Feature Article

Investing in the Environment: The Financial Industry's Approach to Green Building

Recent changes in the financial industry are providing new opportunities for financing green buildings.

“Moving into this space was about walking the talk for us,” said Tim Burkett of Biohabitats, Inc., an ecological restoration firm with office space in Baltimore’s Clipper Mill, a green redevelopment project owned in part by the Rose Companies’ Smart Growth Investment Fund.

Photo: Biohabitats, Inc.
In May 2007 Citigroup committed $50 billion over ten years in investments and financing to fight climate change. That announcement came on the heels of a similar $20 billion promise from Bank of America, as well as environmental initiatives from nearly every other major financial institution. At the same time, the real estate community is warming up to green buildings as never before. What do these trends mean when it comes to financing a green project?

Until recently, financiers saw green buildings as no different than any other buildings—unless they looked unconventional or depended too much on untried technology, factors that might have flagged them as high risk. Now that risk equation has been turned on its head. “If you own a building today and are not considering sustainability, you’ll have substantial risk of functional obsolescence,” suggests Scott Muldavin, executive director of the Green Building Finance Consortium. Arthur Hodges, the director of corporate communications for Denver-based ProLogis, the largest developer of industrial warehouses in the world, agrees: “If you’re not focused on this you’re going to be at a competitive disadvantage,” he says.

Investors and lenders have interests that are aligned with, but not the same as, those of building managers and occupants. There are also important differences in how investors and lenders each relate to financial risk. These differences lead to different priorities when it comes to documenting the benefits of high-performance buildings, which anyone seeking financing for a green project should understand.

 

Published October 30, 2007 Permalink