Wednesday, June 4, 2008

The Green Loan: A New Leaf?

Summarized from National Real Estate Investor

With all the talk of "greening" commercial real estate, now there is one more group jumping on the sustainability bandwagon; lenders.

Green loans are special loans for the development of LEED certified buildings. Such loans usually originate with community banks and offer generous loan to value ratios and slightly better interest rates than conventional projects.

From the article:

Green lending is still in its infancy because there are few sustainable multi-tenant buildings, according to Scott Muldavin, executive director of the Green Building Finance Consortium in San Rafael, Calif. “Even as recently as a few months ago, there was only a handful of small banks and no life companies — to my knowledge — that offered green mortgages,” Muldavin says. “In the last three or four months, driven by good borrower customers’ growing participation in sustainable investment and development, many larger banks and insurance companies have started to explore offering green mortgages.”

A challenge for green finance is the ongoing struggle among appraisers and underwriters to understand the value and risk of sustainability, Muldavin says.
Because the appreciation for energy savings and marketing is increasing gradually, lending programs are expanding incrementally as well. “The smaller lenders that have programs and the larger lenders that are planning programs are focusing on relatively incremental steps including preferential review, quarter-point interest rate discounts, longer amortization and similar relatively small changes in return for LEED or EnergyStar certification,” he says.

Real change occurs on the margins; small changes at first until enough momentum is reached and ideas break through a tipping point. Once the standard is set and appraisers start to value in green developments, then these changes become institutionalized.

In the infancy stage of what many people still consider to be a fad, these rules for the green movement are being set and it pays to know how the system is likely to change and what the future is likely to look like.

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