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Risk management

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Market risk

Valuation risk

In general, there are no material uncertainty clauses applicable caused by the Covid-19 pandemic as of 31 December 2021, except for two specific objects within the Funds’ portfolio. The parking garages WTC-Beursplein and Olympic Stadium Amsterdam have a strong operational character, with revenues largely generated by ticket sales from visitors. At the date of valuation, these parking garages face an unprecedented set of circumstances caused by Covid-19 and the lack of relevant/ sufficient market evidence on which the external appraiser can base their valuations. The valuation of both assets is therefore reported as being subject to a 'material uncertainty'.

Credit risk

Within the area of credit risk, no material risks occurred in 2021.

Liquidity risk

Within the area of liquidity risk, no material risks occurred in 2021.

Business risk

Business environment risk

In 2021, the Dutch Ministry of Finance started the evaluation of the Fiscal Investment Institution (FII) regime that was announced in 2020. This evaluation should be finalised in 2022. Bouwinvest is taking into account the possibility that this evaluation will lead to a change of law as a result of which the Fund might no longer apply the FII regime. Bouwinvest has mitigated this risk by anticipating and preparing a restructuring of the Fund into the legal form of a so-called closed Fund for Mutual Account (FMA)

Given its fiscal transparency, the closed FMA prevents double taxation for investors and is therefore the most appropriate alternative for an FII. Future amendments to the Dutch tax transparency rules, which are expected to be announced in 2022, should not alter this conclusion.

In the course of 2022, Bouwinvest will decide whether to propose a restructuring of the Fund to the Shareholders’ Meeting and, if so, by which date such restructuring must be effected. Bouwinvest will take into account all uncertainties, including the future of the FII regime and the impact on all investors, when taking such a decision.

ESG risk

Last year was another year with exceptional weather conditions, and as such a reminder of the need to deal with climate change and related risks. In line with the recommendations from the Task Force on Climate Financial Disclosures (TCFD), the Fund recognises two main risks related to climate change:

  • Physical risks directly affecting the Fund's real estate and/or tenants (heat stress, pluvial flood, subsidence and coastal / river flood)

  • Transition risks, or risks related to the adaptation of the Fund's real estate to future climate changes (an environment in which greenhouse gases should be minimised to limit future temperature rises to 2˚C or less).

Core elements of the recommended disclosures include the organisation’s governance related to climate risks, the strategy, the risk management and resulting metrics and targets.

Within Bouwinvest, the Sustainability & Innovation department is dedicated to advising the Executive Board of Directors on preparing the management organisation and the Fund for the necessary steps and related changes. These climate risks affect a large number of risks within our risk taxonomy, and Bouwinvest will adapt its risk taxonomy to incorporate climate risk where necessary. As an example of recent initiatives, the Fund has started a pilot for the next phase of identifying physical climate risks. The purpose of the pilot is to identify the net risk of all four physical climate risks based on both geographical location and building characteristics. The Fund is aiming to perform the same analysis for the total portfolio in the course of 2022.

Tax risk

In 2021, Bouwinvest developed a transfer pricing methodology for redevelopment projects and presented it to the Dutch Tax Authorities (DTA). The methodology, which has been validated by consultancy firm Fakton, better reflects market practice. After the close of the bookyear the DTA confirmed they agree with the methodology. In 2022 the DTA and Bouwinvest will discuss its application with regard to the redevelopment of Move and The Garage. The revised methodology still results in a tax loss.

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. Court hearings are planned for the first quarter of 2022.

The Fund has devoted special attention to Hourglass as of 30 September, because a small piece of the facade fell down. Fortunately, no injuries occurred, but the situation is being closely investigated and the Fund is in intensive consultations with various stakeholders, including tenants, the developer, the builder and the municipality of Amsterdam. The building is temporarily fenced off until it is clear what caused the incident, and a solution has been found. An independent external agency that is recognised by the developer, builder and facade manufacturer is working on a report that should clarify the cause and extent of the risk that more facade sections wil detach from the building. Additional tests should also be performed.

Compliance risk

Within the area of compliance risk, no material risks occurred in 2021.