On 28 January, manager CBRE Global Investors announced that one of its funds had issued a €500 million green bond designed to help capitalise environmentally sustainable projects across Europe.
The seven-year bond, arranged by US bank Goldman Sachs, was priced at a 0.5 percent coupon. In a statement, CBRE GI said investor demand for the issuance totalled €1.7 billion from more than 100 orders, reflecting the increasing appeal of green debt to investors, including asset managers and insurance companies.
CBRE GI is not the only manager exploring this financing source. On 1 February, Atrium European Real Estate, the central and eastern European shopping centre investor, issued its first green bond, raising €300 million. Again, the issue was oversubscribed, with Atrium reporting an order book of €1.2 billion for the bonds.
However, the CBRE GI transaction had an element of uniqueness: it was the first ever issuance direct from an SICAV structure – a publicly-traded open-ended fund – in the investment-grade corporate bond market, and the first issuance executed directly from a fund-level entity. The deal could set a precedent for other funds to follow.
Speaking to Real Estate Capital, Duco Mook, head of treasury and debt finance at CBRE GI, said the transaction enabled the company to source large-scale financing more efficiently. “Clearly, achieving a €500 million loan size in one go is fantastic,” he said. “To source a loan of this size via the lending market, you would need to secure debt from five to 10 individual financing deals with individual lenders, which would involve lots of asset-level reporting requirements.”
Mook expects CBRE GI to continue issuing green bonds in the future. “Now that we have the credit rating, this first green framework and the bond documentation in place, it is relatively easy to do a second tranche in the future. The second tranche will be even more efficient,” Mook said. “Reporting requirements are at a fund level, rather than asset-by-asset specifically, and the environmental, social and governance element is the cherry on the cake.
“We have seen an increase in appetite from investors in this field in the bond market. This is in line with the growing appetite from lenders on the secured side as they are more structured to provide sustainable finance now compared to a few years back.”
The green structuring was, according to Sasha Njagulj, global head of ESG, CBRE GI, fully aligned with the firm’s existing ESG ambitions and targets, both at a fund and corporate level. “What we do on ESG is much deeper than what was necessarily required for the bond,” she told Real Estate Capital. “Our commingled portfolios also have their ESG strategies. From an ESG perspective, it was just a matter of pulling elements together from our existing sustainability strategy to make it fit into the green bond framework.”
The bond’s green requirements focus on climate change mitigation, according to Njagulj, with a specific focus on carbon measurement and reporting to ensure the firm delivers the green targets previously agreed on as part of its green investment strategies. “We were in a very good position to pick elements from the strategy in place and present that to investors, which gives them confidence we can achieve what we said we are going to achieve. We haven’t created anything specifically for the bond. This is how we operate this investment portfolio, and more widely, the company.”
For Trent Wilkins, executive director at Goldman Sachs, which acted as global coordinator and sole bookrunner, the strength of the sponsor was key to the bond’s success in the market. “A key part of this deal was the credit strength of the borrower, in particular its low loan-to-value and prime assets were a key differentiator for the market.”
The bond’s green status, Wilkins added, created additional investor demand. “The green component led to a better outcome across both distribution and pricing of the instrument,” he said. “There is an increasing amount of money chasing green and ESG-focused bonds, with the supply-demand dynamic currently in the favour of issuers, which is positively impacting pricing currently.”
As investor demand for green bonds grows, issuance by property companies with sustainable strategies will become more commonplace.