More distress ahead in Dutch office market, says Kempen

More distressed office portfolios are expected to come onto the market in the Netherlands, following the recent sales of the Uni-Invest and Orange portfolios, according to a research report issued by Kempen & Co.

The merchant bank said the Dutch office sector remains 'in dire straits' due to the high vacancy levels and expected write-downs,. As much as EUR 6 bn bn of CMBS debt is expected to come to maturity by 2014.

Earlier this year the Uni-Invest office portfolio backing the troubled Opera Uni-Invest CMBS loan was sold to TPG and Patron Capital for a bargain price of EUR 360 mln, or a discount of 43%. The much smaller (EUR 50 mln), yet also distressed, Orange portfolio - owned by EPI Orange and managed by AEW Europe/Tristan Capital Partners - was sold somewhat later at a 30% discount.

'We believe these are not stand-alone cases and expect to see more cases of troubled CMBS's, mainly backed by Dutch office portfolios,' the bank's analysts wrote in a report.

The Tasman package, valued at some EUR 600 mln, as well as the bigger EUR 1.1 bn Fordgate portfolio are likely to follow in the footsteps of Uni-Invest, Kempen said, as their CMBS securitisation vehicles are already in default. Both portfolios were acquired at the peak of the market in 2006 and have so far seen write-downs of 40% and 45% respectively.

‘We expect a scenario similar to that seen at Uni-Invest,' Kempen said.

The Tasman portfolio was bought at the end of 2006 by Breevast and AIG in a EUR 1 bn deal financed by Credit Suisse. It comprises 99 offices across the Netherlands.

Fordgate, a UK-based private property company, acquired the EUR 2.2 bn Fordgate portfolio from German private bank Bankhaus Wölbern in 2007. Some 55% of the assets are located in the Netherlands.