Deutsche Hypo: ‘Long-term investors are increasingly demanding green loans’

The German bank has launched a green lending initiative which grants reduced pricing for loans to assets that hit agreed sustainability criteria.

Deutsche Hypo, one of Germany’s major Pfandbrief banks, is to grant ‘green’ financing facilities for construction projects that meet agreed sustainability criteria, in a bid to meet increased borrower demand for such loans.

“Long-term investors are increasingly demanding green loans and we are keen to meet this demand with this sustainable lending initiative,” Sabine Barthauer, member of the bank’s board for real estate, told Real Estate Capital.

Barthauer explained that Deutsche Hypo will grant green loans to energy-efficient properties, with a margin discount of 5 to 10 basis points, calculated under a scoring system devised by the bank.

The suitability of a project for a green loan will depend on criteria such as energy consumption, green certification, proximity to public transport, materials used in the construction and the extent of surface sealing. The tenant mix will also be analysed, and properties with controversial primary tenants will be excluded.

“We haven’t granted any loans so far, but we have several projects in the pipeline, including office deals in Germany and the Netherlands, so we are quite positive about this initiative, Barthauer said.

“For this initiative, we don’t have any lending target yet. We want first to learn what are the requirements from investors and how we can continue developing this offering in the future.”

Deutsche Hypo placed its first green Pfandbrief in September 2017, raising €500 million through the issue of a six-year bond with a coupon of 0.125 percent. A year later the bank issued another €500 million for its second green Pfandbrief, which offered a coupon of 0.25 percent.

“Our experience issuing green Pfandbriefs has been very positive,” said Barthauer. “The introduction of the green loan reflects the consistent implementation of our sustainability strategy on the asset side, and therefore in our core business.”