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Goldman Set To Profit From Strong Appetite For Green CMBS

The River Ouest office building in Paris.

Goldman Sachs is set to turn a significant profit on a loan it is securitising due to the strong appetite from institutional investors for bonds backed by loans to sustainable properties.

Goldman is set to sell bonds secured by a loan used to purchase a sustainable office building in Paris at a lower interest rate margin than that on the original loan it provided, according to CoStar. The arbitrage between the margin on the bonds and the loans means the bank will make a profit on the deal. 

It is the first ever European green CMBS transaction, and one of the first ever globally. In 2017, Natixis undertook the first ever green CMBS deal when part of the loan Ivanhoé Cambridge used to buy 85 Broad Street in New York was securitised and sold as green bonds.

If banks think they can securitise green loans at a profit, then they are more likely to provide these loans. If the debt for sustainable buildings is cheaper than that for unsustainable buildings, it will nudge investors toward buying and building greener buildings.

The original loan in the Goldman transaction totals €195M (£164M) and was used to fund the €343M purchase of the 692K SF River Ouest office campus in Paris late last year by London-based investor LRC Real Estate.

The building, which was built in 2009 by HRO, the property company of Gerald Ronson’s cousin, Howard, has a BREEAM ‘very good’ rating, which was confirmed last year. As a result, the bonds comply with the International Capital Markets Association Green Bond Principles, meaning Goldman could market them to organisations looking to make green investments. Under the terms of the bonds, the owner must maintain or improve that sustainability credential.

The bonds are likely to have an interest rate margin of 110 basis points, compared to the 240 basis point margin on the original loan, CoStar said. The margin on the bonds reduced — meaning Goldman is essentially selling them for a higher price — due to strong demand from investors.