Making Green Work for Banks
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Before the credit crunch overwhelmed our
attention, the banking industry was
chasing the ‘Go Green’ bandwagon. The
hope was that ‘Green’ represented real
opportunities for reducing bank
operating costs. Today, it’s possible
that ‘Green’ can be more than that.
While credit issues remain banks’ number
one concern, Green hasn’t gone away. As
a matter of fact, banks might well
profit by building a Green niche into
their lending strategy, and thereby help
soften the impact of the credit crunch.
The following will help guide your
bank to take advantage of today’s Green
movement:
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Expertise
For years, pundits have touted solar, wind,
hybrid cars, and geothermal HVAC as methods to
increase energy efficiency. Yet only a few New
England banks currently advertise their desire
to lend money for these projects. Those that do
may offer a preferential rate for Green
technologies, but they have little supporting
data to substantiate their discounts.
Contrast this experience with that of our
banking brethren in California where Class-A
office facilities are expected to be built to
green standards. Wells Fargo & Co. has financed
35 commercial projects to the tune of $1.7
billion, all of which have pursued certification
under the U.S. Green Building Council's
Leadership in Energy and Environmental Design (LEED)
program.
JPMorgan Chase and Bank of America are
developing green lending products of their own
specifically designed for green buildings.
Insurance companies are getting into the act as
well, offering discounted premiums for LEED
certified buildings. The reason? LEED certified
buildings are perceived by these players as
lower loan and insurance risks.
Back in New England, many local lenders are
beginning to learn which Green products and
building methods have the greatest impact on a
building’s value. Lenders who develop this
expertise will have a decided advantage when
developing more favorable or creative lending
products for green building projects.
If your market has already begun to respond to
the ‘Go Green’ and ‘Sustainability’ slogans,
then it might make sense for your lenders to
deepen their knowledge of Green technologies.
Do It Yourself
One way for your bank to prove its expertise in
Green technologies is to ‘do it yourself.’
Install solar water heating or geothermal HVAC
at one of your branches. Use the installations
to show your current and future loan customers
how Green works. Discuss the tax and utilities
credits your bank received. Report how much
energy your bank is saving month after month,
and the overall return on investment.
These statistics can be great conversation
starters. Consumers who are considering
alternative energy systems for their homes would
like to know if these systems perform as
advertised. Your bank’s experience can make you
an objective source of information and raise
your profile as a potential lender for green
building projects.
A more selfish reason to ‘do it yourself’ is
that Green improvements will boost the value of
the bank’s real estate. CoStar, a major provider
of information services to real estate
professionals in the U.S. and U.K., recently
reported that Energy Star rated buildings sell
for an average of $61 per square foot more than
their peers, and LEED rated buildings command up
to $111 more per square foot.
Those numbers are certainly large enough to get
your bank started down the Green path.
Product
If your bank can see real benefits to ‘greening’
its own real estate, shouldn’t the same be true
of its customers? The CoStar report points to
tangible increases in resale value in green
buildings – a major factor in reducing loan
risk.
Your bank may want to launch a Green product
suite simply to reduce price erosion and the
ensuing loan risk. This is not only true of
residential real estate, but commercial
buildings as well. The CoStar report indicates
that energy efficient office buildings can
command premiums of $11.33 per square foot over
their peers and have 4.1 percent higher
occupancy.
A good place to start a Green lending suite is with LEED
ratings which have become the pre-eminent guide
to energy efficient building construction and
operation. A LEED rating takes many factors into
account, including the materials used in
construction, landscape design, renewable energy
systems and storm water management.
Consider adding LEED ratings to your bank’s
origination process. This will enable your bank
to track the performance of its Green collateral
and consider how it might price its Green niche
of loans. Finance and insurance companies are
still trying to determine how to assign a dollar
value to Green systems. By tracking LEED rated
collateral, your bank will have a strong head
start.
Go Green
‘Green’ can be an effective strategy for winning
new loan customers in the niche market for
sustainable buildings, particularly when your
lenders can speak knowledgeably about the value
it adds to the building. Good ‘hands on’
experience accumulated through the bank’s own
Green installations can help your lenders relate
to these loan customers as they investigate
their Green construction projects.
Consider tying your bank’s loan rates to LEED
standards to create an objective standard for
pricing these loans. This will increase your
reputation as a substantive player in the Go
Green movement – a role that may well help your
bank prosper through the current credit crunch. |
