Why institutional investors are now in love with Nordic real estate

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Stockholm, Sweden (Credit: iStock)

Stockholm, Sweden (Credit: iStock)

Institutional capital is piling into Nordic real estate as investors hunt for returns.

The $49 billion or so invested in real estate last year in the north European region — Sweden, Norway, Denmark, and Finland — was the most ever recorded and appetites appear to be just as strong this year, according to Bloomberg.

Linus Ericsson, CEO of Jones Lang LaSalle’s Swedish outfit said that demand is coming from deep-pocketed investors like pension funds. His firm hired three new senior advisors in the region this month.

“They have massive amounts of money, and the bigger the better,” he said.

Foreign investors were involved in a third of transactions by value last year and this year some of the world’s biggest investors are planning to expand their operations in the region, even as some worry that Europe’s real estate market could be approaching a bubble.

New York-based Neuberger Berman is opening an outpost in the region, along with Goldman Sachs and a Luxembourg-based entity backed by the Qatari royal family.

So-called hybrid bonds — designed either to convert to equity or absorb losses — are growing in popularity with real estate firms in the region looking to raise money, largely because they’re cheaper than equity.

In 2018, only one real estate company offered a hybrid bond of benchmark size, but last year three did. In total, Nordic real estate companies issued $1.5 billion in hybrid debt last year.

The influx of capital has caught the eye of domestic regulators in Sweden and Denmark, where interest rates have been below zero. The former’s Financial Supervisory Authority told banks to build capital against potential losses and Denmark’s regulatory body wants to ensure lenders don’t get lax with credit standards. [Bloomberg] — Dennis Lynch

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