MIPIM: now ESG-compliant buildings are the new core

Banks will focus on core assets in these uncertain times, but the definition of core is changing, delegates heard at Real Asset Media’s European Debt Finance & Investment briefing, which took place recently at MIPIM in Cannes.

“The new core is ESG-compliant assets”, said Assem El Alami, Head of International Real Estate Finance, Berlin Hyp.

“As lenders we look at them more favourably also in terms of risk. We’ll favour green investments as well as the transformation to green, such as increasing the energy efficiency of a building, which is taxonomy-compliant”.

Berlin Hyp has a goal to make 30% of its portfolio green within two years, and it is also working on a framework to identify socially relevant buildings.“Soon we’ll have to stop talking about a green premium and start talking about a brown discount instead”, El Alami said.

Assem El Alami, Head of International Real Estate Finance, Berlin Hyp

“My favourite trend for the next two years is transformation as value creation, but it might be wishful thinking on my part”.

Taking ESG on board is a momentous shift that will have positive consequences, but the transition phase involves a lot of uncertainty and complexity.

“The market will deal with stranded assets, but banks will have to look at certificates as well as the uses of a building”, said Gijs Sleijffers, Director Debt Advisory Netherlands, Colliers.

“It will mean more work for lenders”.

There are more layers of complexity in banks’ assessment of an asset.

“There is absolutely more work to be done now ”, said El Alami. “The ESG score for clients is 50% based on analysis of the asset, the rest on the client and the tenant so it’s a complex analysis on top of the normal economic assessment. We’re still figuring out how it all works, but soon it will determine the pricing. If you have a high ESG score, your funding costs will be reduced”.

The direction of travel is clear, but there is still a lot of work to be done on certification and common standards.“We’ve done a lot of work on ESG issues and our conclusion is that there’s a lot of confusion out there on certificates and standards”, said Hans Vrensen, European Head of Research and Strategy, AEW.

“There are 200 different certifications in the world, which is not very useful for international investors. It is great that everyone’s on board, but we need more standardisation”.