FEATURE: Orange turns red

A staggering statistic emerged in July: the office vacancy rate in Amsterdam is running at 16.6 percent. That level might have fallen slightly from 17.5 percent six months ago, but it still means Amsterdam has one of the highest vacancy rates in the whole of Europe.

Some people argue the real vacancy rate is higher still – closer to 27 percent. For instance, over the summer, advisory group AOS Studley said Dutch vacancy rates were higher because more than six million square feet of space had been rented but actually was not being occupied as companies had reduced headcount. This was termed the ‘hidden’ office vacancy rate. 

Meanwhile, property adviser DTZ Zadelhoff says there still is a surplus of supply in the office market across the whole of the Netherlands. Indeed, in six months, that supply rose by 1.4 percent to 8 million square feet. A report by BNP Paribas for the fourth quarter of 2012 suggests that only Budapest, Dublin and Belgrade might have more vacancy now.

In fact, the main reason why vacancy rates recently have declined in Amsterdam is because of something called De Kantorenloods, a City Council decree introduced in 2006 to speed up the transformation of offices into other uses. For example, The Dam, the second largest vacant office in Amsterdam at 300,000 square feet, is being converted into a hotel, according to BNP Paribas Real Estate. The other reason for the falling figure is linked to the cancellation of several development projects. 

Sensing this ‘distress’, real estate opportunity and credit funds have been turning their attention to the Netherlands. Indeed, you could say that, for a nation whose famed football supporters wear orange, they are aware the color of the property market is red.  

Arien Van Heesen is a partner at Dutch law firm Boekel De Nerée, which acted for H.I.G. Capital on a recent Dutch real estate loan deal. Earlier this year, his firm opened up an office in London recognizing that opportunity funds based in Europe would grow interested in the Dutch property market. 

“It is an opportunistic market,” Van Heesen confirms. “What we see is that private equity firms are now buying loans as well as looking at properties in the Dutch market.”

Van Heesen notes that the Dutch market is not the first market at which opportunity funds are looking and that they are not necessarily familiar with it yet. Still, by his estimation, increased interest from foreign investors has occurred within the last six months. He adds that private equity firms have been looking at certain types of assets, including hotels, logistics and multi-let light industrial property.  

Commensurately, experts are reporting that the volume of distressed real estate deals is climbing. “We see a lot of loan sales,” Van Heesen says. “A lot of investors are trying to get to the bricks and mortar through the loans. That is not something you will see in the news, but it is going on.”

Loan sales previously had been slow to materialize in the Netherlands as banks and other lenders insisted they wouldn’t sell at a discount. Now, however, that attitude appears to have changed with loans being purchased from Dutch banks as well as foreign banks and investors at large discounts. 

Some of these loans have terms that expire soon and are not backed by the type of properties that are easy to refinance. This gives the buyer an opportunity to enforce their security and take the asset onto their own balance sheet.

Though interest levels in the Netherlands have rocketed over the past six months, a big clue that the market was yielding opportunity arrived in 2012. In a hugely publicised deal, Ivanhoe Cambridge, TPG Capital and Patron Capital gained ownership of Dutch property company Uni-Invest and its €634 million office portfolio after acquiring a loan in a soured securitized debt vehicle known as Opera Finance.

Earlier this year, an even more significant sign emerged. Out of the blue, Dutch Minister of Finance Jeroen Dijsselbloem announced the nationalization of Dutch bank SNS Reaal, which required €3.7 billion of state aid to stop it from buckling under the weight of property loans that once stood as high as €14 billion in 2009. “Nationalisation under the Invervention Act has become necessary because SNS Reaal finds itself in acute distress on account of its real estate problems,” he said in February.

That particular instance has led to some rancor. Investors that were wiped out by the nationalization have accused the Dutch central bank of acting unlawfully by demanding an immediate €1.8 billion capital increase in January. The dispute has reached the Dutch courts. 

In a more recent example still, The Blackstone Group reportedly is close to restructuring Multi Corporation, the Netherlands-based retail developer taken over by Morgan Stanley Real Estate Investing in 2006. Blackstone is said to have taken control of more than 90 percent of the developer’s €900 million of corporate debt. 

Given the current state of Dutch real estate, one can expect more private equity firms to take a look at the market – and more such deals to follow.