vice president in charge of property, Anders Rynell. He does not, however, anticipate making new investments in the next six months.
Tolly Bertilson, head of international real estate at AP Fonden, says the pension fund is likely to increase its exposure to overseas markets by indirect rather than direct investment. The latest valuation, at April 1997, showed overseas property at SKr 3.5bn, compared with the overall size of AP Fonden’s property portfolio of SKr 22bn.
This includes a SKr 600m exposure to the Belgian market, of which around half is held through a 3% stake in Cofinimmo, the listed investment fund. AP Fonden swapped a number of buildings it owned for shares in Cofinimmo when it was launched in 1996 and has since increased its stake through further share purchases.
In the US, the fund has invested some SKr 1.6bn in Real estate investment trusts, via two Reit fund managers. The strong performance of the Reits has been enhanced by the strengthening dollar relative to the Krona. Bertilson says AP Fonden could invest further in the Reit market.
AP Fonden aims to find tax-efficient vehicles for all its overseas investment, and is looking at the possibility of forming a limited partnership for its UK portfolio. “We have to see Europe now as one market and we expect to increase our investments in the EU, in those countries where we can find tax-efficient vehicles,” says Bertilson.
Stephen Norris, general manager of Healey & Baker’s Stockholm office, believes that Swedish investors will continue to play an important role in European property markets. “The Swedes will be the same force, but more cautious and limited to certain market such as Brussels and London,” says Norris. “There are active requirements from Swedish investors to buy in London.”
