International investing in Norway Midt-Norsk Eiendomskonferanse 2016 Nick Laird

International investors: Are they here to stay?

Will they invest beyond Oslo?

Are international investors here to stay?

International investing in Norway The first 200 years

Swedes invest. Heavy losses. Go home.

Brits, French, Americans invest. Heavy losses. Go home.

Late 1980’s

2005-2007

Eidsvoll 1814

NPRO goes public Investors lose 90%+

2014

International investing in Norway The past few years 40% international 31% international NOK 118bn 120

11% international

110

100 90 80 70

NOK 61bn

60 50

NOK 37bn

40 30 20 10 2015

2014

2013

2012

Domestic

2011

Source: Akershus Eiendom, Newsec

2010

2009

2008

2007

2006

2005

2004

2003

2002

International

0

Extreme interest in Europe as well International share of transactions

57% International 52% 53% 47%

€300bn

Other

MidEast

250

Asia 200

North America

150

Continental

100

Domestic

50

Q3-15

Q2-15 Q1-15 Q4-14

Q3-14

Q2-14 Q1-14 Q4-13 Q3-13

Q2-13 Q1-13

Q4-12 Q3-12

Q2-12 Q1-12

Q4-11 Q3-11

Q2-11

Q1-11 Q4-10 Q3-10 Q2-10

Q1-10 Q4-09

Source: Real Capital Analytics

Q3-09 Q2-09

Q1-09 Q4-08

Q3-08 Q2-08

Q1-08

Q4-07

0

The hunt for yield Earning a 7.5% return

1995

2005

2015 12%

Bonds

63%

Stocks

13%

Real Estate

12%

Private Equity

52%

100%

39%

5% 4%

Returns

7.5%

7.5%

7.5%

Volatility

6.0%

8.9%

17.2%

Source: Callan Associates, WSJ

Emergence of global funds Large funds getting larger

Average closed real estate fund size by year ($bn) $2.7bn $2.4bn

$1.8bn

2013

Source: IREI Fund Tracker

2014

2015

Investors seeking increased risk % allocated to opportunistic strategies (vs. core, value-add)

45%

34%

23%

2014

Source: FPL Consulting

2015

2016

Giant pools of sophisticated capital looking for relative real estate returns 2014-2016 2013-2015

Research

Decision

2014-2016

Dealmaking

This time it is different Funds are committed, global and long-term

Opportunistic, highly leveraged trades $900

Long-term, patient capital building expertise/platforms

$830bn

800 700

$690bn

600 500 400 300 200 100 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13 Q3-13 Q2-13 Q1-13 Q4-12 Q3-12 Q2-12 Q1-12 Q4-11 Q3-11 Q2-11 Q1-11 Q4-10 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 Q4-08 Q3-08 Q2-08 Q1-08 Q4-07 Q3-07 Q2-07 Q1-07 Q4-06 Q3-06 Q2-06 Q1-06

0

Asia Pacific Source: Real Capital Analytics

North America

Europe

Will international investors go beyond Oslo?

International investors require: Size Data Trusted local partners A path to liquidity

Deal size creates focus

> NOK 5bn > NOK 250m

> NOK 1bn

Tom Barrack

Founder/CEO of Colony Capital

Acquired Statoil Forus in 2015 The information you have is not the information you want The information you want is not the information you need The information you need is not the information you can get The information you can get everyone already has

2017: The year real estate investing begins … and speculating ends Real estate investing is not: 1. Buying 10-year leases and ignoring residual values 2. Waiting for yield compression 3. Using low interest rates to generate cash flow

4. Turning bad office buildings into apartments at all-time high prices

A real property Syndicated 4 times in past 6 years

7.50%

Transaction Yield

7.20%

7.00% 6.50%

21% IRR to exiting investors

6.10%

6.00%

5.60%

5.50%

38% IRR to exiting investors

5.00%

4.90% 9% Projected IRR for new investors..

4.50%

50% IRR to exiting investors

4.00% 0.50% 0.00% 2010 WALT (Years)

20

2011 19

2012

2013

2014

2015

2016

18

17

16

15

14

Low rates will end at some point

11.00% 10.00%

Norwegian Long Bond

9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%

1990

1995

2000

2005

2010

2015

Conversions based on non-sustainable price growth

280

Oslo Apartment Prices

270 260 250 240 230 220 210 200

+8%

190 180 170 160 150 140 130

120 110 100 0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

2017: The year real estate investing begins … and speculating ends Real estate investing is not:

Real estate investing is:

1. Buying 10-year leases and ignoring residual values

1. Buying vacant space and leasing it

2. Waiting for yield compression

2. Anticipating demand and developing for it

3. Using low interest rates to generate cash flow

4. Turning bad office buildings into apartments at all-time high prices

3. Finding alternative use for obsolete properties 4. Managing expenses intensively 5. Investing capital to increase rents, expand leaseable area and attract higher quality tenants 6. Anticipating new locations 7. Exiting (if ever) when all the above have been completed (or at least attempted)

Only one thing scares international investors about Norway…

OIL

U.S. is good at some things Bad at others But excellent at marketing

Here’s an example

Norwegians are good at many things But really bad at marketing

Recent headlines

Norway Announces Massive Withdrawals From Sovereign Wealth Fund To Cover Deficits

Norway after oil is… … Sweden GDP per Capital ($)

$61,255 $51,481

$46,702 $37,800

Norway

Source: SSB

Norway ex Oil

Sweden

EU

How risky is Norway “after oil”? Compared to what?

Europe after “Brexit”? U.S. after Donald Trump?

China after deleveraging?

Real estate is driven by growth Norway has it, Europe doesn't

Employment Growth (2000-2015)

Population Growth (2000-2015) 29.7%

34.3%

29.2% 25.9%

24.2%

22.2%

20.9%

28.5%

23.9%

25.2% 22.7%

20.1% 15.4% 10.0%

8.7%

Source: Statistics Norway, Eurostat

EU-27

Drammen

Tromsø

Kristiansand

Trondheim

Stavanger*

Bergen

Oslo

EU-27

Drammen

Tromsø

Kristiansand

Trondheim

Stavanger*

Bergen

Oslo

4.4%

Trondheim investment returns Relatively better than Oslo

10,0 % 9,0 % 8,0 % 7,0 %

Trondheim - Normal

6,0 % 5,0 %

Trondheim - Prime

4,0 %

Oslo - Prime

3,0 % 2,0 %

NIBOR 3M

1,0 % 0,0 % 2005

2006

2007

2008

2009

2010

2011

Typical Returns* Oslo – Prime: Trondheim – Prime: Trondheim – Normal:

*Assumes 65% LTV loan and 3 year hold

2012

IRR 15.1% 17.3%

2013

2014

14.5%

2015

2016

One final word on Trondheim…

Oil is the past Engineering and technology are the future

Silicon Valley - 1966

World’s Largest Companies (by Market Cap) 1. AT&T:

$30bn

2. IBM :

$20bn

3. GM :

$19bn

4. Standard Oil: $14bn

5. Kodak:

$10bn

Silicon Valley - 2016

World’s Largest Companies (by Market Cap) 1. Apple:

$613bn

2. Google:

$542bn

3. Microsoft:

$448bn

4. Amazon:

$402bn

5. Facebook:

$369bn

Stanford University

NTNU

Among many unforgivable flaws

He’s a bad real estate investor

Trump’s “Empire”

Empire State Building

Trump Building

1290 Avenue of the Americas

Trump Tower

Trump World Tower

Trump Palace

Trump International Hotel & Tower Trump Parc/ Trump Parc East

Trump Place

Let’s make real estate investing great again!

Thank you! Nick Laird / [email protected]

+47 88 21 21