‘Massive Amounts of Money’ Headed for Nordic Real Estate
(Bloomberg) -- The Nordic real estate market attracted more investor cash than ever before last year, and it’s now getting even hotter.
Linus Ericsson, chief executive of the Swedish unit of Fortune 500 real estate adviser Jones Lang LaSalle Inc., says much of the demand comes from outside the region, where buyers are looking for scale.
“They have massive amounts of money, and the bigger the better,” he said in a phone interview.
To keep up, Jones Lang LaSalle expanded its Nordic business this month, bringing in three new senior advisers. “If you looked at the global appetite for real estate, it’s still a massive wall of money and that means that pension institutions everywhere are looking for real estate investments,” he said.
After years of negative interest rates across most of the Nordic region, real estate has emerged as the ultimate target for institutional investors desperately chasing returns. Last year saw a record for transactions -- 44 billion euros ($49 billion) -- across Sweden, Norway, Denmark and Finland, according to Pangea Property Partners. Shares in Nordic property firms are outperforming their European peers, and even their riskiest debt is coveted among investors.
Alexander Stiris runs Citigroup Inc.’s Nordic corporate banking operations and leads the regional cluster. He says the real estate industry’s offerings of so-called hybrid bonds almost quadrupled in 2019. He also says investors are drawn to Scandinavia’s transparency and the relative ease with which assets can be traded.
Hybrids can be designed to convert to equity or absorb losses; ratings companies typically consider securities issued by non-financial companies as 50% equity. Issuance by non-financial European firms hit a record 30.2 billion euros last year, with Malmo, Sweden-based real estate company Heimstaden Bostad AB’s among the largest issuers, according to Scope Ratings.
Neuberger Berman to Open Nordic Unit
The $339 billion asset manager is targeting the Nordic region for expansion, it said on Tuesday. Neuberger Berman is the latest large asset manager to target Nordic countries, where savings are among Europe’s highest. KBL European Private Bankers SA, a Luxembourg-based group backed by the Qatari royal family, said in October it was opening an office in Copenhagen, and Goldman Sachs said back then it too would open a branch.
The intense influx of foreign cash has some local regulators worried. The region has a history of property booms suddenly turning into busts, and financial watchdogs are eager to avoid a repeat. Sweden’s Financial Supervisory Authority has told banks to build more capital against potential losses. In Denmark, the regulator is telling lenders not to ease credit standards.
Stiris at Citi says investors have taken note of those concerns. The main metrics they’re looking at to gauge risk are indebtedness and occupancy rates, compared with European peers. But so far, nothing they’ve seen has “stopped them from coming in,” he said. In fact, even as the supply of debt issued by Nordic property firms has grown, yields have dropped.
Danske Bank is advising its corporate debt clients that “real estate is predicted to maintain its position as a major volume contributor as the companies in the sector are still on a growth trajectory.”
Back in 2018, only one real estate company issued a hybrid bond of benchmark size -- Akelius Residential Property AB -- offering 500 million euros, according to data compiled by Citi. Last year, there were three, but the cost of the debt kept falling.
Nordic property companies issued 1.5 billion euros in hybrid debt last year. The instruments help them meet rating company requirements for capital, but at a lower cost than equity.
“In some cases corporates have raised hybrids to buy back preferred shares,” Stiris said. It just goes to show “how cheap hybrid is.”
©2020 Bloomberg L.P.