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Monday, 30 June 2014

The Dutch “mortgage mountain” and the risk of creating ‘Copperfieldian illusions’ with the mortgage portfolios on the banks' balance sheets: my reaction to the Op-Ed of retired Professor and ABN Amro executive Dolf van den Brink and independent financial advisor Peter van den Berg

Last weekend, the paper edition of Het Financieele Dagblad ( featured an Op-Ed article by retired professor and former ABN Amro executive, Dolf van den Brink, and an independent advisor, Peter van den Berg. 

Dolf van den Brink - retired Professor of the
University of Amsterdam and former ABN Amro executive
Picture copyright of: Ernst Labruyère
Click to enlarge
Subject of the article was roughly stated: 'how to mitigate the paralyzing effects of the ‘Dutch mortgage mountain’ upon the ability of the large Dutch banks to grant credits to SME companies'. 

Although it was a very good article by itself, as it pointed out the drawbacks and dangers of the enormous Dutch mortgage debt mountain for the financial health of the Dutch banks, it found all the wrong solutions for this conundrum.

Unfortunately, this FD article is not available in an online version, so I just print the pertinent snips here, accompanied by my comments:

DvdB / PvdB: […] The Netherlands has a mortgage mountain, as large as the Dutch Gross Domestic Product (GDP). The sheer size and the poor quality of this mountain set us apart globally. Due to the dropping housing prices, the coverage ratio (the actual value of the pledge vs the actual mortgage debt) of this mortgage mountain has further deteriorated, causing the Dutch banks to get in serious difficulties.

Ernst: Although this statement is somewhat hyperbolical in nature, I agree with the general intention of it. 

I do know from particularly ING Bank, that it is closely regarding its problem loans and mortgages-in-arrears and it is maintaining a conservative valuation with respect to such loans.

Nevertheless, every mortgage loan which is currently underwater in The Netherlands – no less than 1.4 million (!) in March 2014– poses a serious risk for a bank, as the owner of such a house can be stuck with a substantial and basically uncovered residual debt, when he is forced to sell his house in case of unemployment or divorce.

The private debt of this mortgage mountain and the collective wealth of the Dutch pension mountain don’t compensate one another. The pension premiums coming from the Dutch labour force are invested abroad for 90%, while our banks have too little capital themselves to meet the domestic capital demand from SME companies, as well as the private sector.

Ernst: Apart from the statement – heavily disputed by some of my Twitter friends – that 90% of the collective pension funds is invested abroad, the second part of this statement is incorrect too, according to the Chief Risk Officer of ING, Wilfred Nagel in an earlier article:

Nagel: Many factors determine the customers that a bank lends to within the scope of its balance sheet, including the nature and duration of the relationship with the customer, the risk profile of the proposed loan, the price the bank receives for taking on risk, the extent to which the loan contributes to the creation of concentration risk on the balance sheet and the requirements of the sustainability policy being pursued. The importance of proceeding carefully in this respect, is underlined by recent experiences with lending to SMEs. Dutch SMEs made up 5% of ING’s total credit portfolio in 2013 but contributed 22% of the total addition to the reserve for loan losses.

Against this background, the question is what actual public interest is served by loosening credit standards applied to SMEs?

On top of this, a further strengthening of the capital positions of large Dutch banks will not lead to more lending to SME’s as this only works if both the bank and potential providers of capital are convinced that the investment will be used for profitable economic activity. In other words, granting capital to creditworthy parties at a reasonable return. Gathering capital only to jeopardise it by lending to parties that do not meet the minimum requirements is not a very productive strategy.

Those calling for a relaxation of bank lending to SMEs are, therefore, promulgating a sort of industrial policy at the cost of banks’ savers and providers of capital. This is not appropriate to a market economy and is particularly unwise given the need to increase not debt but equity of SME’s.”

Ernst: Nagel is totally right with these paragraphs. It is useless for banks to increase the unweighed capital ratio, if they use it to squander money, by lending it to not creditworthy (SME) companies.

Politicians, the employer’s associations and the general public can of course say as often as they want, that the banks should borrow more money to SME companies; these people are all entitled to their opinions. Nevertheless, as long as the banks run a much more than average risk of not getting this lended money back in the end, they should not lend it at all.

Ernst: The fatal flaw in the thinking process of Van den Brink and Van den Berg is, that better capitalized banks would start lending more money to SME companies. 

This probably won’t happen for two reasons:
  • The demand for loans and credit lines from financially sound and sensible SME companies will not really increase, as long as the Dutch consumers keep their hands on their wallets. Rapid expansion of one’s business in times of economic stagnation is asking for trouble, as already many companies have expanded themselves to death in the past. Surviving is still the name of the game.

  • SME lending is not a profitable business at this moment. It just isn’t. The (in)direct expenses coming from losses, caused by defaulting companies, still overcompensate the profits from successful loans and credit lines; even in spite of the substantial interest margin. When an investment costs a certain party more money than it yields, no sensible investor will make this investment.
DvdB / PvdB: Further, a healthy economy requires banks, which can effortlessly meet their capital demands. Especially due to the leverage ratio, stricter capital demands will be enforced upon this mortgage mountain. 

This requires primarily capital of the highest grade (CET1 aka Common Equity Tier1 capital); for the current Dutch mortgage mountain, this means an increase to €24 billion from €4 billion.

Ernst: I truly cannot judge upon this number of €24 billion in equity, but with 1.4 million mortgages being underwater, it sounds to be even at the lower range of ‘plausible’.

DvdB / PvdB: Even with the current high interest margin, this is not achievable in reality. For this reason, a substantial part of the mortgage mountain should be removed from the bank's balance sheets. By doing so, the banks can meet their core task in a responsible manner: supply loans and credit lines to the SME companies and the private sector.

Ernst: Right, right and wrong:
  • Yes, €24 billion in additional equity will be very hard, if not impossible, to gather for the banks;
  • Yes, when possible, these excessive mortgage portfolios should indeed be removed from the bank balance sheets;
  • But no, I don’t think that banks, with healthier balance sheets, will lead to increased lending to SME companies and the Dutch private sector.

As a matter of fact, the yet unprofitable character of these loans itself and – I’m sorry to say this – the current sorry state of many SME entrepreneurs, is the main reason that credit supply to Dutch SME companies is in a state of hibernation, in my humble opinion. Not a lack of investment capital at the banks.

Personally, I don’t think that a rejuvenation of Ronald Reagan’s supply-side economics – spurring increased consumption by removing boundaries for companies to increase their production, which eventually leads to more and cheaper goods and products, that consumers will subsequently buy – would be a huge success in The Netherlands currently. In this case, I  consider the – presumed – undercapitalization of SME companies as one of the aforementioned boundaries.

DvdB / PvdB: This would be possible, when banks could sell their sound mortgages (mortgages on which no more than 60% of the pledge value has been financed) to a Special Purpose Vehicle (SPV) for the remainder of the interest fixation period. These purchases would be financed by the deployment of securities (i.e. NHP or Dutch Mortgage Paper). To further increase the quality of this paper, credit insurances will be made.

In the ideal case, this basically risk-free paper would be reinsured at the Dutch "Guarantee Fund for Owner-Occupied Housing" foundation (i.e. WEW), at a marked-to-market premium, in order to get a de facto state guarantee on these NHP securities. 

This would minimalize the interest for the NHP, as well as for the underlying mortgages. The state earns money on the reinsurance premium and on the resulting reduction of the payments, made as a consequence of the Mortgage Interest Deductability regulation. 

The banks can reduce their mortgage volume by approximately €250 billion, which releases up to €10 billion in capital reservations. 

On top of that, the interest margin that would be earned until the end of the interest fixation period (i.e. the maturity date of the mortgage arrangement), can be cashed and added to the equity of the banks.

Ernst: This whole arrangement looks, feels and smells as the infamous  and dangerous "Win-Win situation": everybody is a winner in this situation, as nobody loses and there is no risk at all. 

In reality, Win-Win situations do seldomly occur...

First: Everybody thinks – myself included – that a mortgage, with a maximum of only 60% of pledge value, is normally "as sound as the ‘Federal Reserve’ itself". Nevertheless, who would have predicted in 2007 that the Dutch housing prices would drop with 20% - 30% in the six years since 2008;  yet, it happened! 

This means that even such a rock-solid mortgage could become underwater eventually. Who will foot the bill for the additional risk, when such a rare, but non excludable event occurs?

Besides that, when the houseowner defaults anyway, someone will have to perform the salvation operation in order to reclaim the mortgage amount for – in this case – the SPV; this means that the house, as pledge for the mortgage, must be privately sold or auctioned. 

Who will perform this operation? Will this be the bank, as issuer of the mortgage loan and sponsor for the SPV? Or will this be the responsibility of the SPV management itself?

Second: I don’t fully comprehend the last red and bold sentence of this paragraph: 
  • Either, the mortgage is sold by the bank for a fixed price; in that case, the only profit for the bank is the difference between the sales yield of the mortgage [for this particular period] and the cashed funding costs for the same period. However, I cannot imagine that the SPV would be willing to pay the full, cashed interest margin for the whole maturization period – without a substantial discount – as the SPV would not earn any profit on the transaction itself. 
  • Or, the bank receives the mortgage payments from the mortgage-holder and forwards these to the SPV (minus a certain percentage of profit), but then – in my humble opinion – it would not be an off balance mortgage, as the full collection administration still lies with the bank [Dear readers, please correct me if I’m wrong, in this respectEL]. 
I wonder if both these options would really lead to substantial additions to the equity of the banks after all.

Third: when such mortgages are ‘sold’ to a Special Purpose Vehicle, they disappear from everybody’s radar, as this is an off-balance transaction.

However, in contrary to the mortgage itself, the risk is not necessarily transfered 
in full to this SPV. Particularly Enron and Citigroup (the latter almost defaulted under the financial pressure of €1.2 trillion in off-balance SPV’s) have proven this beyond a reasonable doubt in the past.

The following snippet comes from the New York-based CPA (Certified Public Accountant) Journal in a 2004 issue upon Special Purpose Vehicles / Entities:

[Of course, these particular statements concern the American FSAB regulations and not European regulations – EL]

As the Enron crisis brought attention to the use of SPEs, FASB responded by issuing a proposed interpretation of existing accounting principles aimed at putting many off–balance-sheet entities back onto the balance sheet of the companies that created them.

The current accounting standards require an enterprise to include in its consolidated financial statements subsidiaries in which it has a controlling financial interest. The existing common definition of “control” is met when a parent company has more than 50% of the voting stock in a subsidiary. Over the years, however, companies have found ways to obtain economic control of other entities without owning 50% of the voting stock, thereby avoiding consolidation of these entities.

And Wilmington Trust, an US financial service supplier, states the following about the same subject:

Under some circumstances, it may be desirable to remove assets and their corresponding liabilities from the balance sheet of the company, and a sale of the assets to an SPV will accomplish this. However, the sale has to be properly structured to actually transfer both the substantial risks and the rewards of ownership. So, for example, if the sale is coupled with guarantees from the seller concerning performance of the financial assets being transferred, the risks are not really being transferred. In such a case, it could be misleading to shareholders not to disclose the risk retained on the balance sheet.

Similarly, a third-party equity investor must control the SPV's activities and bear the risk of the investment in order for the sale to constitute an arm's length transfer. If the SPV truly assumes the risk and controls the assets transferred, its activities are not controlled by or on behalf of the company that sold the assets to the SPV, then off-balance sheet treatment, rather than consolidation on the balance sheet of the company, usually will be appropriate. The issue, then, is not whether SPVs can be used for asset securitizations, but whether the securitization has been structured and accounted for according to the rules applicable to such structured financial transactions.

I wonder whether the implications of these statements have been elaborated in the ideas of Van den Brink and Van den Berg?! 

Would the SPV from their Op-Ed really reside on ‘an arm’s length’ of the banks issuing the mortgages? And does the SPV really get the full rewards of the ownership? 

I have serious doubts about that and – consequently – about the fact, whether this financial construct by Van den Brink and Van den Berg would a. be tolerated under the prudential supervision of De Nederlandsche Bank (Dutch national bank) and b. would really be considered as an off balance SPV.

DvdB / PvdB: At the maturity date – which is at the end of the interest fixation period – the mortgage is bought back by the bank. […]. For this off balance buy-back obligation, there ought not to be any capital demands. [After a new interest fixation period has been negotiated with the customer] the mortgage can be sold back again at the SPV, eventually.

In the process, banks can remove a substantial part of their assets from their balance sheet, for a period which the individual bank itself deems necessary. This could create new room for credit supply.

Ernst: This red and bold statement seems blatant nonsense to me. When there is an obligation for the bank to buy back these sold mortgages somewhere in the future – hence, a future obligation – then a facility must be created to meet this obligation, based on the cash value of these future obligations. 

This situation is totally akin to the future pension obligations of pension funds, which must be met today, based on their cash value. Besides that, this obligation facility must be funded with a certain amount of equity capital, in my humble opinion, in order to prevent these future mortgage purchases from being hugely leveraged.

This whole paragraph reminds me of a David Copperfield illusion; for instance, when this hero-magician lets the Statue of Liberty disappear. You see and think that the Statue of Liberty is not there anymore, due to the magic of David Copperfield, but you know by heart that it did not move one centimeter.

In case of these mortgages, which are temporarily sold to the SPV, it is exactly the same: these mortgages are optically removed from the balance sheets of the banks, which creates some optical leeway for lending.  

However, in reality those mortgages are still a (future) liability for the bank and as a consequence – so are the capital requirements of these mortgages. It is nothing more than a financial illusion, that the bank has been performing for you...

The remainder of the article contains a paragraph, which advices to finance residual debt, coming from an underwater mortgage after a (forced) house sale, by using the individual pension savings of the homeowner. 

For reasons of article length, I will not discuss this subject in this particular article anymore. However, also this idea spreads a strong odour of mumbo-jumbo and financial wizardry with uncertain side-effects for the future.

I will conclude with the following statement:

"One can admire David Copperfield for his illusions, but people should beware of a bank, which tries to create such optical illusions with the mortgages on its balance sheet!"

Friday, 27 June 2014

Vacancy of office buildings and shopping space increases further in The Netherlands, as normalization of the market has a long, long way to go!

So it would seem we've still got a long long way to go, I know
I've heard all I wanna hear today

PBL Netherlands Environmental Assessment Agency is the Dutch national institute for strategic policy analysis in the fields of environment, nature and spatial planning, and as such a part of the Dutch government.

On Monday, 23 June 2014, this institute presented the latest vacancy rates among shops and office buildings in The Netherlands. The following snippets come from PBL’s press release:

The vacancy rate of shops and offices has yet again increased in 2013. For both categories, the increase amounted to one percent: 
  • Of the available office space in square meters at the beginning of 2014, is 17% vacant, against 16% in the previous year;
  • Of the available shopping space, 9% of the square meters is vacant, against 8% in 2013. 

There are more causes for the increase of vacancy, then just the economic crisis. A share of these causes has a structural character. 

The increasing usage of ICT solutions is an important structural cause for the declining demand for office space and brick-and-mortar stores. 
These ICT-solutions enabled new kinds of shopping and working, like webshops and home working. 

Besides that, the diminishing population growth (or even decline in some areas), as well as the diminishing professional population, caused a declining demand for working and shopping space. This, in combination with the excess supply  especially in the years before the crisis – led to the current vacancy rates.
Surface and vacancy of office buildings
in square meters in The Netherlands
Chart by: Ernst's Economy for You
Data courtesy of
Click to enlarge

Surface and vacancy of shops in
square meters in The Netherlands
Chart by: Ernst's Economy for You
Data courtesy of
Click to enlarge

By itself, vacancy is not per se a societal problem; it becomes such, however, when vacancy becomes more structural in nature and especially when it is negatively influencing the direct neighbourhood of the vacant objects. Think for instance about the pauperization and depravation of areas with many vacant buildings.

When one is looking at the average duration of the vacancy, it stands out that the structural vacancy (vacancy of more than three years) has soared among shops and office buildings. At the beginning of 2014, more than 50% of the office vacancy had a structural nature; in the retail business, it was over one third.
Duration of vacancy at office 
buildings in The Netherlands
Chart by: Ernst's Economy for You
Data courtesy of
Click to enlarge

Duration of vacancy at shops in The Netherlands
Chart by: Ernst's Economy for You
Data courtesy of
Click to enlarge
Further, it is remarkable that the initial and frictional vacancy of shops (vacancy of less than a year ) is increasing. Many new stores are delivered vacant, at this moment: 20%. This means that no tenant has been found yet. 

Nowadays, this phenomena is hardly visible anymore among office buildings, where apparently lessons have been learned: only less than 3% of office buildings is delivered without a tenant or owner.

Vacancy of office buildings and shops per 2014,
 projected on the map of 
The Netherlands
Chart by: Ernst's Economy for You
Data courtesy of
Click to enlarge

The whole press release and the additional information and data are very interesting. Unfortunately, this article has not been printed (yet) in English on the website of PBL, but you can use for a (rough) translation from Dutch to English.

It is good to read that the developers of office buildings – project developers, construction companies, investment corporations and cities & municipalities, as well as the central Dutch government – have finally learned their lessons from the massive building frenzy, which took The Netherlands by storm during the first decade of this century. 

Finally, they started to build office buildings for which they had an actual tenant or buyer, and stopped building offices as an expensive kind of stock base, while hoping for a future tenant.

However, these same people and (government) organizations, responsible for the excess office space in The Netherlands, still developed one shopping centre after another shopping mall during the last few years. 

These were times, in which it was already clear – beyond any reasonable doubt – that the demand for additional shopping space was virtually non-existent in The Netherlands. Even diehard retail companies with soaring numbers of shops, like HEMA complained about the dilution of the existing shopping space, due to an excess supply of new shops and new shopping locations. 

This is the reason that I urge the Dutch central government to take a few drastic measures. What should happen, in my humble opinion, is that new shopping space and office buildings may only be developed, when:
  • Either the same square meterage is taken out of the market, either by demolishment or refurbishment for other purposes;
  • Or a tenant or owner has been found with a long-term contract for the newly built office building or shop, who finds a (structural) solution for his abandoned, former building or shop, in order to not leave it behind as a fresh, new scar in the landscape.

Unfortunately, however, these measures will probably be one bridge too far for the Dutch government.

Almere, the primary schools and the ‘piggy bank of alderman Henk Mulder’

This morning, I heard on the radio the statement of alderman Henk Mulder of the Dutch city Almere, that the Stimulus Arrangement for Public Housing was a big success in our city.  And that his €7 million piggy bank, reserved for this arrangement, had been emptied within a year.

And I didn’t understand it…

I heard him say that starters on the housing market in Almere, who otherwise would be forced to rent a house or – pity them – to live with their parents a little while longer, were now able to buy a house anyway. Due to a 3 year amortization and interest free loan, to the tune of 20% of the mortgage amount. And that 240 households had been aided with this plan.

And I didn’t understand it…

Subsequently, I heard Mulder say that – now the first piggy bank was emptied– Almere wanted to create a second piggy bank: both Minister of Public Housing Stef Blok and the city Almere would have to add €5 million to it, totalling it to €10 million for a new Stimulus Arrangement for Public Housing. This would enable the arrangement to resume its beneficial work for the finally accelerating Dutch housing market, particularly in Almere.

And I didn’t understand it…

Ultimately, I heard Henk Mulder say that the A6 highway would go underground within 8 years – or at least would be lowered – as Almere is going to host the 2022 Floriade, the massive Global Exhibition for Agriculture.

And I didn’t understand it…

And I thought about the wonderful primary school of my children in Almere and that this school had to sell the building, belonging to the day nursery, because it needed the money. The day nursery itself would be hosted in the already overcrowded school building.

And I didn’t understand it…

And I pondered that the classes of my children would be merged with classes of other age groups. And that several, wonderful teachers and class assistants had been fired, causing some classes to grow to thirty children next year. And that some children could not participate in their school trips, because their parents could not or did not want to pay their voluntary contribution for the school and the school itself could not afford it either.

And I didn’t understand it…

And I contemplated that Almere has – by far – the weakest schools in The Netherlands. And also that the school of my children – which is actually not weak yet – was forced to hire up to nine replacement teachers and assistants to finish the current school year for a certain class. And eight replacement teachers for another class.

And that some parents were leaving this wonderful school, as their children were ‘shell-shocked’ from all these replacement teachers, which were not allowed to stay after their stint had finished. As there was no money for it.

And I didn’t understand it…

Finally, I considered that every euro of community money, invested in a primary school kid, will be earned back three times in average. However, locking up community money in houses and superfluous(!) infrastructure, only yields ‘dead money’ and a little bit of work for construction companies and furniture boulevards. And I wondered, if it is really such a shame to live with mom and dad a few years longer, or to rent a house and save the money for the future downpayment on a house?!

And I still didn’t understand it…

Almere, de basisscholen en ‘het potje van Wethouder Henk Mulder”

Ik hoorde Wethouder Henk Mulder van Almere op BNR radio zeggen dat de Stimuleringsregeling voor de Volkshuisvesting in onze gemeente een groot succes was. En dat zijn potje van €7 miljoen voor deze regeling binnen een jaar schoon op was.

En ik snapte het niet…

Ik hoorde hem zeggen dat starters op de woningmarkt, die anders moesten blijven huren of zelfs bij hun ouders moesten blijven wonen – oh die schande –  dankzij een voor drie jaar renteloze en aflossingsvrije lening van 20% op het hypotheekbedrag, nu wel een woning konden kopen. En dat hiermee al 240 huishoudens geholpen zijn…

En ik snapte het niet…

Daarna hoorde ik Mulder zeggen, dat – nu het eerste potje op was – Almere een tweede potje wilde hebben waar Minister Stef Blok en Almere samen €10 miljoen euro in zouden doen: €5 miljoen van Henk en €5 van Stef. Daardoor zou deze succesvolle regeling wederom zijn zegenrijke werk kunnen doen voor de steeds verder loskomende Nederlandse woningmarkt.

En ik snapte het niet…

Vervolgens hoorde ik Henk Mulder zeggen dat de A6 snelweg binnen acht jaar ondergronds zou komen te liggen of in ieder geval zou worden verlaagd, ten behoeve van de Floriade die Almere gaat organiseren in 2022.

En ik snapte het niet…

En ik dacht aan de geweldige basisschool waarop mijn kinderen zitten en ik dacht eraan dat het gebouwtje van de kinderopvang verkocht moet worden, terwijl de kinderopvang zelf in het nu al overvolle schoolgebouw moet worden geplaatst.

En ik snapte het niet…

En ik bedacht dat de klassen van mijn kinderen worden samengevoegd met klassen van andere leeftijdsgroepen en dat meerdere geweldige leerkrachten en assistenten worden ontslagen, waardoor sommige klassen nu bijna dertig kinderen bevatten. En dat sommige kinderen niet op schoolreisje meemochten, omdat hun ouders de ouderbijdrage niet konden of wilden betalen.

En ik snapte het niet…

En ik overwoog dat Almere verreweg de zwakste scholen van Nederland heeft. En ook dat de school van mijn kinderen – die in principe niet zwak is – noodgedwongen tot wel negen vervangers nodig heeft gehad om in één bepaalde klas het afgelopen schooljaar af te kunnen maken, terwijl zij tot acht vervangers nodig had voor een andere klas. 

En dat ouders wanhopig die geweldige school verlieten, omdat hun kinderen duizelig werden van alle zeer tijdelijke vervangers, die daarna niet mochten blijven.

En ik snapte het niet…

Tenslotte bedacht ik me dat iedere euro, geïnvesteerd in een basisschoolkind, gemiddeld wel drie keer wordt terugbetaald in zijn leven. En dat, terwijl het vastzetten van gemeenschapsgeld in woningen en overbodige(!) infrastructuur alleen dood geld oplevert en een beetje werk voor bouwbedrijven en meubelboulevards. 

En ik vroeg me af of het zo’n schande was om een paar jaar langer bij paps en mams te blijven wonen of een woning te huren, en in die tijd te spáren voor de 20% aanbetaling van de nieuwe koopwoning. 

En ik snapte het nog steeds niet…

Wednesday, 25 June 2014

Secrecy and apparent amateurism, lack of guts at the city hall of Almere and especially the erratic ambivalence of the Dutch national skaters’ union KNSB, apparently sealed the fate of the Almere Icedôme

In my first article about the future Dutch speedskating venue, Almere Icedôme, I have spoken about an insider, called ‘John’ (not his real name). 
John has been closely connected to the process concerning the development of the Almere Icedôme and he is an acquaintance of mine.

Yesterday, after publishing my latest article with respect to the Almere Icedôme (in Dutch), I had the opportunity to speak with John again; especially about the question what had gone wrong, during the preliminary stage of the Icedôme project, which found its (definitive) Waterloo on June 3, 2014.

In spite of the fact that John is only one (hidden) source, who could give me a biased picture of the situation, I nevertheless print his story.

I don’t tell this story to judge upon the Icedôme organization, but to paint a picture of the situation: how such a high profile project could fail, due to ‘the best intentions’, investment anxiety, a devastating counter-lobby and apparent amateurism of the executive managers of the Icedôme project.

Excess secrecy and apparent amateurism at program manager Folkert Buiter

My friend John got involved in the Almere Icedôme project in an early stage of it. Apart from his work as civil servant for Sports Affairs in Almere, John had a practice for sports medicine.

For that matter, he was asked to participate in the Icedôme project on a ‘no cure, no pay’ basis: when the project would succeed eventually, he would become one of the partners in the consortium.

However, when the project would fail, he would lose his invested time, energy and money, without any kind of refund.

Next to John, other people and parties participated in a similar fashion, among whom a marketing specialist and other potential partners with a certain speciality. Everybody worked on voluntary basis, based upon the ‘no cure, no pay’ principle.

The only exception – according to John – was Folkert Buiter, who was hired by the founding companies – Royal BAM Groep NV ($BAMNB) and Van Wijnen Groep N.V. – as a program manager and public spokesperson for the project. 
However, John was not 100% certain about Folkert Buiter being actually paid for the assignment. 

CEO Cees van Bemmel of construction company Van Wijnen and Folkert Buiter both shared a working history in the city hall of Almere: Van Bemmel as alderman of the city and Buiter as a member of the city council. Both had finance, ground sales and area development in their portfolio.

This shared history and the longterm knowledge and involvement of Buiter with respect to the speedskating sport, is probably the reason that Folkert Buiter has been asked for this high profile assignment.

The thing that annoyed John most, during the whole preparation stage for the development of the Icedôme, was the secrecy that Folkert Buiter maintained with respect to the people and companies, that were participating in the Icedôme Consortium.

Only a few names were public knowledge, during the preparation stage of the Icedôme: construction companies BAM and Van Wijnen and the utilization company of sports venues, Anschutz Entertainment Group (AEG).

With regards to the other investors and utilization companies in the consortium, Buiter always kept his cards firmly to his chest: the sponsors and money lenders for the construction process, as well as the utilization companies for the sports and service areas, and the food and beverage services. Buiter did not only keep this secrecy to the outside world, but also to the original partners.

When the report with the endresult of the bidding process (Almere won this bid) was leaked to the press, the principal for the assignment  speedskating union KNSB   changed the rules with regards to the selection procedure, in order to give the former Dutch speedskate temple, Thialf Icestadium in Heerenveen, a second chance. The Almere Icedôme consortium was of course furious about this decision.

However, when mayor Annamarie Jorritsma and alderman Henk Mulder of Almere invited the people behind the Icedôme consortium, to discuss the possibility of starting a summary procedure against the KNSB, only the two construction companies and Folkert Buiter showed up, according to John. The desire to remain unknown apparently prevailed for the other partners.

Anschutz Entertainment Group had been involved in the Icedôme project, due to the circumstance that the Sales Director of AEG Europe, Frank Kolsteeg, was a resident of Almere. Kolsteeg got acquainted with Folkert Buiter and, according to John, he became excited about the project and wanted to participate in it, on behalf of AEG.

AEG, a globally leading company in the area of sports venue utilization, could be considered as a ‘partner from heaven’, as this famous name from the business could add some serious weight to the bid of the Almere Icedôme.

However, when Kolsteeg withdrew from the Icedôme project a few months ago, as he was not happy about the whole approach of the project, Buiter responded in an unemotional, even lackluster way; as if AEG abandoning the project was nothing more than a minor hickup for the Icedôme. This seemed very erratic, according to John.

Besides that, the consortium did not invest enough in advertising and brand marketing to bring and keep the Icedôme under the attention of the people. During the last nine months, there has been an almost complete radio silence about the Icedôme, to name something.

Too little commitment had been created among the residents of Almere AND the Dutch citizens, to fascinate the people for the development of the Icedôme. Even most citizens of Almere either did not care, or they were worried about the financial outcome of the project, but virtually nobody was really enthusiastic about it. 

John expected that at least the building perimeter would have been visualized and marked with a huge billboard for the Icedôme. 

I, as a matter of fact, also expected a powerful marketing campaign from the consortium:

  • to emphasize the importance of Almere, as speedskating capital of the future;
  • to inform the people about the opportunities of the Icedôme as a multifunctional sports venue;
  • to nullify the negative marketing and social media campaign from the group of skaters and other people, who were in favor of Icestadium Thialf in Heerenveen;
Now it could happen that the fierce, even mean battle from the ‘Thialf lobby’ against the Almere Icedôme, which had negativity and ‘low blows’ as its main trade mark, could continue without an upbeat “counterattack” from the Icedôme consortium.

The effect was even reinforced by the ultimate secrecy that program manager Folkert Buiter and his people maintained with respect to the progress and the protagonists of the contract negotiations. 

As a matter of fact, people could almost suggest that the Icedôme was a bogus operation and not financially viable at all, as Folkert Buiter et alumni hardly responded to these accusations, while showing the real data, facts and progress. And so the story, that the Icedôme was not viable, started to live a life of its own.

Lack of guts at the city hall of Almere

CEO Cees van Bemmel of construction company Van Wijnen had been responsible – as a former city alderman – for the development of the Topsportcentrum Almere (i.e. professional sports centre).

Although this multifunctional sports venue – according to Folkert Buiter – now runs at break even level or even with a small profit, this was very different in the beginning of the project, according to John. The city of Almere has invested millions and millions in the development and early utilization of this sports venue, without gaining this money back.

This multi million euro loss and the reputational damage that Almere suffered on this project and a few other projects, made the city of Almere very anxious to invest in and/or financially support the Icedôme. In other words: once bitten, twice shy! Almere did not want to take another financial risk on an open ended (?) project.

[As a resident of Almere, I actually endorse this caution of Almere at making such major investments – EL]

The unfortunate result of this decision was, however, that where the new Thialf Icestadium in Friesland received – an EU approved – financial contribution from the province of Friesland, Almere and Flevoland refused to invest in the Icedôme project themselves.

Almere could and would offer certain subsidies to slightly reduce the costs for developing and utilizing the Icedôme – some structure funds, a ground lease program to sell the ground at a price below marked-to-market level and a few subsidies for education and sports – but the city never wanted to make direct financial investments, in spite of the fact that the consortium urgently requested this after April 1, 2014.

John especially blamed Folkert Buiter for the fact, that he maintained his story about having funds in excess for the development and utilization of the Icedôme, while this probably was not true at that moment.

Ambivalence of the KNSB speedskating union.

John confirmed to me – what Folkert Buiter had stated earlier, in a telephone conversion with me at the beginning of April 2014 – that the contracts with moneylenders, as well as utilization companies, had been nearly signed at the time of April 1.

One of the reasons for these contracts to ultimately fail – according to John – was the fact that the KNSB never made a straight and exclusive choice for the Almere Icedôme, but virtually kept all options open for icestadium Thialf in Heerenveen and the TranSportium sports venue in Zoetermeer. Thialf and TranSportium considered this as an encouragement to continue their development process.

As a consequence, the situation would emerge that – instead of one successful, viable and possibly profitable speedskating venue – three icestadiums would be established, for which the utilization would become definitely unprofitable; for all involved parties.

Actually from the first moment on, the KNSB – represented by chairman Doekle Terpstra in those days – had shown a blatantly ambivalent stance against the Almere Icedôme:

  • First, there has been the pathetic bid procedure: the Icedôme initially seemed to have won the bid in June 2013, but the KNSB of Doekle Terpstra got cold feet after the final report leaked to the press. When a lot of protests emerged against Almere as the location for the national skating temple, the KNSB ordered an additional investigation. This investigation seemed nothing else than a pathetic attempt to get some extra time and therefore the judges of the Court of Justice made minced meat of it, after Almere started a summary proceedings against the KNSB.
  • Second, after the Almere Icedôme had eventually won the bid for the national skating temple, the KNSB, represented by Doekle Terpstra, stated in a press conference that winning this bid only warranted the organization of  ‘one of the international skating events’ per year. The locations for the other (inter)national skating events would still be at the discretion of the KNSB.
  • This means in practice that being the national skating temple could still be a dead hulk, in the worst case scenario. Especially, when the Frisian skating lobby uses its influence within the KNSB to push other international events towards the Thialf stadium again. This would have a devastating effect on the exploitation of the Almere Icedôme.
    And today, the Algemeen Dagblad (AD) reported a reconstruction of the decision process within the KNSB, which sheds again a very unfavourable light at chairman Doekle Terpstra:
Terpstra spun his opinion about the national skating temple 
KNSB chairman Doekle Terpstra announced to the outside world that the report, which chose Almere as the best location for the national skating temple, was unsound.

However, from internal emails from the KNSB it became clear that he did agree with the choice for Almere. The AD made its own reconstruction of the bid process.

On May 18, Terpstra agreed with the choice for Almere, but when the assessment report leaked to the press, he immediately changed direction. The born ‘Frisian’ Terpstra was attacked by all speedskate-lovers in Friesland, as he seemed to have single-handedly finished ‘their’ Thialf.

On top of this, John stated yesterday that the KNSB had changed the rules for the utilization of the sports venue once again, on 1 April 2014: the union demanded that the financial utilization should not be warranted for the initial five years, but for ten years instead. 

This intermediate change of the contract conditions was simply too much for the future utilizers of the venue and might have been the final blow, accelerating the failure of the Icedôme project.

It becomes clear from these events, that the KNSB has been a very unreliable partner from the beginning, afraid as it was for the powerful Thialf lobby.

In The Netherlands, people say "that success has many fathers, while failure is an orphan".

However, in the case of the Almere Icedôme failure seems to have many fathers too.

Geheimzinnigheid en schijnbaar amateurisme, gebrek aan durf van de gemeente Almere en vooral de onbegrijpelijke ambivalentie van de KNSB, lijken het lot van de Almere Icedôme te hebben bezegeld.

In mijn eerste artikel over de Almere Icedôme heb ik al eens gesproken over een insider, genaamd ‘John’ (niet zijn echte naam), die nauw betrokken is geweest bij het proces rond de ontwikkeling van de Icedôme en die tevens een goede kennis van mij is.

Gisteren, na het verschijnen van mijn meest recente artikel over de Almere Icedôme, heb ik opnieuw met John gesproken en met name over de vraag waardoor het project uiteindelijk mis is gelopen.

Ondanks dat John maar één bron is, die bovendien een gekleurd beeld van de situatie kan hebben, geef ik zijn verhaal hier toch weer. 

Niet om de organisatie rond de Icedôme te veroordelen, maar om een beeld te schetsen hoe een dergelijk megaproject aan goede bedoelingen, koudwatervrees, een succesvolle contra-lobby en schijnbaar amateurisme ten onder kan gaan.

Geheimzinnigheid en schijnbaar amateurisme bij Folkert Buiter

John is in een vroege fase van het Almere Icedôme project betrokken geraakt. Naast zijn werk als gemeenteambtenaar voor Sportzaken in Almere, heeft John een eigen praktijk voor sportgeneeskunde.

In die laatste hoedanigheid werd hem gevraagd om op ‘no cure, no pay’ basis deel te nemen aan het Icedôme project: als het project zou slagen, zou hij een partner van het project worden. 

Als het daarentegen onverhoopt mislukte, was hij zijn geïnvesteerde tijd, energie en geld kwijt, zonder dat er enige vergoeding tegenover zou staan.

Naast John werden ook andere mensen en partijen op dezelfde wijze aangehaakt, waaronder een marketingspecialist en andere potentiële partners. 
Iedereen werkte op basis van vrijwilligheid en volgens het 'no cure, no pay'-principe.

Enige uitzondering op deze regel – volgens John – was Folkert Buiter, die door de initiatiefnemers voor de Icedôme – Royal BAM Groep NV ($BAMNB) en Van Wijnen Groep N.V. als een betaalde programmamanager en publiek gezicht was ingehuurd. John wist dit echter niet zeker.

CEO Cees van Bemmel van Van Wijnen en Folkert Buiter deelden een arbeidsverleden in het gemeentebestuur van Almere:  Van Bemmel als wethouder en Buiter als gemeenteraadslid, met beiden o.a. financiën, grondbedrijf en ruimtelijke ontwikkeling in hun portefeuille.

Dit gedeelde verleden – en daarnaast de langjarige kennis van Buiter als professioneel consultant voor de schaatssport – is waarschijnlijk de reden dat Buiter voor deze high profile opdracht gevraagd is.

Wat John zelf irriteerde, gedurende de gehele duur van de voorbereidingsfase op de ontwikkeling van de Icedôme, is de geheimzinnigheid die Folkert Buiter heeft gehanteerd ten aanzien van de mensen en bedrijven die deelnamen aan het Icedôme-consortium.

Er waren slechts enkele namen publiekelijk bekend, tijdens de voorbereidingsfase van de Icedôme: BAM en Van Wijnen (bouwbedrijven) en de Amerikaanse Anschutz Entertainment Group (i.e. AEG; Amerikaans exploitatiebedrijf van sportstadions).

Voor het overige heeft Buiter altijd de kaarten tegen de borst gehouden, waar het ging om de overige deelnemers aan het consortium: de financiers / geldschieters voor de bouw en de mogelijke exploitanten van de gebruiksruimten en horeca. Niet alleen voor de buitenwereld, maar ook voor de partners van het eerste uur.

Dat ging zelfs zo ver, dat toen er vorig jaar een kort geding werd aangespannen tegen de KNSB, nadat deze de selectiecriteria voor de aanbesteding verzwaard had om onder de initiële keuze voor Almere uit te kunnen, hierbij wel de bouwbedrijven voor overleg naar burgemeester Jorritsma en wethouder Henk Mulder van Almere zijn gekomen, maar geen van de financiers of toekomstige exploitanten. Althans, in de woorden van John…

Anschutz Entertainment Group was bij het Icedôme-project betrokken geraakt, omdat de Sales Director van AEG Europe, Frank Kolsteeg, in Almere woonde en met Folkert Buiter in contact was gekomen.  Hierbij was Kolsteeg, volgens John, enthousiast gemaakt om namens AEG aan het Icedôme project deel te nemen.

AEG, een leidend bedrijf op het gebied van stadionexploitatie, was een 'partner from heaven' voor de Icedôme, omdat deze klinkende naam uit de stadionexploitatiesector gewicht aan het bod van de Icedôme kon geven.

Toen Kolsteeg zich echter enkele maanden geleden terugtrok uit het Icedôme-project, omdat hij het niet eens was met de hele gang van zaken, werd hier door Buiter zeer lauw op gereageerd; alsof het slechts om een klein hikje in de projectvoortgang ging. Dit was vreemd, volgens John.

Daarnaast zijn er door het Consortium in het algemeen veel te weinig marketinginspanningen verricht om de Almere Icedôme onder de aandacht te brengen en te houden. 

Ook is er te weinig commitment gekweekt onder de inwoners van Almere en de Nederlandse bevolking, om de mensen te enthousiasmeren over de komst van de Icedôme. Gedurende de afgelopen driekwart jaar, om maar iets te noemen, is er een vrijwel volledige radiostilte geweest.

John zelf had bijvoorbeeld verwacht dat de bouwgrond voor de Icedôme zou worden afgebakend en worden gemarkeerd met een groot billboard. Ook had er een krachtige marketingcampagne gevoerd moeten worden, waarmee de negatieve marketing en social media campagne van de ‘Thialf lobby’ te niet was gedaan en om commitment te kweken voor Almere als schaatsstad van de toekomst.

Nu kon de keiharde strijd van de Thialf-lobby uit Friesland tegen de Almere Icedôme, die zich kenmerkte door negativiteit en “aanvallen onder de gordel”, ‘dooretteren’ zonder dat er ooit een enthousiasmerend antwoord van het Icedôme Consortium op kwam.

Dit laatste werd versterkt door de te overdreven geheimhouding van Folkert Buiter: iedereen kon straffeloos beweren dat de Icedôme vanaf het begin financieel onhaalbaar en een 'wassen neus' was, omdat Folkert Buiter en andere deelnemers van het Consortium zich daar nooit tegen verweerden en met namen en feiten kwamen die het tegendeel bewezen.

Gebrek aan durf gemeente Almere

In de negentiger jaren was CEO Cees van Bemmel van Van Wijnen als wethouder van Almere verantwoordelijk geweest voor Topsportcentrum Almere, volgens John. 

Hoewel dit multifunctionele sportcentrum  in de woorden van Folkert Buiter – nu een redelijk neutrale exploitatiebegroting heeft, is de gemeente Almere er initieel vele miljoenen bij ingeschoten tijdens de bouw en de eerste exploitatiejaren van het Topsportcentrum.

Dit miljoenenverlies en de grote verliezen en reputatieschade die Almere op andere, in het oog springende bouwprojecten heeft geleden, bepaalde – volgens John – grotendeels de angst en het gebrek aan daadkracht van Almere, waar het om financiële ondersteuning van de Icedôme ging [overigens een financiële voorzichtigheid waar ik het als inwoner van Almere hartgrondig mee eens ben – EL].

Met andere woorden: Almere had geen enkele behoefte zich nog een keer een financiële buil te vallen. 

Dus waar het nieuwe Thialf wel op een – door de EU goedgekeurde – financiële bijdrage van (met name) de provincie Friesland kon rekenen, hebben Almere (en ook Flevoland) de boot altijd afgehouden.

Almere kon en wilde wel bepaalde toegestane subsidies bieden om de kosten voor de Icedôme enigszins te verlichten – structuurfondsen, grond in erfpacht (tegen een iets-lager-dan-marktconforme prijs) en bepaalde subsidies voor de stimulering van onderwijs en sport – maar wilde nooit overgaan tot directe, financiële steun, terwijl het Consortium hierom in de periode na 1 april 2014 wel dringend had verzocht.

John verweet met name Folkert Buiter, dat hij vorig jaar te lang heeft volgehouden dat er geen subsidie en financiële steun voor de Icedôme nodig was, terwijl dit feitelijk wel het geval moet zijn geweest.

Halfslachtigheid KNSB

John bevestigde aan mij – wat Folkert Buiter al in een telefoongesprek met mij van begin april had beweerd – dat de contracten met zowel exploitanten als financiers vrijwel rond waren geweest rond 1 april.

Eén van de redenen waardoor deze contracten – volgens John – uiteindelijk toch nog mislukten, was dat de KNSB nooit een onomwonden keuze voor de Icedôme heeft gemaakt, maar ten opzichte van Thialf in Heerenveen en TranSportium in Zoetermeer nog steeds alle opties openhield.

Hierdoor dreigde een situatie te ontstaan dat er – in plaats van één succesvolle en (mogelijk) winstgevende schaatstempel met voldoende bestaansrecht – drie hightech schaatstempels dreigden te komen, waarvan de exploitatie zeker voor alle partijen (!) verlieslatend zou zijn.

Al vanaf het moment van de eerste keuze voor de Icedôme, had de KNSB – toen nog in de persoon van voorzitter Doekle Terpstra – een zeer ambivalente houding aangenomen: 
  • Nadat vorig jaar het rapport met de einduitslag van de biedingsprocedure was uitgelekt, probeerde KNSB-voorzitter Doekle Terpstra de biedingsprocedure te veranderen, na proteststemmen uit Friesland tegen de Almere Icedôme. Door de rechter werd de KNSB in kort geding teruggefloten;
  • Het winnen van de aanbieding bood volgens de KNSB maar de garantie voor één internationale wedstrijd per jaar. Op de overige internationale en nationale wedstrijden konden de overige concurrenten van de Icedôme gewoon weer meebieden. Hierdoor leek het winnen van de biedingsstrijd een wassen neus.
  • Ten derde heeft Doekle Terpstra na het uitlekken van de keuze voor Almere een loopje met de waarheid genomen, volgens het AD:
    KNSB-voorzitter Doekle Terpstra verkondigde naar buiten toe dat het rapport dat koos voor Almere als topschaatscentrum niet deugde, maar uit interne e-mails blijkt dat hij het wel degelijk eens was met de keuze. Dat schrijft het AD zaterdag op basis van een eigen reconstructie.

    Op 18 mei ging Terpstra akkoord met de keuze voor Almere, maar toen het beoordelingsrapport 20 mei uitlekte, veranderde hij van koers. De geboren Fries Terpstra kreeg schaatsminnend Friesland over zich heen, omdat hij 'hun Thialf' de das omdeed. Daarna noemde hij het rapport 'onzorgvuldig en ontoereikend'.

    Voor het uitlekken van het rapport zou Terpstra's grootste zorg zijn geweest hoe hij Friesland meekreeg in de keus voor Almere, blijkt uit de e-mails die de krant heeft.

Ook wist John gisteren nog te melden dat de KNSB rond 1 april 2014 plotseling eiste, dat de financiële exploitatie niet voor vijf jaar, maar voor tien jaar moest worden gegarandeerd door alle betrokken partijen. Deze tussentijdse verzwaring van de contracteisen was voor veel exploitanten veel te gortig en heeft daardoor mede bijgedragen aan het mislukken van de Icedôme.

Op veel fronten heeft de KNSB zich een uiterst onbetrouwbare partner getoond, bang als zij was voor de sterke Friese Thialf-lobby, blijkt uit deze gang van zaken.

Men zegt dat succes vele vaders heeft en mislukking een weeskind is. 

In het geval van de Almere Icedôme moeten we echter constateren dat de mislukking ook vele vaders lijkt te hebben…