18 April 2023
Let's face it, 2022 was a tumultuous year. There was a lot happening on the world stage, but the Netherlands also saw it share of disruption. Economic dynamics have changed and these affect pretty much every market player, including Bouwinvest as a long-term investor. So how do Bouwinvest’s long-term objectives hold up under pressure from short-term disruptions? An interview with Christian Schouten, who is responsible for transaction management for the Dutch sector funds. “Operating in this complex market requires outstanding helmsmanship.”
This is not the first time Christian Schouten has experienced changing market conditions at Bouwinvest. He started as a development manager in 2007 and a year later the economy - and with it the real estate market – changed completely. At the time, Bouwinvest invested exclusively for bpfBOUW, the pension fund for the construction industry, with one clear goal: look beyond the crisis. As a result of this approach, Bouwinvest saw enormous growth in the years that followed, thanks to some well-timed investments. “By taking this approach, we also further strengthened our market position as a reliable and decisive long-term partner.”
Meanwhile, it is 2023 and Bouwinvest now has five sector funds and works for 36 pension funds, insurance firms and charities. Of course, these organisations are also closely monitoring developments at home and abroad and expect Bouwinvest to respond appropriately. Reason enough to ask Christian Schouten about his vision: what challenges is Bouwinvest currently facing? And will it once again manage to look beyond the crisis and meet its long-term objectives?
Bouwinvest and its funds are now operating in a changing environment. Why is that? And how does it affect Bouwinvest?
“We are operating a high inflation environment. This is partly due to the end of Covid-19-related measures, which created a lot of demand for goods and services. But the war in Ukraine has also had an impact, as the conflict led to a sharp increase in energy prices. In response to this, central banks raised interest rates to curb inflation. On the one hand, this affected pension funds, as they saw their equity and bond portfolios decline in value, while real estate retained its value. This led to an increase in the relative share of real estate in many pension fund portfolios. This is called the denominator effect and it put pressure on new commitments to real estate investments. On the other hand, the real estate market is also faced with rising material costs, staff shortages and increasing regulation, which is putting short-term pressure on the market. Meanwhile, we have also seen a decline in real estate values, which is in turn diminishing the impact of the denominator effect.”
You yourself experienced the previous economic and real estate crisis. Do you see any parallels?
“Just as it did back then, this most definitely does not mean we plan to sit back and wait. Bouwinvest is not battening down the hatches or waiting for the storm to blow over. Bouwinvest wants to take its responsibility, to the investors we work for, to the partners we work with and to society as a whole. We played our part back then, too, and the moment the first watery rays of sunshine appeared over the market, we were ready to invest right through the crisis. So of course we are trying to do the same again now.
But we will do so with a clear strategy. In the summer of 2022, we sold a portfolio of homes and recalculated some acquisitions. This was and is necessary to optimise our portfolio and anticipate on the changing market situation. In the market, this has created the impression among some that Bouwinvest was temporarily ceasing its investments, but nothing could be further from the truth. Right now, we still have healthy investment targets for residential, healthcare, retail, office and hotel real estate. After all, investors also committed another € 288 million in capital to our funds last year. However, Dutch pension funds have already invested a lot of capital in Dutch real estate, especially residential. To meet the major housing challenge we are facing right now, we can look specifically at foreign investors with a long-term focus.”
You have to give form and substance to your investment strategy in this context. How will you do that?
“Our commitment is still to do the right things in the right places, with a view to the long term. Bouwinvest’s long-term strategy is to invest in real estate in sustainable and liveable urban environments where people want to live, work and spend their leisure time long into the future. For example, the Bouwinvest Healthcare Fund recently invested in 108 care homes on the Houthavenkade in Zaandam, while the Office Fund invested in the De Zeven Provinciën office building in The Hague.
We also see great opportunities in investing in and making existing healthcare real estate sustainable. For example, through sale and leaseback arrangements with healthcare institutions. We are also looking into setting up a social impact strategy. As part of this, we are looking for more projects in the field of social real estate or housing for special target groups. This can be particularly interesting for local authorities and housing corporations: together we can investigate how we can have a very targeted impact in existing neighbourhoods and districts. This will give Bouwinvest the opportunity to make a real difference across the entire city.”
Bouwinvest works for 36 pension funds and other institutional investors. What ambitions are they setting for you at this time?
“We have been seeing this particular trend for some time: the emphasis on the social and environmental relevance of investments is increasing, also among our clients and other stakeholders. We have been responding to this for quite some time, for instance by focusing on the mid-rental segment, senior housing and care housing. The Bouwinvest Residential Fund and the Bouwinvest Healthcare Fund are recording good results on this front. In terms of sustainability, we set the bar very high; it’s not for nothing that Bouwinvest wants to be ‘Paris Proof’ earlier than internationally agreed.”
And of course you also have to deal with the other players in the real estate sector, such as the property developers from whom Bouwinvest acquires the properties.
“They are struggling with pretty much the same trends. For them, too, it’s a matter of making adjustments to make projects feasible. We are in constant dialogue with them on this front. Our approach is clear: we refuse to compromise on quality and sustainability. But we are also sending the message that we want to continue investing. That will require strong helmsmanship. And an open and honest discussion in which everyone puts their struggles on the table. Only together can we maintain the momentum; everyone will have to make some compromises. This also applies to the local authorities we are in talks with. They too can do a lot in terms of policy and housing programming. One example is the mid-rental policy: the central government has set national ambitions on this front and it is enshrined in its new Affordable Rent Act. We can live with the new law in principle, but we are advocating an integral vision. As one of the building blocks of government policy, the Affordable Rent Act must fit into the whole and help us all to realise the objectives for the entire housing market and a balanced composition for the country’s housing stock. The government needs to avoid the accumulation of regulations, for instance when local authorities add their own policies on top of national legislation. Our plea: let’s start from one national set of agreements. That will help create transparency and make it possible to speed things up.”
Are local authorities sensitive to such a message?
“I feel that they are. We were recently guests of the Eindhoven city council for a whole day, explaining how we operate and what we pay attention to. Those are very useful sessions. Both sides get a clear picture of each other’s ambitions and how we can realise them together. As part of this, we zoom in on specific neighbourhoods and projects. We can also share specific knowledge about the local office market, for instance. Together, we can make a difference and we are more than happy to use our knowledge and skills to do this. For instance, at Bouwinvest we have combined all our acquisition management in one team, enabling us to switch very quickly between our sector funds. This enables us to make the right investments in each municipality and for each project and area development.”