Norway buys $1 bln of Paris property from AXA-UPDATE 2

Trade the News

Tuesday July 05, 2011 01:35:13 PM GMT

* Fund looking to Germany, to focus first on Europe

* AXA says deal will help it expand in Europe

* Deal is fund's 2nd property buy after Regent St. in London

* Fund may gradually invest up to 5 pct in real estate

(Adds AXA quotes, detail, background)

By James Regan and Gwladys Fouche

PARIS/OSLO, July 5 (Reuters) - Norway's $584 billion sovereign wealth fund agreed to buy prime Paris property from French insurer AXA for about $1 billion in its second major real estate investment in less than a year.

The sovereign wealth fund, known popularly as the oil fund and which invests oil and gas revenue for future Norwegians, said on Tuesday it would pay 702.5 million euros ($1 billion) for 50 percent of seven properties in and around Paris from the real estate arm of the French insurance group.

Competition for top-tier assets is fierce in the Paris office market, as in London, with global investors chasing deals that promise solid rental income and valuation gains.

Some investors say such competition has already over-inflated prices. The property arm of insurer Standard Life said last month it was hard to see value in Paris offices at yields of less than 5 percent.

"The investment is in line with our strategy to initially invest in the biggest European property markets before expanding into other regions," Karsten Kallevig, chief investment officer for real estate at the fund, said in a statement.

The fund and AXA will also form a joint venture in which AXA's real estate arms will provide asset management services.

"The joint venture will allow AXA to reallocate capital and diversify into other European markets, especially the UK and Germany," Pierre Vaquier, chief executive of AXA real estate, said in a statement.

PRESTIGIOUS ADDRESS

The properties in the latest deal constitute about 156,000 square metres of largely office space in the western and central business districts of the French capital, including the prestigious Champs-Elysees area.

Addresses include 12-14 Rond Point des Champs-Elysees and 16 Avenue Matignon, a stone's throw from the Elysee Palace, where French President Nicolas Sarkozy lives.

Last November, in its first-ever property deal, the fund agreed to buy a 25 percent stake in the UK Crown Estate's Regent Street properties in central London for 448 million pounds ($719 million).

Last year Norway's Ministry of Finance permitted the fund to invest up to 5 percent of its assets -- or $29 billion today -- in real estate by shifting investment from bonds.

Kallevig said the fund would continue to focus on real estate in London and Paris as well as in a couple of German cities.

"Over time we will also look at other markets, whether it's in the Nordic region, in the south or in the east," he told a news conference in Paris.

The fund previously said it would probably take some four to eight years for its real estate portfolio to reach the planned level of 5 percent of the fund's overall investments.

Bonds are now supposed to make up 35 to 40 percent of the fund, with global equities to account for 60 percent. (Additional reporting by Andrew Macdonald in London, with Victoria Klesty and Walter Gibbs in Oslo; Editing by Mike Nesbit and David Holmes)

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