NETHERLANDS Trends and Developments Contributed by: Coco van Zuiden, Marijn Bodelier, Sabine Schoute and Simone Wijngaard, Greenberg Traurig, LLP
– often the case in this current market – have resulted in various sale-and-leaseback transac - tions. From an investor’s perspective, sale-and- leasebacks are also quite popular as an asset class because stock markets are clearly more volatile. Other key advantages of sale-and-leaseback transactions include: • immediate cash injection; • freed-up capital; • no relocation of activities; In the Netherlands, real estate developments of, for example, logistics assets, student housing or senior living are often acquired in future state of completion. This kind of transaction can be structured as a forward funding, but also as a forward purchase (also known as “forward sale/ forward commitment” ). In a forward-funding structure, the sale – and thus the transfer of ownership – occurs prior to the completion of the construction works, and the purchase price is paid upfront, most often in instalments over the construction process. • debt reduction; and • increased flexibility. Forward-Funding Structures Contrary to a forward-funding structure, the transfer of ownership in the case of a forward purchase occurs at completion of the construc - tion works. The purchase price will be paid upon completion and the developer or seller is respon - sible for financing the development. This means that the investor or buyer will neither bear the construction risk nor the risk of insolvency of the developer/seller.
Nowadays, many new developments are acquired by means of a forward-funding struc - ture to limit the involvement of external financi - ers for the developer and to be more involved in the entire construction process. Some pros and cons of a forward-funding structure Due to the early participation of the investor/ buyer, it is possible to tailor the development to make sure that it matches the expected use and that the investor/buyer can stay involved with and in control of the development process. Although this is a real advantage, forward fund - ing also generally has a high-risk profile for the investor/buyer, who could be exposed if the developer/seller does not perform or becomes insolvent. To mitigate this, parties usually agree on a condi - tion precedent of definitive permits and appro - priate contractual protection mechanisms for the investor/buyer (eg, step-in rights, escrow arrangements to secure agreed milestones and/or key obligations or guarantees for default situations). It is also important that a detailed arrangement is made about the payment of the instalments. In most cases, payments are only due based on the status of the works, to limit the financial exposure of the investor/buyer, and the profit margin of the development is paid upon its completion. Furthermore, the investor/buyer is usually entitled to receive interest from a for - ward funding (a percentage per annum) from the developer/seller over the paid purchase/instal - ments up to completion, with a penalty being paid in case of late completion. Alternative Lenders Last but not least, it must be noted that non- bank lenders are very active in the Dutch real estate market to finance deals. This seems to
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