ING is exporting its real estate expertise

The Dutch financial giant ING is expanding into new markets abroad. By Fer Dijkstra.

ING’s acquisition of the collapsed British merchant bank Barings in early 1995 did much to lift the Dutch-based financial services group’s international profile. It also boosted awareness of the ING name in the property world. Tucked away in ING’s massive balance sheet – total assets are over NFl 480bn – is NFl 10bn worth of real estate. As this excludes ING’s property financing and fund management activities, as well as developments in progress, the figure considerably underestimates the group’s exposure to the sector.

ING’s insurance and banking arms have historically been heavily involved in real estate. Since the various property-related activities were reorganised under the ING Real Estate banner in late 1995, they have gained a stronger identify and focus; this is aimed at rapid expansion, particularly internationally. The property division now integrates investment, development, financing and fund management. ING Real Estate’s unique position as an integrated, internationally active property operation was recognised when the group’s chairman, Dr. Jacobs was named “MIPIM Man of the Year” at this year’s annual gathering of the property industry in Cannes.

Under chairman Jan Doets, the ING Real Estate board co-ordinates five business units employing a staff of 375. Two are exclusively dedicated to development and investment in the Netherlands.

The development unit is the leading shopping centre developer in Holland. It is also increasingly active in complex city-centre restructuring schemes involving a wide range of urban land uses. Like the other parts of the real estate group, it seizes on opportunities that come from being part of a major financial institution. A prime example is the development and letting of 13 court buildings in different parts of the Netherlands for the Dutch government. This Dutch version of the UK’s Private Finance Initiative has a value of around NFl 1.1bn.

In principle, projects undertaken by the development subsidiary are sold to third parties rather than to ING companies. This is to avoid giving the impression that only the less attractive developments are offered to the wider investment market. As a result, ING RE’s investment unit operates independently from the development subsidiary. The former invests in Dutch commercial and residential property on behalf of ING’s insurance arm and has property assets of NFl 6bn.

ING Real Estate Finance is the property financing unit, with outstanding loans of over NFl 4.7bn.

It lends both to third parties and group companies. Although it is primarily active within the Netherlands, this business unit also supports ING’s development activities outside the home country.

These three units cover ING’s traditional, core property businesses, which operate in relatively mature markets. ING’s ambitions for expansion rely heavily on growing the two other units – fund management and international development and investment.

The fund management arm is currently responsible for Winkelfonds Nederland, a NFl 530m fund which holds 10 Dutch shopping centres developed by ING. Shares in the fund have been placed with international investors, with ING retaining a 10% stake.

In addition, several new funds will be launched. One is a car park fund, Parkeerfonds Nederland, set up jointly with developer Ruijters. It will kick off with some 20,000 spaces and an investment value of NFl200m; it is expected to be launched in 1998. Residential investments in the USA will be bundled into a real estate investment trust, US Residential, initially planned to be worth $100m. An Asian property investment and a European retail fund are also in the pipeline. Further development of the business will cater for Dutch institutional investors’ increased demand for indirect property vehicles. ING also aims to widen the market for its fund management services by targeting private and international investors.

Another important focus of expansion is ING Real Estate International, which is reponsible for both development and investment outside the Netherlands. Headquartered in The Hague, it has local offices in Washington, London, Paris, Brussels, Beijing and Madrid. Others are planned in Singapore.

There are a broad range of activities, with development spearheading the drive for international expansion. As within Holland, the retail sector is the favoured one in the rest of Europe. As a rule, ING seeks joint ventures with experienced local partners. This approach reduces the risks that come from operating in new markets.

All the major European markets are covered. In the UK, ING will be developing a 40,000m2 extension to the central shopping area of Milton Keynes, in a joint venture with London & Easter Properties; the development agreement has been signed with landowner CNT. In Spain and Portugal joint venture shopping centres have been completed in cities like Porto, Santander and Barcelona. Recently the company took a 50% stake in the development of the 35,000 m2 Gran Via centre in Alicante.

Although the introduction of a common currency will reinforce the European Union countries as ING’s main target markets, selected development projects have also been secured in Eastern Europe. Here, ING is focusing on offices because of the shortage of modern accommodation in this sector.

In Warsaw, a mixed office/ residential and retail project is nearing completion and ING has also just teamed up with Samsung for a 170,000 m2 office and retail scheme. Office buildings have been completed in Hungary and the Czech Republic, where ING is also involved in developing a shopping centre in Prague.

A new area of activity is being opened up in Southeast Asia. Initially driven by ING’s desire to establish a foothold in China’s emerging insurance and banking markets, the move also identified considerable scope for property development. The company is already undertaking a complex of 690 apartments in Wanjing, near Beijing, in partnership with Chinese authorities. Talks are also progressing on a number of other projects to follow on from this pilot. A new office will be opened in Singapore to cover other Far Eastern markets.

In addition to development, ING’s international investment is progressing apace. In its main markets, the domestic one and the USA, the group already has significant exposure to residential property. This is now to be reproduced elsewhere. In the UK, ING was in the running to acquire the Ministry of Defence’s married quarters, a portfolio of 57,000 units which went to a consortium headed by Nomura. Less spectacularly, ING is now is building up a UK residential presence via a series of smaller acquisitions. Purchases are also planned in Belgium, and in Paris, a residential property is being developed. In the commercial sector, ING recently bought a 50% stake in Sonae’s 122,000 m2 Colombo shopping centre in Lisbon.

At ING there is no talk of moving out of direct into indirect property investments, currently the fashion among fellow institutional investors in Holland. On the contrary: ING is confident that it has the scale and skills to make a success of its activities. It is keen to perform these tasks on behalf of smaller institutional and private investors, and to expand investment on its own account.

ING’s commitment to property is not only based on diversification, but also on performance. Because the values of other assets have been rising, property’s share of the portfolio has recently been dropping. Given current low interest rates and in particular, falling yields on fixed interest investments – together with property’s favourable yield/security ratio – ING considers it is the right time to lift property’s percentage to 10% from under 7% of total assets. At present, offices account for 50% of real estate holdings, followed by residential (30%) and retail (20%). The longer term aim is to have the portfolio equally split among the three main sectors.

With limited scope for expansion in the Dutch market, the share of property invested outside the Netherlands will grow from 20% to 40% over the next few years. Add to this more development abroad and it is clear that ING will be an increasingly active player in the main international markets.

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