FGH Real Estate Report 2009: ‘Focussing on Bricks and Mortar’
The value of bricks and mortar is again of decisive importance

In the years of great prosperity, the underlying value of bricks and mortar was sometimes lost sight of; however, we are now returning to bricks and mortar, and risk will again have a price. These are the key conclusions from the 2009 FGH Real Estate Report. This annual market report provides a complete overview of the trends and developments in the commercial real estate market and also presents FGH Bank’s vision. On Tuesday 10 March, Mr. A. Wolfsen, Mayor of Utrecht, accepted the first copy of the report.

The enormous increase in the investment volume in recent years was primarily reflected by the size of the transactions and the underlying real estate portfolios. Deals of more than a one billion euros were unexceptional, even for Dutch real estate portfolios, but this trend has come to an end for the time being. In effect, only portfolios that sufficiently qualify purely on the basis of the quality of the real estate remain marketable under present market circumstances.

Recent market developments have made one thing crystal clear: risk will again have a price. As a result, investments in real estate will be more critically assessed by investors, developers and, not least of all, financiers themselves.

The bubble has thereby disappeared from the market and quick profits from transactions of a highly speculative nature are thus no longer possible. Consequently, the real estate market is returning to basics, the long-term equilibrium.

In the spell of the crisis
The Dutch real estate market is unmistakeably experiencing the detrimental consequences of the credit crisis. The value of commercial real estate is falling, and the funding of new projects has become more problematic. Furthermore, the development sector is noticing that sales of new buildings are becoming more difficult. The investment volume in Dutch real estate fell substantially last year, and the number of transactions also clearly declined. This was due in the first place to the substantial fall in the availability of finance capital. As a result, investments funded with loan capital have become much more difficult, and various foreign real estate financiers have also withdrawn from the Dutch market, leading to a further decline in the available capital. In the second place, the private equity funds and hedge funds have barely been active on the real estate market since last year. The recovery of these specific markets is an illusion, according to FGH Bank, certainly in the short term.

Damping effect on real estate prices ensures stability
In comparison with the fall in prices on the stock markets, real estate has made a ‘soft landing’, however, proving once again that real estate should be included as a long-term investment in a broadly composed investment portfolio.

From an international perspective, despite the slowdown in growth, Dutch real estate prices still remain reasonably steady in value. The excesses, both in times of economic prosperity and adversity, are apparently damped in the Dutch situation. An important explanation for this is that not only the rents but also the initial yields have developed less extremely than in many other (larger) countries. Moreover, the market is transparent, both in terms of transactions and regulations.

Management Board Chairman Peter Keur: “The market is currently going through a difficult period, but there is also sufficient scope to pull through. This will require the involvement of all parties and the willingness to commit to a common goal: ensuring the continuity of the real estate market. Also, FGH Bank’s focus will be directed towards this in the coming period; how do we get through the difficult times together?”

FGH Bank
FGH Bank is part of the Rabo Real Estate Group and specialises in financing commercial real estate. As a result, the bank has a great deal of expertise in this particular area. Clients are primarily project developers and professional real estate investors. With the head office based in Utrecht and branches located throughout the important real estate regions, FGH Bank has nationwide representation and possesses a strong bond with local markets. The bank also has a branch in Frankfurt.