Sponsored by ING Real Estate Finance.
The real estate finance division of Dutch bank ING was voted Lender of the Year: Benelux at the Real Estate Capital Awards 2019. The bank completed 46 property lending deals in its home region last year, with a total loan amount of circa €1.2 billion and a final take of around €825 million.
Last year’s notable deals included a €150 million loan, alongside German bank pbb Deutsche Pfandbriefbank, to finance the EDGE Amsterdam West office scheme in the Dutch capital, and a €120 million loan to US investment manager Harbert Management Corporation and Dutch investor Sectie5 for the Project Spark retail portfolio.
Arie Hubers, managing director at ING Real Estate Finance, tells Real Estate Capital that, with more international investors entering the fray, Benelux is an interest place for a lender to be.
Was Benelux a growth area for you in 2019?
Although we did not have a specific target for Benelux, we grew our lending book in the region last year by sourcing several strong financing deals. By the end of the year, our portfolio had between 5 and 10 percent more exposure to the region.
There is something of a client overlap across Benelux for ING, but we have teams located in the Netherlands, Belgium and Luxembourg which cooperate closely. This has allowed us to grasp opportunities when they have arisen. It is important to remember that many international investors still see Benelux as one individual market, rather than a region comprised of three markets.
From a transaction perspective, there is clearly more emphasis on the Netherlands because it is a bigger market than Belgium and Luxembourg. As well as having more liquidity, the Netherlands also attracts more international attention. Over the last few years we have seen more and more private equity firms and value-add investors enter the market, recently followed by more long-term investors.
How far advanced in its real estate cycle is the Netherlands?
It is a difficult question to answer, but what we can say with certainty is that yields are historically low. Yields in Amsterdam are now more comparable to those found in London or Paris than was the case a few years ago. The effect of this is that investors – which are always looking for a market where higher yields are achievable – are now also looking to move beyond Amsterdam.
However, it seems unlikely that yields will decrease much further, although the spread between property yields and government bonds here is historically wide.
How do loan margins in the Netherlands compare with the rest of Europe?
We see different types of lenders and transactions in the Netherlands. German pfandbrief banks, for example, are attracted to the market because it is a neighbouring country with a solid legal structure. They tend to operate in the low-risk, low-margin space, somewhere below 100 basis points.
At the other end of the spectrum, we also see higher loan-to-value transactions, with retail as a collateral – which is not the flavour of the month. In that area, we have seen margins reach 200-225bps. For most senior lenders, pricing tends to be somewhere in between. For the parts of the market in which senior lenders, such as ING, are active, margins are between 125bps and 200bps.
Does Belgium generate strong business for a lender like ING?
There are two things to consider about Belgium. The first is that its local banking landscape is a bit more driven by excess funding through savings deposits than that of the Netherlands. So, on the lending side, you could say the landscape is slightly more competitive. The second is that real estate investment trusts have a bigger market share in Belgium than in the Netherlands, and typically opt for unsecured financing, partly due to the fact that the registration costs of secured mortgages are much more expensive.
So, the market is very competitive among Belgian banks but less accessible for international banks, which prefer more secured loan structures.
Which borrowers are most active in Benelux?
In the Netherlands, more and more international players are entering the market – particularly the residential market. For instance, last year we saw Swedish real estate group Heimstaden acquire a Dutch portfolio for €1.5 billion. Private vehicles, backed by institutional pension money, are also very active in the market.
Within my own team at ING, I would say more than half of our client base is non-Dutch. Our focus is on institutional and international players.
Which do you see as the growth sectors in the Benelux market?
Logistics has certainly become a very mature investment class. The demand for e-commerce in the Netherlands is very strong, due to high internet penetration and its geographical location.
Residential is also a growing sector. We are seeing a number of different types of investor buying different types of product within that market. The private rental sector, in particular, is really expanding in the Netherlands and attracting a lot of international capital.
How much of a development financing opportunity does the Benelux market represent for ING?
From an historical perspective, ING has not been into development finance to a large degree, as we see it as carrying much more technical risk than standing
That said, we have seen in the residential market – and to a certain extent, the logistics market – that long-term players are finding it difficult to acquire products and so they move up the value chain. That is a type of client we do support with development financing. Such clients are willing and able to bring in a bit more equity capital across both the construction phase and also the investment phase, making the market risk lower for us.