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:
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.
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.
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.
“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.
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