ING Real Estate is sourcing and incentivizing more green lending deals, with institutional and sponsor demand for the opportunities gaining traction stateside.
The Dutch bank, which is also an active US commercial real estate lender, has updated its priorities to look at more green lending opportunities in sectors such as multifamily, student housing, logistics, retail and life sciences after being heavily focused toward green office deals before the onset of covid.
Jeffrey Schwartz, a relationship manager and deal principal on the bank’s real estate finance team, says there has been a preference among tenants and investors for better, more efficient assets carrying green certifications – such as LEED or NGBS – and the preference is reflected in the bank’s lending targets across all asset classes.
“We saw an opportunity to be innovative and try to bring [incentives] into our discussions with our clients”
ING Real Estate
ING Real Estate aims for LEED Gold assets or better to consider a deal as a green loan, and the firm’s ongoing strategy is to bolster its portfolio with more such activity, even bringing in incentives as needed to enshrine the green status of a given asset.
Life sciences is one sector more abundant in opportunities now. Schwartz says the assets perform and fundamentals remain strong in key markets such as San Diego, the greater Boston area and Philadelphia, where ING has interest in carving out more new business.
As part of its strategy, ING looks for buildings with potential to become greener either through certification or upgrades, in the case of ‘brown’ buildings lacking in proper ESG components. Schwartz says ING’s incentive takes different forms, whether offering more favorable interest spreads as green commitment goals are achieved or potential earn-outs when those milestones are met.
“We saw an opportunity to become innovative and try to bring [incentives] into our discussions with our clients, who are also focused on it,” Schwartz says.
ING tends to shy away from older assets and instead aims for best-in-class assets, which Schwartz says may already carry a green building certificate. “From a credit perspective, we just see [best-in-class assets] in higher demand from the ultimate occupiers that are demanding [green certification]. Even in a rental, they want to make sure that the building is [performing] from an energy efficiency standpoint; it’s really dictating the designs going forward.”
Fannie Mae and Freddie Mac are also tempting more business into the US green lending space by giving incentives to borrowers that measure up to select KPIs around efficiency and energy usage.
ING is also looking at affordable housing as a potential opportunity to bring in new green loan business through a socially focused angle.
Affordable housing requires more delicacy when structuring terms from the social lens. Schwartz says investors are often responsible for maximizing returns and if a lender is placing restrictions on maximum rents able to be charged, it ultimately affects returns. “It’s trying to find a balance that still is doing good and creating a potential home for an underserved market, while still making the project work from an economic perspective.”
Diversity and inclusion are also factoring into ING’s thought process around issuing more ESG loans from the social lens. Schwartz says the bank is trying to figure out how such elements parlay into management team composition and managing diversity and inclusion at the borrower level.
Schwartz says the challenge for completing more green loans overall is getting clients to focus on such activity in the US market. At present, ING’s green deal momentum is fueled in part by repeat business. Last year, the bank signed three sustainability-linked deals with one client, and has totaled six other green deals with another.