Specialist UK lending firm Atelier Capital Partners has launched a sustainable construction finance initiative through which it will use capital provided by its lead investor, M&G Investments, in a bid to encourage the building of greener homes.
Through the pilot project, the firm is offering developers that meet a series of sustainability measures, including the embedded carbon of their UK residential projects and calculated operational energy and water use, a Carbon and Sustainability Rebate on completion of the project and after independent assessment of its sustainability credentials.
According to Atelier, developers that meet the requirements stand to benefit from the net interest rate on their borrowing coming down as low as 5 percent.
The London-based firm, which launched in 2019 with M&G’s backing, has created the seven-month pilot programme, Carbonlite Challenge, alongside the Royal Institute of British Architects. Founder and joint managing director Chris Gardner argued the scheme will have a broader scope in terms of how it measures sustainability compared to other green lending initiatives.
“There are lenders out there that are offering discounts on [loans against] properties based on the Energy Performance Certificate, created in 2007, which is outdated and measures the thermal efficiency of a building with a very narrow scope,” Gardner told Real Estate Capital Europe. “What it doesn’t do is take into account embedded carbon, emitted during the construction phase, operational carbon and water usage. We focus on all these factors, while EPCs cover only a fraction of them.”
Atelier is aiming to encourage borrowers to balance the emphasis on driving down carbon emissions with broader sustainability factors, including local ecology and environment, Gardner explained.
“There is no unified standard in the UK for measuring carbon reduction or targets surrounding this, and EPC is a flawed measure,” added Gardner. “We are in an industry notorious for generating carbon, and if we think about that in the context of the UK, that’s a considerable amount of carbon, with the vast majority of deals being residential, so we are keen to ensure evidencable and sustainability credentials.”
Through the scheme, Atelier is offering loans of up to £10 million (€11.8 million) to qualifying residential developments across the UK, using finance provided by M&G. Alongside M&G and RIBA, Atelier is working with a collaborative panel of experts – including consultant EY for scheme governance, property services firm Savills for independent advisory services, law firm Allen & Overy for legal advice, and building consultant Paragon.
In an environment of heightened green washing, Gardner is confident that there is growing demand for “authentic” green lending schemes.
“There is a far more granular problem when it comes to residential, with lots of investors looking for authentic green investments, but there is a lot of green washing,” he said. “But this scheme is evidencable and auditable and will do what it set out to do.
“The reason we launched now is that we are looking to develop and cultivate a supply chain and there is more demand now. We aim to understand the building techniques involved, and the best materials regarding sustainability.”
Focus on data
Atelier will employ green technology and feed data back to the scheme to better understand the market. “This is as green tech as you can get,” said Gardner.
He cited the example of home assessors measuring the energy efficiency of a property upon purchase and then following up a year later with a post-occupancy evaluation, to provide anonymised data on human behaviours, which is fed back into the scheme.
“As with anything new, you need to research, test and learn, and we are agile and want to find out whether there is an addressable market, are small property developers able to build to these standards, and how consumers will react to this kind of product?”
He added that lenders like Atelier have a key role to play in encouraging sustainable development: “Finance in any market is an enabler to allow companies to deliver change to their customers and the broader consumer community. People need to relook at what finance is. Incentives work, and nothing is stronger than a financial incentive.”