Lloyds Bank Commercial Banking has completed its first deal to be subsidised through the £1 billion ‘green’ commercial property lending fund which it launched in March this year.
The Green Lending Fund allows Lloyds to subsidise margin reductions of up to 20 basis points on loans financing properties which meet certain energy-efficient criteria.
The first loan to be written through the initiative is a £17 million investment facility for fund manager Trinova Real Estate. The four-year loan will fund the purchase of the Vulcan House office building in Sheffield from a private Irish trust for around £30 million.
Vulcan House is let to the Department for Communities and Local Government (DCLG). Completed in 2008, the 120,000 square foot office block is Sheffield’s only BREEAM Excellent-rated building.
In order to secure the margin improvement on its loan – which is understood to have been subject to a margin reduction of up to 20 bps in line with the initiative – two covenants have been written into Trinova’s loan facility.
Under the first, any capital expenditure on Vulcan House must ensure the building continues to achieve its BREEAM rating. The second involves a memorandum of understanding between the DCLG and Trinova to share energy performance data and work jointly to improve the site’s performance.
When the initiative was launched in March, Lloyds said that it hopes the fund will act as a catalyst for the origination of loans which tap into growing investor demand for sustainable fixed-income products such as green bonds.
Under the lending programme, new borrowing requirements of more than £10 million will be eligible for a margin reduction if the borrower meets and maintains agreed energy/CO2 saving performance indicators. Environmental consultancy Trucost has advised Lloyds on creating a tool to benchmark borrowers’ sustainability performance.
“This particular transaction is highly innovative as it creates a platform for the asset owner and occupier to work together towards the shared goal of reducing energy usage. However, this will not be typical of all the deals under the commitment as it offers a wide variety of tools to borrowers,” said John Feeney, global head of commercial real estate at Lloyds Bank.
“We have a strong pipeline to follow Vulcan House as the market continues to show strong interest in innovative sustainable real estate finance solutions,” Feeney added.
“This funding agreement supports our growth by adding a landmark building to our portfolio while also helping to preserve the building’s long-term value, by providing us with the ability to continue to enhance it leading environmental credentials,” added Edmund Costello, partner at Trinova.