Domestic and German banks are bringing greater liquidity to the Netherlands real estate market, writes Daniel Cunningham
The flow of finance into the Netherlands real estate market has increased, although lenders remain selective.
Back in 2013, opportunistic investors targeted Dutch property and the finance that followed reflected a willingness to embrace risk. The country was recovering from a deep recession and office vacancy was particularly high.
Today, sectors including residential have seen recovery. Domestic banks are lending again and German banks are also active. There remains a wide gap between prime and secondary property though, meaning that high-margin business is also available to lenders.
“It’s a very competitive market,” says Robert-Jan Peters, senior director at CBRE Capital Advisors in the Netherlands. “Finance is available for all strategies, from core to value-add and opportunistic. However, there is not much liquidity for smaller deals including granular office portfolios, or for development.”
During 2015, CBRE Research recorded €11.6 billion of investment across all sectors, the highest annual total since 2007.
Core investors are active, especially in residential. In March, Patrizia Immobilien bought 1,275 apartments across 27 buildings, mainly in the Randstad conurbation, for €150 million. Value-add capital also remains active. Also in March, Marathon Asset Management bought the Maxima portfolio of 14 offices from Credit Suisse Asset Management for €371 million.
There is also evidence of early investors exiting and selling to longer-term investors. Last October, Goldman Sachs and Dutch real estate firm OVG sold the Cobra portfolio of seven offices to listed domestic investor NSI. The portfolio was bought from CBRE Global Investors in 2013. Lone Star is also in the process of selling its Dutch holdings.
A more diverse investment scene has encouraged a more diverse spectrum of lenders and better lending terms for borrowers.
Hugh Fraser, head of capital markets at M7 Real Estate, has witnessed the increase in the availability of finance in recent years. M7 was an early mover into the Netherlands, focussing on industrial stock at first. “When we first came to the market in November 2013 there was no liquidity whatsoever from the Dutch banks or the German lenders for opportunistic strategies,” explains Fraser.
Starwood financed M7’s early portfolio with 70 percent loan-to-value (LTV) debt at a cost of around 600 basis points over three-month Euribor. Subsequent deals saw the pricing on the enlarged portfolio creep down to 550 bps in mid-2014 and 420 bps by the end of that year. Also during 2014, M7 borrowed from Deutsche Bank at a margin of 250 bps, in a loan which was subsequently securitised.
“Margins came in significantly,” explains Fraser. “At that stage, CMBS was a viable option for investment banks.”
Domestic banks have returned to real estate in the last two years. ING Real Estate Finance has around €14 billion of exposure in the Netherlands. ABN Amro has a smaller loan book but is increasing its market share. FGH Bank, which is part of Rabo Real Estate Group, is being integrated into Rabobank and has a large real estate book.
Arie Hubers, managing director for corporate clients at ING in Amsterdam says: “In general, we are open for business in the Netherlands, but growth is focussed on the quality of the assets and the sustainability of our portfolio. Because we have a large exposure in the Netherlands we can be quite picky, so the majority of our business is refinancing deals.”
Last October, ING and ABN Amro jointly provided €240 million to finance the regional office and industrial portfolio of Merin, formerly UniInvest. The once struggling portfolio had been significantly asset managed and the two banks were able to syndicate €100 million of the debt to Dutch private bank NIBC, UK debt fund Aalto Invest and Austrian mortgage bank HypoNOE.
Of the German banks, Deutsche Hypo and Berlin Hyp both have longstanding offices in Amsterdam and have been consistent lenders. Helaba, Deutsche Pfandbriefbank (pbb) and Aareal have all ramped up their business in the Netherlands in a bid to take advantage of higher margins than those found in Germany.
Last year, Deutsche Hypo underwrote a €331 million loan to finance Patrizia’s €578 million acquisition of the Project Wilhemina portfolio of 137 apartment blocks in the Netherlands. A third of the deal was syndicated to pbb, while ING also came in for a third. In January, Deutsche Hypo and ING teamed up to provide €160 million to finance the same sponsor’s purchase of a portfolio of 107 retail, 35 residential and three office buildings, mainly located in the Randstad.
“During the crisis, we could pitch on deals which we thought were low risk, as the Dutch banks were keeping a very low profile,” explains Wouter de Bever, Amsterdam-based director with Deutsche Hypo, “so we grew, despite the crisis. Our Dutch book has grown from €500 million in 2008 to €1.5 billion today.
“When we started lending here, the emphasis was on offices. Now, our main target is residential and prime retail. There is always a shortage of housing, especially in the Randstad. There is still yield compression in residential and most portfolios are owned by institutional investors,” de Bever added.
Other active lenders include foreign insurers such as Pricoa, MetLife and Allianz. Domestic insurers have been largely absent with the exception of ING’s NN Group account. Investment banks have been active since the early wave of opportunistic investment, with Deutsche Bank and Bank of America Merrill Lynch both securitising Dutch debt, before the lull in European CMBS. Deutsche Bank also has a Dutch lending presence following its 2010 purchase of part of ABN Amro.
CBRE’s Peters argues that real estate finance is available across the spectrum. Although there is limited liquidity below €20 million, lender interest gradually grows as lot sizes increase, with the €50-100 million size band particularly well-served, Peters says. Bank syndicates and investment banks are available to finance larger deals, he adds.
Increased competition has played a role in driving down pricing, with prime margins noted as low as 125 bps. Some estimate that prime residential, at around 60 percent leverage, is priced in the region of 140-150 bps. Core-plus and secondary margins are in the order of 200-250 bps, some say, rising to 300-350 bps for granular portfolios of offices or light industrial units.
“Margins have flattened out,” says Peters. “We saw a very aggressive drop in pricing beginning at the end of last summer, with prime margins continuing to dive towards the end of the year. However, there has not been a further significant drop.”
ING’s Huber agrees: “Pricing at the lower end of the scale is comparable to UK margins. However, pricing is more or less stabilising following the downward trend up to six months ago.”
Is Propertize NPL a White Swan event?
Hopes are high that the Netherlands non- performing loan (NPL) sale market will take flight in 2016. According to CBRE Research, 2015 was a pivotal year as deleveraging programmes began; €2.2 billion of CRE and residential loans were sold, up 12 percent from 2014 and 186 percent from 2013.
The market is focussed on one major deal: Project Swan. The €5.5 billion portfolio is the entire remaining book of Dutch bad bank Propertize and is by far the largest NPL opportunity in the Netherlands to date. The largest European loan buyers including Lone Star and Cerberus are understood to be bidding.
However, not all are convinced that Swan will signal a deluge of Dutch NPL sales. ING’s Arie Huber says: “A lot of firms have attracted capital to invest in NPLs in the Netherlands, but there is less supply than they thought.”
ING Group, FGH Bank and Propertize were among last year’s sellers, although many portfolios had relatively small face-values in the region of €100 million. The larger deals, such as Van Lanschot’s €400 million Project Lucas sale to Cerberus last August look small compared to Irish and Spanish NPL trades. Sponsor-led discounted pay-offs with private equity backing have accounted for substantial real estate deleveraging rather than large-scale debt sales in auction processes. Deutsche Hypo’s Wouter de Bever says that, unlike banks in the UK, Dutch lenders have not been willing to take losses on legacy loans, preferring instead to manage their balance sheets over time.
“Taking losses is not in the genes of continental bankers,” says de Bever. “If they dispose of NPLs it will be under the radar.”