Finance Industry Spin or Denial on Sustainability?

 

I thought I’d share some of the latest that has made its way over to my inbox over the past  few days. Take a look and let me know what you think. Is it spin? Denial? Spinial?

The Mortgage Bankers Association on Green Lending: “We’re already underwriting green.”

MBA research director Jamie Woodwell put out an article in the March 2008 issue of Mortgage Banking, their trade magazine, titled “Class G–The New Class A” (sorry, folks, no link, it was sent to me from a subscriber). Within a piece that includes decent info on the greenwave hitting finance, begins a decent lead-in to the MBA’s take on green lending:

“For most lenders, green lending is simply a new shade of their traditional lending programs.

As with any request for financing, a lender approaches the financing of a green building by developing an underwriting of the property that takes into account property-specific income, expenses, property value and costs. The extra challenge in financing green buildings has been the degree to which the underwriting associated with a building’s green features differ from those of a standard building.

But the commercial/multifamily lending industry is accustomed to heterogeneity in the same properties it underwrites. No two properties have the same location, tenants, lease rolls, rents expense mix, purchase price and cap rate — think, for example, 1970’s New York office tower, 1980’s Sacramento, California, industrial park; and 1990’s Atlanta apartment building. The industry has become extremely adept at recognizing these differences through underwriting — a process in which a property’s unique circumstances are researched, assessed and factored in.”

And that leads to this:

“As a result, in most cases, the existing commercial/multifamily lending paradigm already takes into account a property’s green characteristics. When fully revealed, a full underwriting and appraisal discounted cash flow (DCF) takes into account, for example, that a green property’s initial cost may be higher, its rents  higher, its utility expenses lower, its lease rollovers shorter and its terminal value higher. The result is that economic costs and benefits inherent in a green building can be recognized in, and will generally flow through its underwriting.”

Green Journey Take: Two observations: 1) Green buildings in total make up only about 2% of the entire real estate market, and 2) the nationwide credit crunch has been going on for much of the time that sustainability has been getting traction within commercial real estate. There are lots of deals out there that are not getting done. Nevertheless, the MBA has already counted so many private sector green loans being underwritten, not to mention confirming the underwriting on those loans as being ‘green’, that it can publish “typical” underwriting standards.

At the time of this writing, two major industry coalitions, the Green Building Finance Consortium, and the Market Transformation to Sustainability, are still pushing hard for leading institutions, some of whom are named in the article as green lenders, to adopt a common set of underwriting protocols for sustainable real estate. Also note that there are some major lenders cooperating with these efforts — they’re just not quite ‘there’ yet. Real estate investors are filling conferences, looking for elusive ‘green finance’ packages.

But you can prove me wrong and educate all of us: How many commercial real estate loans have you done with your lender, where they’ve already given you economic underwriting credit for the green features on your investment property? Please share your comments here, as there are many in the industry who would like to know. Plus these pacesetters deserve to get credit where credit is due.

The Mortgage Reports: Even $150/Barrel Oil Doesn’t Matter — Consumers Will Keep Drivin’

I dig Dan Green. He gives some of the most consistently straight-up download on the residential finance market. And he’s big on the crunchy technicals, which is good. Regular Green Journey readers also know that I’ve got a “thing” about energy price risk’s negative effects on US real estate.  Actually, it is fair to say that quite a few of us in the real estate industry do. Now read Dan’s recent post about oil prices and consumers.

You make the call: Is Dan tellin’ it like it is or like it ain’t?  Are US consumers really going to keep up their current driving habits no matter how high gas prices rise?

Please tell us what you think.