Page 140 - The Green Building Bottom Line The Real Cost of Sustainable Building

GREEN IS THE COLOR OF MONEY 119

this chapter and its publication, much of what I will say will have become passé. A
green asset has a greater value/risk relationship than a conventional property and
should be considered as such by the financial community. Its operating expenses are
lower, its overall exposure to liability is less than for a conventional development, its
exposure to volatile energy prices is less, the longevity of its capital equipment is typ-
ically greater. And there is the co-branding opportunity, enabling a financial institution
to capitalize on its underwriting of cutting-edge projects that do the right thing. All
these elements, among others, make a green project ideal for discounted underwriting.
It wasn’t that way in 2002 when we began our first LEED project (the Whitaker
Building), and it wasn’t that way almost five years later in 2006 when we initially
began looking for a financial institution to purchase a majority interest in a portfolio of
sustainable properties we had developed. However, the financial landscape is changing
quickly. Over fifty international banks, including ABN Amro, HSBC, and Citigroup
have signed on to the Equator Principles, which require environmental assessments for
major loans. In 2005, J. P. Morgan (now JPMorgan Chase) announced that it was
restricting its lending and underwriting policies for projects likely to have an environ-
mental impact. The Paris Bourse requires companies listed on its exchange to provide
clear information quarterly on their environmental practices. PNC Financial Services
Group has made a strong commitment to developing its branch network according to
LEED criteria. Goldman Sachs is building its new headquarters in New York with
the goal of achieving LEED Platinum certification. Bank of America is building offices
to LEED standards and has also announced a specific fund dedicated to green devel-
opments. Other financial institutions are quickly jumping on the bandwagon.
So how does all of this activity in the financial sector affect the underwriting of green
projects? Favorably. We have had three experiences within the past year that bear this
out. First, the sustainable portfolio we initially looked to sell to an institutional investor
(more about this later) we eventually determined would be better managed if we sim-
ply refinanced and retained ownership. The two banks that ended up doing the deal with
us, RBS Greenwich and IXIS Capital, as well as our financial broker, The First Fidelity
Companies, understood the value of our green assets and provided non-recourse financ-
ing, 80 percent loan to market value, interest only for five years, no cross collateral-
ization with an all-in price of about 5.7 percent for the ensuing ten years. Given the
volatility of the cost of capital at the time of this writing, it is likely to be difficult for
the reader to compare this underwriting to financial conditions at the time this is being
read. It is hard to say with any certainty that we saw a discount in underwriting as a
result of our green orientation. There was a very strong interest in our portfolio. Why?
The market liked the solidity of our offering, some of which is probably owing to its
green orientation. Suffice it to say that we probably realized a discount of 25 to 30 basis
points compared to what a more conventional portfolio would have likely received at
the time. As a small privately owned real estate development company out of Savannah,
Georgia, we did not expect to command the small credit risk spread we were offered.
We simply did not anticipate achieving such a rate. If we equated that discount to
Green, Inc.’s portfolio of $100 million (with $75 million in debt), this would amount
to an annual savings of $187,500.