Last year’s rising interest rates, higher inflation and widespread volatility may have meant less focus on green- and ESG-focused commercial real estate lending and investment strategies. But 2023 is expected to feature more lenders and borrowers actively incorporating green strategies into traditional loans, and aggressively looking at other ways to reduce their carbon footprints and increase sustainability.

While the debt markets have been very challenging in recent months, the trend around green lending remains, says Alexandra Cooley, CIO and co-founder at Nuveen Green Capital. The firm, based in Darien, Connecticut, specializes in providing commercial property assessed clean energy (C-PACE) financing for sponsors seeking to make sustainability-related upgrades to commercial properties, and it continues to observe demand from tenants seeking high-quality buildings with green features such as lower carbon emissions. Additionally, sponsors are looking at ways to operate assets more efficiently.

“Ultimately, more companies are demanding progress around green investing, and so clients are developing pools of capital in response,” Cooley says. “A long-term owner will want to do everything they can to make their costs as efficient as possible and their rents as high as possible. ESG, or green upgrades, is a nice way to do that because it checks all those boxes [and it means] there is very attractive financing that they can get.”

Legislative levers

Regardless of what is going on in the broader economy, commercial real estate lenders and borrowers are seeing pressure from legislative and regulatory channels. The US Securities and Exchange Commission has a number of ESG-related proposals pending in 2023 that aim to incentivize corporations, investors, employees and other stakeholders to keep pushing for better climate change and diversity policies and disclosures.

Additionally, major cities such as New York, Boston, and San Francisco have put into place legislation that aims to reduce carbon emissions. 

One of the most ambitious plans for reducing emissions in the US is New York’s Local Law 97. The law was included in the Climate Mobilization Act, passed by the City Council in April 2019 as part of the New York City Green New Deal.

Under this act, most buildings of more than 25,000 square feet will be required to meet new energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits coming into effect in 2030. The goal is to reduce the emissions produced by the city’s largest buildings by 40 percent by 2030 and 80 percent by 2050. 

The bottom line is that the confluence of legislative and regulatory changes will accelerate the adoption of green and ESG-related lending and investment strategies. 

“It’s such a massive market opportunity and we haven’t even scratched open the door yet,” says Chris Robbins, managing director and co-founder of San Francisco-based C-PACE manager GreenRock Capital. “We are seeing a huge uptick in the number of building owners, investors and developers who are exploring C-PACE as part of their capital strategy for new construction, adaptive reuse and recapitalization of projects mid- or post-construction, all while meeting their ESG goals – a true win-win.”

Renovating versus rebuilding

There is a major debate under way about the efficiency of renovating existing buildings versus tearing down properties and starting from scratch.

“The question is, ‘What is the cost of building an investment property to provide all the green and social requirements for ESG and how does that create opportunity when it comes to a return for investors?’” says Edward Fernandez, president and CEO at 1031 Crowdfunding, an investment manager based in Irvine, California. 

“You’ve got to wonder, how many trillions [of dollars] of real estate exists right now throughout the entire world? And how do you convert that asset to an ESG asset? And what is the cost of doing that?”

Nuveen’s Cooley is noticing another trend around new construction: higher borrowing costs mean sponsors are looking at different ways to generate returns. “We’re starting to see more focus on ‘How do we make these existing buildings that we own and operate as efficient as possible?’” she says. While retroactive and renovation financing, as a proportion of Nuveen’s organizations, shrunk by a half year-on-year, it only shrunk by 8 percent year-to-date. The firm expects this type of financing to grow further into 2023 as repositioning buildings to attract the top line rents becomes more favorable than building new.  

“We actually expect retroactive or renovation activity to grow by 25 percent as a proportion of pipeline versus year-to-date originations for December closings,” says Cooley. 


There are two schools of thought emerging around the near-term outlook for green lending and investing. While there has been growth of companies like Nuveen Green Capital and, more broadly, other C-PACE focused lenders, there are also concerns that the current market is too volatile to focus fully on green lending and development.

Gautam Goyal, founder and chief executive officer of Houston-based private equity firm Three Pillars Capital, believes that ESG is not an immediate priority for investors. “From a financial perspective, it is just about driving returns, whatever it takes,” he says.

That is a perspective that resonates with Tim Milazzo, co-founder and CEO at commercial real estate loan platform StackSource. “People are putting on their helmets and getting suited up [for a potential recession rather than focusing on ESG strategies],” he says. “Now that money isn’t so free flowing, it could be that we’re entering more of a near-crisis mode.”

Still, change is happening in the mortgage and real estate corporate debt markets. SL Green Realty Corp’s financing for the development of its landmark One Vanderbilt office tower in Manhattan in 2021 consisted of a record $1.8 billion green commercial mortgage-backed securities deal. And Host Hotels & Resorts became the first US hospitality real estate investment trust to complete a green bond deal, selling $650 million of bonds in 2019. The REIT has been a repeat issuer, with a total of $1.85 billion of green bonds issued since then, earmarked to support acquisitions and investments in the sector.

“ESG remains extremely relevant,” says Charles Krawitz, managing director and head of commercial real estate lending at Chicago-based credit union Alliant Credit Union. “I think it is on the minds of consumers and the minds of corporations. It is certainly a driving force behind successful commercial real estate projects.”

Krawitz believes that, while significant financial headwinds and other macroeconomic events have, as he puts it, stolen the headlines in recent months, green lending and ESG will continue to maintain their relevancy over the long run.