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Green Discount in Commercial Real Estate Lending

Author

Listed:
  • Sebastian Leutner
  • Benedikt Gloria
  • Sven Bienert

Abstract

The study examined whether green buildings enjoy more favourable financing terms than their non-green counterparts, exploring the presence of a green discount in commercial real estate lending. Despite the extensive research on green premiums on the equity side, lending has received limited attention in the literature, although regulations have increased and ambitious net-zero targets have been set in the banking sector. The authors used a unique dataset comprising European commercial loan data from 2018 to 2024, with a total loan value exceeding €30 billion. Hedonic regression analysis was used to isolate a potential green discount. Property assessments conducted by lenders were used to investigate whether green properties exhibit lower interest rate spreads and higher loan-to-value (LTV) ratios. The findings reveal the existence of a green discount in European commercial real estate lending, with green buildings enjoying a 5.35% lower contracted loan spread and a 3.92% lower target spread compared to their non-green counterparts. The analysis indicated no distinct advantage regarding LTV ratios for green buildings. The research contributes to a deeper understanding of the interaction between green properties and commercial real estate lending, offering valuable insights for lenders and investors. The study represents the first of its kind in Europe and provides empirical evidence for a green discount’s presence.

Suggested Citation

  • Sebastian Leutner & Benedikt Gloria & Sven Bienert, 2024. "Green Discount in Commercial Real Estate Lending," AfRES afres2024-006, African Real Estate Society (AfRES).
    • Handle: RePEc:afr:wpaper:afres2024-006
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    More about this item

    Keywords

    Commercial real estate lending; Financing; Green Buildings; loan-to-value ratio;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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