Corem's Tax-Driven US Exit and the Swedish Real Estate Play

Corem Property Group's recent decision to divest its Manhattan office asset, 28&7, for approximately SEK 770 million marks a pivotal step in its broader strategy to pivot away from the U.S. real estate market. While the sale carries a net profit hit of -SEK 215 million due to market headwinds, the move underscores a deeper calculus: leveraging Sweden's tax framework to optimize capital allocation and focus on its core markets. This strategic realignment offers critical lessons for investors navigating global real estate cycles.

A Tax-Smart Exit Strategy

Corem's decision to offload U.S. assets isn't merely about chasing higher returns in Sweden. It's a masterclass in tax optimization. By structuring the sale of 28&7 as a transfer of shares in its U.S. holding entity—not the property itself—Corem avoids Sweden's 4.25% stamp duty and capital gains tax on direct real estate sales. Under Sweden's Participation Exemption Regime, profits from share sales in unlisted companies are tax-free for corporate shareholders, a principle Corem has applied consistently across its portfolio.

This tax efficiency is amplified by Corem's broader divestment spree: over SEK 3.5 billion in underlying property value sold in the first half of 2025, with plans to reach SEK 5 billion by year-end. The interim report reveals that 14 properties, including Halmstad's portfolio, were offloaded in Q1 alone. While the net profit effect remains negative (-SEK 135 million), the freed-up capital is being reinvested in Swedish urban centers like Stockholm, Kista, and Copenhagen, where demand for office and mixed-use spaces is resilient.

Portfolio Realignment: Focus on Swedish Stability

Corem's pivot reflects a broader truth: the U.S. real estate market is grappling with structural challenges. Rising production costs, delayed project timelines, and oversupply in tech hubs like Manhattan have dimmed returns. Meanwhile, Sweden's property market—particularly in its major cities—benefits from strong tenant demand, low vacancy rates, and government-backed green incentives.

The company's interim report highlights success in its home markets. Leasing activity in Stockholm and Kista remains robust, with fintech and AI firms anchoring occupancy at its U.S. projects. Even in New York, 28&7 was fully leased during Q1, suggesting Corem's tenant selection criteria are sound—but not enough to justify long-term U.S. exposure.

Why Investors Should Take Note

For investors, Corem's strategy offers two compelling angles:
1. Tax Efficiency as a Competitive Edge: Corem's use of Sweden's corporate tax structure to minimize liabilities creates a capital-light model, allowing it to recycle funds into higher-growth opportunities. This contrasts with U.S. peers facing 30% capital gains taxes on non-residential sales.
2. Geographic Focus in a Fragmented Market: By consolidating in Swedish cities with strong institutional demand (e.g., Stockholm's tech corridor, Kista's data centers), Corem reduces exposure to macroeconomic volatility.

Risks and Considerations

While the strategy is prudent, risks remain. A prolonged downturn in Swedish office demand—or regulatory shifts, such as reforms to the Participation Exemption—could undermine Corem's plans. Investors should monitor its debt profile: though the company redeemed a SEK 1.4 billion bond and issued SEK 1 billion in green bonds to lower interest costs, further refinancing needs could test liquidity.

Conclusion: A Model for Global Real Estate Investors

Corem's move is a blueprint for real estate firms in uncertain times. By prioritizing tax-smart exits and geographic focus, it positions itself to capitalize on Sweden's structural strengths while avoiding U.S. headwinds. For investors, this signals an opportunity: Corem's stock (COREM.ST) could benefit from reduced debt, stabilized cash flows, and a leaner, more targeted portfolio.

In an era where tax efficiency and market selection define success, Corem's shift isn't just a tactical move—it's a strategic repositioning for the next cycle.

Investors should evaluate whether Corem's Swedish focus aligns with their risk tolerance and growth expectations. For those seeking stable, tax-optimized real estate exposure, the company's pivot may prove prescient.