Market risk overall

From a market perspective, last year was marked by significant geo-political, financial, social and environmental turbulence. As we emerged from the worst of the Covid-19 pandemic, and economies were showing clear signs of recovery, we were faced with Russia’s invasion of Ukraine. In addition to to the human tragedy and economic uncertainty this created, it also ignited high levels of inflation. The response of the US Federal resertve, the ECB and other central banks has been a series of rapid and significant interest rate rises, pushing the world’s economies towards recession. Consumer and investor confidence deteriorated rapidly, and so, consequently, did asset pricing. The Fund evaluates these changed market circumstances on a continuous basis, and takes them into account, both in the daily management of the Fund and in the investment and divestment decision processes.

Valuation risk

At the end of 2021, appraisers added uncertainty clauses to the valuations of two parking garages (Olympic Stadium and WTC Rotterdam). At the end of the first quarter of 2022, these clauses were removed and no material valuation risks occured for the remainder of the year.

Credit risk

Within the area of credit risk, no material risks occurred in 2022.

Liquidity risk

Within the area of liquidity risk, no material risks occurred in 2022.

Business risk

Business environment risk

The Dutch government announced that as of 1 January 2025 Fiscal Investment Institutions (FIIs) may no longer invest in directly held real estate, the so called real estate measure. Although this measure will take effect as from 1 January 2025, the Fund has been restructured into a ‘closed’ Fund for Mutual Account (FMA, ‘FGR in Dutch) as per 1 January 2023. Given its fiscal transparency, the ‘closed’ FMA prevents (double) taxation for investors and as such is the most appropriate alternative for an FII. For this reason, the Dutch government recently confirmed that the ‘closed’ FMA must remain a viable alternative for institutional investors (such as pension funds) that, after the real estate measure, may no longer use the FII for their investments in directly held Dutch real estate.

At the moment of restructuring, bpfBOUW held more than 90% of the Fund shares and therefore the conversion did not trigger real estate transfer tax at the level of bpfBOUW. 

Increase in rate real estate transfer tax (RETT) rate

As per 1 January 2023, the RETT rate for investors was increased to 10.4% (was 8%). The exact impact on the real estate market is not yet clear.  

ESG risk

Within the area of ESG risk, no material risks occurred in 2022.

Tax risk

The Dutch Tax Authorities (DTA) formally approved Bouwinvest’s revised transfer pricing methodology for redevelopment projects and confirmed the outcome of this methodology for the redevelopment of Move and The Garage. Consequently, the Fund is due no corporate income tax for this redevelopment. Bouwinvest filed revised corporate income tax returns for 2019 and this file has been closed.

Operational risk

In 2020, a court decision was made in a dispute with the co-owner of Olympic Stadium Amsterdam, Stichting Olympisch Stadion Amsterdam, about the division of costs for the repair of concrete damage. In 2021, the Foundation lodged an appeal and a request for an expert procedure was initiated. A court verdict will not be forthcoming before the end of 2023.

The Fund has devoted special attention to the asset Hourglass after a small section of the façade fell down in September 2021. Several temporary safety measures were taken at that time. In the fourth quarter of 2022, all security measures were removed, as the experts declared the façade to be safe for now. Experts have recommended prevention measures. As the construction firm has not yet carried out these measures, the façade will be checked again after the winter period for safety reasons. Further research and tests will be carried out to to discover the cause and to realise a structural solution.

Furthermore, not all aftercare points have been resolved since commissioning, the most important of which relate to leakages, pollution due to algae formation and the sewage system. Based on the nuisance experienced by tenants up to and including the end of 2022, a claim has been submitted to the Fund. This claim will be dealt with in 2023 hence no provision is accounted for in 2022.

For the façade issue and follow-up of the aftercare points, the Fund has served both the construction company and developer with a notice of default and the claim has been transferred to them. In addition, the Fund is checking whether this is covered by the liability insurance. In the meantime, a damage expert from the building insurance company is looking into reimbursing the costs incurred for investigations and security.

Compliance risk

Within the area of compliance risk, no material risks occurred in 2022.

There were 21 data breaches with respect to the processing of personal information. Four of these were reported to the regulator, the Dutch Data Protection Agency. Some of the data breaches occurred at processors, such as property managers. The data breaches were caused by, amongst others, incorrectly sent e-mails. All data breaches were investigated and, where necessary, additional control measures were taken. In cases where this was necessary, Bouwinvest has informed the data subjects.