The Netherlands’ most compact university has a prime location: adjoining the capital’s Zuidas business district and the VU medical center. The VU’s situation is unique in that the city has grown towards it. Both its collaboration with the business sector and with the medical world takes place just a stone’s throw away.

In 1992, the university had approximately 8,000 students; that number is now around 24,000. In terms of the university’s physical real estate, however, not much has been added since the early 1990s. And yet, without any appreciable increase in its accommodation, the number of students studying at the VU has tripled. Partly because of the major growth that the university has experienced, the VU adjusted its substantive vision to the future, under the motto ‘VU Amsterdam: looking further,’ and plans were drafted for expanding or modifying the campus. Since 2003 the university has been considering a vision for the campus; it was only a few years later that it made that vision concrete and the plans for the current renovations on the VU site were established. This gave rise to funding requirements as well.

The early crowd-funders

The VU was founded in 1880 by a group of reformed Protestants, led by Abraham Kuyper. They felt that the education offered at other universities was too liberal. The ties with the reformed Protestant church were strong up until the 1970s. The VU was in fact founded using an early form of crowdfunding: donations from reformed Protestants throughout the Netherlands financed the education at the VU. Fundraisers went door to door asking for donations, carrying green collection boxes bearing a picture of Abraham Kuyper—not only a minister and politician but also known as the founder of the Anti-Revolutionary Party. Radboud University was financed in a similar manner, but by the Catholic community in the Netherlands.

Its original source of funding means the VU has a special structure. While other universities have their roots in the Education Act, the VU is a Dutch stichting (foundation), called the Stichting VU-VUmc, with the university (VU) and medical center (VUmc) as divisions. Other universities such as Leiden University and Utrecht University also work with medical centers, but as separate legal entities and not within a single foundation. “This structure makes it more difficult to arrange funding in the way that other universities do,” says Hanco Gerritse, financial director at the VU. “The VU and VUmc operate as separate entities but must always take each other into account in their financing. In the Netherlands, universities have the possibility of getting funding from the Dutch Ministry of Finance. However, this method of funding, called ‘schatkistbankieren,’ was less attractive in this instance. We therefore chose to work with Zanders, so that the consultants could support us in finding the best financing solution.”

As first university

Zanders first had to investigate how the VU could finance its accommodation plans. Alongside possibilities of bank financing, the VU was also advised to look into a loan via the European Investment Bank (EIB). Gerritse says: “The VU did not have any long-term capital. It was not something we were set up for. Most of the knowledge required we gained from Zanders. And they played an important role in the contact with the EIB. The cooperation fits us like a glove; it is a real partnership.” And the fact that the EIB emerged as a financier is special, says Gerritse. “What makes it so special is that we are the first university in the Netherlands to receive financing from the EIB. Due to both the creditworthiness and nature of the EIB, the pricing is far below those of commercial banks. And they still have more funds available, for the Netherlands and for education in particular.” The construction project involves a total investment of some €460 million. The maximum amount of funding the EIB will provide is half of the investment by way of combined project financing.

Most of the knowledge required we gained from Zanders. And they played an important role in the contact with the EIB. The cooperation fits us like a glove; it is a real partnership.

Hanco Gerritse, financial director at the VU

At other universities, schatkistbankieren and/or loans from commercial banks play a large role in the financing; the VU itself contributes the rest of the investment sum for this project, generated from cash flows and its own resources. These cash flows come from the government, based on the number of students and graduates (the first flow of funds), in the form of research financing (second flow of funds), or originate from the European Union and businesses (third flow of funds). “The buildings used to be owned by the Ministry of Education, but since 1995 the universities own their buildings and sites and are therefore responsible for their accommodation, maintenance, and investments as well,” says Peter Wemmenhove, head of planning & control. “The VU’s main building was built at the beginning of the 1970s and is now in need of renovation. This modernization also falls within the scope of the financing.”

Seven Projects

The projects that fall within the project financing are:

• The O|2 building (due for completion in 2015)
• The Campus square (University building NU.VU)
• New power turbines in the VU’s own power plant: Energy center
• Renovation/upgrade of Main building
• Car park under the O|2 building
• Upgrade of the Medical Faculty building
• Changes to the Mathematics and Physics building

Long-term partnership

Wemmenhove started at the VU in May 2012. The project had already been under way for six months at that point; the information memorandum was being prepared and sent out. Gerritse was appointed financial director one year later. Not long before that he had held the same position at healthcare institution Cordaan, where he also worked on a financing project with Zanders. “We see the EIB’s financing as a show of confidence in our plans from a triple-A-rated European institute,” says Gerritse. “After all, it is a public agency and cannot invest indiscriminately. By investing in our plans, the EIB is endeavoring to achieve the objectives agreed on between the European countries.” The VU and EIB did not only discuss the financial angle; the EIB also cooperated closely with VU’s accommodation department, the Campus Facilities Organization (FCO), and of course the VU medical center.

Zanders also played a big role in that, especially because the process was complicated due to the complex legal structure of the foundation.

Hanco Gerritse, financial director at the VU

The most expensive sports fields

Gerritse proudly explains what buildings are being built with the funds raised: “It is a combined project to build a number of new buildings and overhaul existing buildings. The new buildings will be the O|2 building and the new university building NU.VU. We are also improving the sustainability of all our buildings. For instance, in our own power plant we use seasonal thermal energy storage (STES) to cool or heat the buildings. In the main building, the shell will remain intact and we will open up the many small rooms into larger, brighter open-plan offices. All of which meets the needs of our lecturers and students.” This means more flexible workspaces as well as more opportunities for contact between lecturers and students. “The building must be up to date for at least the next 15 years,” adds Wemmenhove.

Connections between the businesses in the Zuidas district and the university are also being stimulated. “The most expensive sports fields in the Netherlands are across the street,” says Gerritse. “They are owned by the municipality but we are going to trade that land to accomplish a more explicit connection with the city. The sports fields will then be moved to behind our site. This puts us closer to the Zuidas district and brings the businesses even closer to our campus.” So there will be even more cooperation between university, business, and the government—something the government is also eager to encourage.

The VU recently started a major research program in cooperation with the University of Amsterdam and ASML. Some of the laser technology used by the semiconductor manufacturer was developed at the VU. Gerritse adds: “That is a really fine example: conducting research together, using the technological expertise from within the universities and then together finding applications for this knowledge. It has yielded a great deal for Amsterdam. Investing in a strategic partnership makes it easier to achieve such results.”

Phased approach

The VU’s real estate investment is a multi-year plan that runs to 2030. Underlying the multi-year plan is the thinking that the university must find more points of connection with the city: the VU, looking further. “The gates must be open,” says Gerritse. “By establishing the connection with the Zuidas district we can give the entire urban district a boost. That is the larger, urban planning vision behind our plan.”

Within the time span that the European Investment Bank provides funding, seven projects have been defined, both new builds and renovations of existing buildings. These projects comprise the combined project financing for the first phase. The total multi-year plan is executed in different phases. The reason for this phased approach is mainly to limit the risks linked to the investments. “We will examine the situation during every phase,” explains Wemmenhove. “How many students we have, whether the government financing is changing, how business is developing in the Zuidas district—these kinds of factors can prompt us to adjust the course of the plans.” The current investments are still in the first phase and are expected to be completed in 2018. Residential facilities, retail units, and movie theaters are also included in the subsequent phases.

What did Zanders and the VU do together as a
project team?

• The contact with financiers (EIB, commercial banks, and the Ministry of Finance), including negotiations
• Cooperation with FCO (campus facilities organization), VUmc, and Van Doorne (lawyer)
• Drafting of information memorandum, including model and multi-year projections and RfPs
• Selection of financiers
• Structuring of the financing, tailored to the organization and its current financial statements

Better positioned

The funding from the EIB also reflects another trend in the academic world, specifically that universities are becoming increasingly international. The competition between universities is no longer confined by national borders or even by European borders. In the international realm, the city of Amsterdam will also profit from the developments at the VU. “More than half of the master's curricula are in English,” explains Gerritse. “As a university and as a city, you are competing on the international market for higher education. The fact that we have good facilities puts us in a better position in that market as well.” In that sense, too, the financing from the EIB is an affirmation of its confidence. “Compared to a commercial bank, the EIB looks at a financing plan very differently, looking far beyond cash flows and revenue forecasts,” says Koen Reijnders, consultant at Zanders. “Probable questions include, for instance: how will the envisioned building function and how sustainable is it? The EIB only starts looking at the financing component when it’s satisfied from both the engineering viewpoint and the perspective of education economics.”

“We are investing in the Zuidas district,” says Gerritse. “When the VU moved here it was surrounded by farmland that was being sold and bought. Since then, this land has grown into a unique area. The VU had to investigate the right way to develop the space available and, with this plan, we have succeeded in doing this.”

In the Netherlands of the eighteenth century, a diverse range of regional funds was set up to reduce the risk of setbacks in certain professions or in vulnerable regions. Two national life insurance companies, De Nederlanden van 1845 and Nationale Levensverzekering-Bank, over the course of the nineteenth and twentieth centuries, took over many of these funds. In 1963, these two large insurance companies merged, creating Nationale-Nederlanden. Due to the strong financial position acquired by this new company, it continued to grow abroad, particularly in the United States. As of last year, the products supplied by the Dutch insurance company RVS, which was acquired in 1984, also form part of the Nationale-Nederlanden brand. Nationale-Nederlanden now has over five million private and commercial customers who are using a broad package of financial products and services, such as pension plans, life insurance, non-life insurance, and income insurance. Nationale-Nederlanden has recently also started offering bank savings products and mortgages.

Uncoupled

The idea of starting up a bank arose in response to market trends observed in recent years: the life insurance market continued to shrink, while the bank savings market, on the contrary, was expanding. Prior to this, Dutch insurance companies had been able to offer tax-related and wealth creation products for years. In 2008, a new legislative proposal eliminated the monopoly held by insurance companies on such products. This opened up a very lucrative market for banks. At the same time, Nationale-Nederlanden, which formed part of the huge ING enterprise, did not have the independence required to provide such bank savings products. Then the European Commission ruled that ING, with its government support, was required to uncouple its insurance business from its banking operations. This meant that offering bank savings products became an attractive possibility. At the same time, it made it possible to offset the increasingly contracting life insurance portfolio with the new bank savings portfolio.

“While we had a financial background as an insurance company, we did not have a banking background,” says Peter Verberne, CFRO of the Nationale-Nederlanden Bank. “Banking is completely different from insuring. The complexity associated with banking requires proper management. This is why we asked Zanders to advise and guide us in this area. For example, when the time came for us to apply for permits from De Nederlandsche Bank (DNB), after we had developed our bank savings products. “The earning model for a bank requires you to have sufficient size in order to be viable and operate with a profit.”

The consultants [from Zanders] developed the bank’s risk management system for us. This made the complex risk management subject matter very transparent and tangible without detracting from its complexity.

Peter Verberne, CFRO of the Nationale-Nederlanden Bank

Volume Ahead of Profit

The collaboration with Zanders started approximately two years ago. In June 2011, DNB granted Nationale-Nederlanden permission to start up a bank. Finally, after making provisions for the legislated capital requirements, the company opened up its banking savings products counter in the third quarter of 2011. The new bank commenced by offering golden handshake-related products and products for the annuity market.

At that point, Nationale-Nederlanden, as a bank, was also required to start offering credit products on the Dutch market. This resulted in the creation of the Nationale-Nederlanden Bank’s mortgage arm in the first half of 2012.

Verberne says: “This is an entirely different discipline from collecting savings. We therefore prepared a number of acceptance criteria and adjusted the risk management system to incorporate the risks that apply to the granting of loans. The program that emerged from this has been used for providing mortgages since the third quarter of 2012.” The management of the core mortgage lending processes was contracted out to a third party.

“However, as an entity, you must look after the risk management process in-house,” Verberne continues. “The financial risk management, the credit risk management, the operational risk management, compliance – we outsource as much as possible, but the core functions are carried out within the bank, including risk management in its broadest sense.”

When we took our first steps on the banking market, volume was a key factor. “The earning model for a bank requires you to have sufficient size in order to be viable and operate with a profit,” Verberne explains. “This is why we wanted to offer regular savings in addition to bank savings, and this is why we will be introducing two additional regular savings products in the near future. Zanders also designed the risk management systems here. The volumes that the Nationale-Nederlanden Bank is aiming to achieve with these savings products are significantly higher than with bank savings. We are aiming to become a serious player on the savings market within a short period of time. The basic principle remains that we will continue to offer simple banking products. In other words, straightforward banking with what-you-see-is-what-you-get products.”

Transparent Products

What is the situation with respect to the new competitive position in relation to ING? Verberne explains: “Our mortgages and savings products mean that we already compete with ING. We pursue an independent pricing policy in this respect. Furthermore, Nationale-Nederlanden is one of the best-known and strongest financial brands that is simply offering a far more extensive range of services.” “By leaving out the bells and whistles, we can offer a more competitive rate.”

“In addition, there is currently also a trend for increasingly simple products,” says Yvonne Sijm, a Zanders consultant. “Especially private customers opting for wealth creation products, for example for their pension, can now obtain such products not only from their insurance company, but also from their bank. At a bank, this is far more transparent because, in contrast to an insurance company, you do not pay a risk premium. Private customers opt for these transparent products, and this is why you are now seeing a shift to more straightforward banking products.”

The insurers of pension and life insurance products are most affected by this trend. The non-life and term life insurance sectors still have a clear raison d’être. A financial institution is required to provide transparency and to be straightforward, but at the same time, the customer wants security. What the customer is prepared to pay for the risks the company takes therefore also comes into play. “This is a difficult issue,” says Verberne. “You have to offer customers an interest-rate refixing period, which affects your own interest rate risk. This also applies to mortgages. While you can add a lot of bells and whistles to these products, they all carry risk, and these risks come at a price. On the other hand, by leaving out these bells and whistles, we can offer a more competitive rate.”

Risk Horizon

With the help of the Nationale-Nederlanden’s strong name, the bank must take its planned powerful steps into the banking market. Life insurance policies were traditionally primarily sold via intermediaries. This also applies to bank savings and mortgages, which, in part due to the fiscal aspects of these products, are true financial advice products. In terms of the regular savings products, Nationale-Nederlanden will primarily focus on direct channels.

“The targeted bank savings customers include all Dutch citizens involved in wealth creation,” says Verberne. “For example, these customers may have a maturing annuity policy or want to terminate this policy, but it can also include customers who received a golden handshake when they were dismissed and who want to put it aside or convert it into a payment stream. In terms of the mortgages, this includes all Dutch citizens who are referred to us via their mortgage broker. And for the regular savings products, it can be anyone who wants to save.”

According to Verberne, Zanders has supplied the tools needed to ensure the new entity will work in practice. “This sometimes entailed very practical matters that are the same in the insurance world, but that have been given a different name in the banking world. In addition, the risk horizon considered by an insurer is longer than that of a banker. This can cause misunderstandings, but I think that we have taken a solid step in this area.” The basis for this will be established later this year through a merger with a key component of the Westland-Utrecht Bank. As such, the banking market will have one more player, with a well-known name and a competitive capacity, no matter what happens.