Oxford Forms Partnership With Norges at Berlin's Iconic Sony Center

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Oxford Properties Group (“Oxford”), the real estate subsidiary of OMERS, announced the formation of a joint venture with Norges Bank Investment Management (“NBIM”) at the iconic Sony Center in Berlin:

Oxford Properties Group (“Oxford”), a leading global real estate investor, asset manager and business builder, announces the formation of a 50:50 joint venture with Norges Bank Investment Management (“NBIM”) at the iconic Sony Center in Berlin. NBIM will pay €677 million to acquire a 50% ownership interest in the Sony Center with Oxford selling 44.9% of its existing stake and Madison International Realty disposing its entire 5.1% interest.

Oxford will retain a 50% interest in the property and act as asset manager on behalf of the new joint venture. The closing of the transaction, which values the property at €1.35 billion, is subject to regulatory approval.

Comprising 113,000 sqm of prime office, retail and residential space in the heart of Berlin, the Sony Center stands as a modern landmark and attracts more than 7 million visitors annually. An example of the depth of demand for well let, high-quality office product among global institutional investors, the deal sees Oxford crystallise value created via its asset management activities since acquiring the property in 2017.

In Q4 2021, Oxford announced a €200 million master-planned redevelopment of the Sony Center to futureproof the campus with leading-edge design and sustainability features. The transformative vision for the site has been supported by strong leasing momentum. In April, restaurant, bar and lounge hotspot Frederick’s opened after the leasing of Sony Center’s flagship restaurant and events space to Rhubarb Hospitality. Anchor office occupier Deutsche Bahn has also signed a long-term renewal.

Abby Shapiro, Senior Vice President & Head of Office, Retail and Life Sciences, Europe at Oxford Properties, commented: “Today’s announcement further expands our relationship with NBIM, a highly strategic and like-minded partner, which shares our long-term conviction in Berlin. Furthermore, it demonstrates the belief in our investment thesis that sustainable and wellness-focused office buildings in prime locations, serviced by superb food and retail amenities, will continue to outperform.

“Having realized significant value, we will reinvest back into Sony Centre to improve the customer experience. We continue to have a favourable long-term view in Germany and are actively looking to grow our business in the country, particularly in the German logistics market.”

As part of its planned growth in Germany, earlier this year Oxford acquired an 142,000 sqm urban logistics portfolio of 10 assets located across six German states.

Diana Shieh, Co-Head of Portfolio and Asset Management, Managing Director for Madison International Realty, commented: "Sony Center is one of the most recognizable assets in Berlin, and Madison has experienced a transformation of the estate throughout its long-time partnership with Oxford Properties since 2017. Having executed our business plan, which included the creation of a masterplan for the future, we are pleased to crystallize our stake through this recapitalization and look forward to seeing this campus reach its full potential over the coming years.”

Jay Drexler, Vice President Office, Retail & Life Science Europe, at Oxford Properties, added: “Our partnership with NBIM serves as further validation of our ambitious master-planned vision for the Sony Center. It will bring better quality, more sustainable and flexible workspaces, coupled with new amenities that include safe and secure bike parking to promote a healthy commute, fitness facilities and services dedicated to well-being. We also continue to strengthen the cultural and culinary offering at Sony Centre through public art activations, community partnerships and a wide-spectrum of food and beverage concepts at a variety of price points to ensure that all can share in the experience.”

Oxford’s €200 million redevelopment plan aims to place a greater focus on human-centric aspects of the campus including optimising workplaces for health and wellbeing, world-class retail and future-focused amenities. This will be complemented by an annual programme of events in sport, culture and entertainment that will be accessible not only for the Sony Center office community, but also for Berliners and visitors. Major construction activity has begun, with the majority of the redevelopment expected to complete by the end of 2023. 

In total, around 50,000 sqm of office space will be upgraded, becoming workplaces of the future. While the expanded food and beverage offering will feature Berlin providers as well as global restaurateurs. A new three-floor food hall from London food incubator KERB will showcase and develop the very best of the Berlin independent food and drink scene, further underlining the Sony Center’s reputation as a hub for exchange and community.

Norges Bank Investment Management (NBIM) put out its own press release on this joint venture with Oxford:

Norges Bank Investment Management has signed an agreement to acquire a 50 percent interest in Sony Center, a mixed-use property located on Potsdamer Straße 4 in Berlin, in a joint venture with Oxford Properties.

20 May 2022

The agreement was signed on 19 May 2022, with completion expected on 30 June 2022.

Norges Bank Investment Management will pay 677 million euros for its 50 percent ownership interest, valuing the property at 1,354 million euros. The property is encumbered by 625 million euros of existing debt. No further financing will be involved in the transaction.

The sellers of the property are Oxford Properties and Madison International Realty.

Oxford Properties will retain a 50 percent interest in the property and will perform the asset management on behalf of the joint venture.

The property comprises 113,000 square meters of office, retail and residential space.

This transaction caught my attention for several reasons.

First, Oxford Properties and Madison International realty bought the Sony Center in Berlin back in 2017 for approximately €1.1 bn from NPS Korea. 

When that deal was announced five years ago, Ronald M. Dickerman, president and founder of Madison stated: 

"Our strategic relationship with Oxford formed around prime assets in Paternoster Square, London has now grown to include the iconic Sony Center in Berlin. We share a commitment to investing in world-class properties alongside world-class real estate professionals which is the embodiment of this transaction. The Oxford / Madison dynamic differentiated itself and will now allow us to close on and execute an impactful business plan on what is the most iconic asset in Europe.”

Indeed, the Sony Center is a 113,000 m² landmark mixed-use complex in Potsdamer Platz, in the heart of Berlin’s Mitte district. It spans nearly six acres and comprises eight individual buildings, including the iconic Bahn Tower.

Having executed on their business plan, Madison is exiting this asset and Oxford will become the asset manager in this new 50:50 joint venture with NBIM.

That brings me to the second point, NBIM manages the assets of Norway's Government Pension Fund Global (GPFG, also known as Norway's oil fund), the largest wealth fund in the world. Its assets are roughly US $1.4 trillion.

You can read more about Norway’s oil fund, or the Government Pension Fund Global, on NBIM's website here. You should also read about its governance model here. 

This is a giant fund which primarily invests in global stocks and bonds:

As shown above, as at the end of 2021, Norway's oil fund was invested 72% in equities, 25.4% in fixed income, 2.5% in unlisted real estate and 0.1% in renewable energy infrastructure.

In other words, there's a lot of beta in this fund, which is good during periods where stocks and bonds are rallying but bad in years like this year when stocks and bonds are getting hit hard. 

In fact, Norway’s huge sovereign wealth fund suffered a 4.9% loss on its investments in the first quarter amid choppy financial markets but still managed to beat its benchmark:

At the end of the reporting period, the Government Pension Fund Global (GPFG) had NOK11.66trn (€1.21trn) of assets in total, according to the report, though the rolling figure on NBIM’s website shows the value has fallen back somewhat since then to NOK11.43trn.

Three of the GPFG’s four asset classes ended March with negative returns while one – unlisted real estate – produced a positive 4.1% return, according to the statement.

Equity investments, which made up 70.9% of the fund at the end of March, finished the quarter with a 5.2% loss, while fixed income investments had a -4.8% return.

The GPFG’s allocation to unlisted renewable infrastructure assets – the asset class most recently added to the fund’s composition making up just 0.1% of it at the end of March – suffered a -3.3% return.

NBIM said the GPFG’s return was 0.66 percentage points stronger than the return on the benchmark index.

Anyway, the point is even though GPFG is just dipping its toes in unlisted real estate (2.5% is a very small allocation relative to its large global peers which have 10% or more but it’s a much bigger fund), it’s such a huge fund that it makes it an ideal long-term partner for Oxford and other Canadian pension funds looking for like minded partners.

With this joint venture, GPFG is now a proud owner of an iconic European asset and it has a great partner who will be managing this asset to improve it over time:

Oxford’s €200 million redevelopment plan aims to place a greater focus on human-centric aspects of the campus including optimising workplaces for health and wellbeing, world-class retail and future-focused amenities. This will be complemented by an annual programme of events in sport, culture and entertainment that will be accessible not only for the Sony Center office community, but also for Berliners and visitors. Major construction activity has begun, with the majority of the redevelopment expected to complete by the end of 2023. 

In total, around 50,000 sqm of office space will be upgraded, becoming workplaces of the future. While the expanded food and beverage offering will feature Berlin providers as well as global restaurateurs. A new three-floor food hall from London food incubator KERB will showcase and develop the very best of the Berlin independent food and drink scene, further underlining the Sony Center’s reputation as a hub for exchange and community.

Oxford is an outstanding real estate firm. In fact, today I was reading how it won Global Real Estate Investor of the Year at the IPE Real Estate Global Conference & Awards 2022 and other awards:

I foresee this joint venture being one of many more in the future and wouldn't be surprised if other large Canadian real estate managers strike deals with GPFG. 

In my opinion, Norway's oil fund has a lot of good things (governance, transparency and it is very well managed) but it needs a complete rethink of its asset allocation to include more private markets across the board (infrastructure, private equity, private debt, real estate, natural resources).

I know, they have academic experts guiding them on their asset allocation but this is my opinion, Norway's oil fund needs to move more toward the Canada model and I know the right people that can help them do this (there is so much potential if you hire the right people to do this properly).

Lastly, you can see all of GPFG's unlisted real estate investments here. Like I said, they're extremely transparent on all their investments.

Alright, let me wrap it up there, this is a great joint venture for Oxford and GPFG. 

Below, a preview of Berlin's iconic Sony Center.

Also, GPFG's CEO Nicolai Tangen is having in-depth interviews with leaders of some of the largest companies in the world, such as BPs Bernard Looney, Mary Barra, CEO of General Motors and David Solomon, CEO of Goldman Sachs. You will get to know the leader, their strategy, and how they interact with a large investors like GPFG. You can listen to these podcasts here. 

Lastly, an older interview where Oxford President Michael Turner spoke with BNN Bloomberg's Amanda Lang about the state of the business and the Canadian economy.

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