It seems like every large real estate firm is going green, but those efforts have had some seeing red.
Landlords are targeting net-zero emissions to attract investors and eco-conscious millennials, but when it comes to securing financing to make upgrades, options are limited.
The latest entry in the loan market is ING, the global financial behemoth. The Dutch banking firm is rolling out its “green building incentive” loan, which funds energy efficient retrofits on multifamily and commercial buildings. The firm is hoping the program’s favorable rates encourage existing building owners to make energy-saving retrofits.
It’s now got one.
A subsidiary of homebuilding giant Lennar snagged the program’s first loan, a $33 million debt package for upgrades to its newly-built apartment complex outside Houston. The improvements on the complex in Katy, Texas, called the Maddox, are expected to help Lennar secure an energy efficiency certification from the American National Standards Institute.
The ING debt offers slightly lower rates than a traditional loan. The rate drops further when the developer obtains an energy efficient certification following completion of the retrofit or upgrade. The loan also provides additional proceeds to cover the costs of those upgrades, according to ING.
“We are not cutting the pricing by 20 or 30 percent, but it is meaningful if you take the pricing over a three- to seven-year loan term,” said Craig Bender, head of CRE financing in the Americas at ING. He would not disclose green building incentive loan rates.
Lennar’s financing deal with ING and other firms allow the developer to “expand our current [environmental, social, and governance] initiatives to lower building emissions,” said Christina Langrall, at Lennar Multifamily Communities.
ING is now working with a developer in New York on a green initiative construction loan.
“It’s tricky as a bank to find your place in the ESG world,” Bender said.
One driver of demand could be green programs from Fannie Mae and Freddie Mac. The government backed lenders require borrowers to obtain green certifications for projects to secure permanent, long-term financing for certain programs.
Real estate’s role in climate change is becoming more closely scrutinized.
In New York City, buildings are responsible for about 70 percent of all greenhouse emissions across the five boroughs, according to a report from the Mayor’s Office. To reduce that level, the city mandated that larger commercial buildings cut their carbon emissions drastically over the next 30 years.
As a way to help landlords achieve those goals, a new financing tool provides lower rates to owners who undertake energy efficiency improvements. The program, called C-PACE, requires consent from a senior lender, which can be difficult to obtain.