Lenders Like ‘Green’ Office Buildings

Green-certified office space now exceeds 40 percent of market totals in large U.S. metros–and capital markets are taking note, reported CBRE, Los Angeles.

CBRE and Maastricht University’s U.S. Green Building Adoption Index report said the percentage of “green” office building has never been higher. Green office buildings are defined as those that hold EPA Energy Star label, USGBC LEED certification, or both. Just under 12 percent of all office buildings surveyed now carry Energy Star labels, while 5.2 percent are LEED certified.

The report noted building certification has become a more important part of a building’s profile. “As these programs reach maturity, the capital markets are increasingly incorporating these certificates into loan pricing and alternative financial instruments such as green bonds,” it said.

In addition, the Index found buildings certified by Energy Star and/or LEED can transact for 10 percent more than non-green certified buildings.

CBRE said for the first time more investors cited sustainability as an important criteria in asset selection than said it was unimportant. “This reflects a gradual trend of increasing investor interest in sustainability,” the report said.

On the lending side, there have been significant advances to integrate green building certification into financing programs. Some lenders such as Freddie Mac and Fannie Mae will adapt their rates based on a building’s green building certification or lack thereof. For example, the agencies provide pricing breaks between 10 and 30 basis points to multifamily assets rated green by one of eight different metrics.

“For investors and lenders in the commercial real estate sector, green building certification affects their cost of capital,” said Maastricht University Associate Professor Nils Kok. “The rationale is that such buildings have a more attractive risk profile and may be more resilient when economic headwinds arrive.”

The report also said continued improvement in average energy efficiency for the nation’s commercial buildings prompted the Environmental Protection Agency to change the underlying calculations for its Energy Star certification scoring this year, which could lower average scores for office buildings by as much as 10 points next year.

“Green building certifications have become an important proxy for sustainable practices, recognized by all stakeholders,” said CBRE Senior Vice President of Global Client Care David Pogue. “Any significant change to one of these major certification programs can have a significant impact on the buildings affected.”