Sustainable Land Development Today - March 2009 - (Page 28)

SLDT THE BOTTOMLINE Green Lending: Class G – The New Class A This article is an excerpt from a longer article that appeared in a previous issue of Mortgage Banking magazine, published by the Mortgage Bankers Association. By Jamie Woodwell 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 assumptions 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 properties it underwrites. No two properties have the same location, tenants, lease rolls, rents, expense mix, purchase price and cap rate—think, for example, 1970s New York office tower; 1980s Sacramento, California, industrial park; and 1990s 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. 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 the economic costs and benefits inherent in a green building can be recognized in, and will generally flow through, its underwriting. Challenges Facing Green The fact that a building’s greenness flows through a standard, discounted cash-flow underwriting doesn’t mean there aren’t challenges to green lending and that lenders haven’t had to work hard to increase green’s footprint. Lenders with experience in green buildings report it is not uncommon to see a building’s green benefits “haircut” by appraisers, underwriters or others who may not have experience working with (and are often provided less-than-perfect documentation of) the economics of green. To the degree standard market averages are applied to rents, occupancies, expenses and values, the economics and benefits of building green will not be recognized, and a building’s green ness will be discounted. Green experience among the design team is also a key factor, and sometimes a challenge. Architects, developers, contractors and others without experience in green building have to use an integrated design technique to succeed in green. If they are not experienced in green design, they may need additional time to ramp up their planning and design work. On the other hand, as professionals become more accustomed to green building, the additional effort of being green drops quickly. Even with these challenges, the expectation among many developers and lenders is that tenant demand is now beginning to push sustainable building to a tipping point in which green building becomes the market standard. Lenders are on the front lines of this change, pushing their own underwriting and lending programs to ensure they are a part of the latest wave of green activity. Pushing Green With the growth of green development, commercial/multifamily lenders have begun to signal they are looking to green buildings as a growth business themselves, and in doing so are signaling both the economic and social benefits they see. One of the companies to make a statement about green lending programs was Bank of America. In March 2006, as a part of its corporate $18 billion commitment “in lending, advice and market creation to help commercial clients finance the use and production of new products, services and technologies,” Bank of America announced its commercial real estate banking program “will build upon its expertise in financing environmentally- friendly development by creating customized solutions for clients who are developing and implementing environmentally sustainable designs. Areas of focus include financing real estate projects with LEED certification, improvements in energy efficiency, brownfield redevelopment, promotion of smart growth and the use of energy-related tax credits.” Other companies that have made definitive statements regarding green lending, include New Resource Bank, CB Richard Ellis, Wells Fargo and Community Bank of Arizona. SLDT About the Author: Jamie Woodwell is Vice President, Commercial/Multifamily Research, Research and Economics for the Mortgage Bankers Association. For more information: www.mortgagebankers.org 28 March 2009 Sustainable Land Development Today http://www.mortgagebankers.org

Table of Contents Feed for the Digital Edition of Sustainable Land Development Today - March 2009

Sustainable Land Development Today - March 2009 Contents Our Voice: Energy Savings Accounts Mining the Sewers for On-site Reuse Modern Flood Disasters The Financial Challenge of Leed® Technology: Opportunities Exist to Buy in Now SLDI In Focus: A Look Inside Calendar of Events Energy: Solar Power on Rails Industry News Products & Services The Bottom Line: Green Lending – Class G Advertiser Index Editorial Board SLDT Resources Last Word: Not All Gloom & Doom

Sustainable Land Development Today - March 2009

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.