One of IVG Immobilien's main assets in the Netherlands, the Dutch headquarters of auditing firm KPMG, is at the centre of a fraud investigation relating to the development of the building.

One of IVG Immobilien's main assets in the Netherlands, the Dutch headquarters of auditing firm KPMG, is at the centre of a fraud investigation relating to the development of the building.

Situated in the Amsterdam suburb Amstelveen, the complex - described as impressive or pretentious, depending on the commentator - has been controversial since KPMG decided to co-develop it in the mid-2000s near its former 47,000 m2 headquarters. That older building remains vacant to this day and is seen by many as a potent symbol of over-build in the Dutch office sector during the boom years.

KPMG sold the new complex to IVG's closed-end EuroSelect 17 - Amstelveen in 2009 for about €250 mln. The building was catapulted back into the headlines recently following the decision by the Dutch authorities to open an investigation into alleged tax evasion linked to the joint venture, involving KPMG, that developed the building. IVG Immobilien - which manages of 73 properties in the Netherlands - was not involved in the development of the new KPMG headquarters.

On 12 May Jurgen van Breukelen, chairman of KPMG's Dutch affiliate, stepped down amid a series of controversies that have hit the firm recently, topped by the development fraud allegations. He said he was leaving as the interests of the company, staff and clients has been damaged and that confidence needed to be restored. KPMG later denied there was a direct link between his resignation and the fraud investigation.

No charges have been filed, but in April the Dutch prosecutor's office said it was looking into allegations that the development joint venture filed false invoices to evade millions of euros of tax. It has been alleged KPMG partners earned almost €16 mln from the process.

VACANT SPACE
The tax probe aside, claims by some observers from the outset that the new complex in Amstelveen would be too big for KPMG's requirements seem to have been justified.

PropertyNL - PropertyEU's Dutch-language sister publication - revealed earlier this week that KPMG is coming under increasing pressure to lease out some of the space to other tenants to reduce the auditing firm's costs.

Shortly afterwards, KPMG confirmed that it was looking to sub-let 7,000 m2 of space. In a statement, the firm said: 'The most important reasons are increasing mobility, changing work space norms and office cost savings. KPMG wants to utilise work spaces and square metres more effectively. Other large companies work with a norm of 0.7% of work space per full-time equivalent (FTE). KPMG strives to achieve this norm, while the actual situation up to now has been above the norm with 1 work place per FTE.'

Responding to reports in the Dutch media that it was looking into sub-letting the entire building, KPMG said such a step was 'not currently on the agenda'.

Nevertheless, Dutch real estate sources have told PropertyNL that the 58,000 m2 office complex is on the 'generous side' in terms of space as KPMG expects to slim down its employee count over the coming years. Revenues and employment levels in the Dutch accountancy sector have been declining over the last five years due to a number of structural factors, including increasing digitalisation, automation and standardisation.

KPMG has not been immune to this trend. In its annual report for the fiscal year to end-September 2013, the firm reported that the number of full-time equivalent (FTE) staff in the Netherlands dropped by 146, or 4.5%, to 3,131. KPMG said that number would decline further in the coming years due to the outsourcing of back-office services to India.

BREAK OPTION
For IVG Immobilien, the 2009 acquisition of a brand new property leased to a major accountancy firm on a 15-year contract must have appeared safe as houses. But if KPMG intends to shrink its leased space it will have the best opportunity in four years time as the lease contract contains a break option for 20,000 m2 after 10 years, or 2019.

However, that would appear easier said than done. Finding a new tenant for 7,000 m2, let alone 20,000 m2 or the full 58,000 m2 of a building tainted by a fraud investigation now or in the next few years would likely require a Herculean effort.

The situation is exacerbated in many commentators' eyes by the fact that KPMG's former headquarters, situated a short distance away, remains empty.

The old KPMG building has been rebranded by its owner CRI as 'Ten Thirty' but no new tenants have come into the picture in the last four to five years since KPMG moved out. Amstelveen's municipal authorities reportedly want to tackle the thorn in the side of the local office market by investigating the possibility of legally compelling CRI to convert the property for another use.

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