Denmark's biggest pension fund, ATP, and AXA Investment Management have partnered to invest in two hotels in Central London.
According to Bloomberg, Central London has become a tough place for investments. Director Michael Nielsen at the real estate investment unit of ATP, said that even veteran institutional investors find Central London a challenge when it comes to deals. Nielsen told Bloomberg, "The cheap price of money is pressing up prices. There are some markets where the initial yield is below 4 percent. That is not something we would do."
This is only the third time for $100 billion fund Copenhagen-based ATP to invest outside of Denmark without an intermediary or any third party. Moreover, the fund reportedly chooses to stay within euro areas because low interest increases the cost of currency hedges. ATP's pension obligations are denominated in the Danish krone that is attached to the euro, according to Bloomberg.
"The currency risk and the cost of hedging currencies is related to the interest rate, so with the current, very unusual levels that we have in many countries, it's very expensive to hedge, especially the U.S. dollar, the Swedish krona and the sterling," Nielsen added.
So what hotel in Central London did ATP and AXA Investment Management bought? Contributing $130 million each, the two companies bought the Club Quarters' hotels on Ludgate and Gracechurch. According to Nielsen, the two companies are selective and added that the pricing in London is "aggressive."
Amidst reports that companies are moving out of central London because of soaring property prices, office space shortage and rent increase, ATP and AXA Investment Management have investment in Central London. In another report, Deutsche Bank has also bought a piece of Central London £370 million or $537 million. The property is a building for Financial Conduct Authority.
