Driving Sustainable Growth: Paladin Realty's Green Housing Initiatives in Latin America
Paladin Realty has been developing affordable housing across Latin America for over 20 years and has been doing so with certified sustainability over the past decade, utilizing the EDGE (“Excellence in Design for Greater Efficiencies”) system developed by the International Finance Corporation (IFC) to save energy, water, and embodied energy in materials. Sustainable housing provides benefits for investors, developers, and homeowners, further bolstering the case for housing in Latin America. We are passionate about making a positive impact in the commercial real estate space and are dedicated to staying up to date on the latest technologies, news, and ESG strategies.
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Bisnow published a special report discussing green loans and how they are a tool that could help the CRE sector reduce its massive carbon output, theoretically providing a way for lenders to make money by helping borrowers decarbonize their real estate portfolios. However, the investigative series finds that commercial real estate lenders and borrowers remain hesitant to engage with green lending, due to factors such as greenwashing, extensive reporting and paperwork, lack of a common taxonomy, political backlash, etc. At the end of the day, the main challenge is the lack of clear financial incentives. The article states, “If you want to put a number on it, guilt's worth a quarter point on interest on a loan. That's it. That's guilt. Anything beyond that, it's got to be something that can flow down to the bottom line. Right now, that's not matching up.”
In Latin America, by contrast, banks and housing authorities have done a great job of aligning incentives, making it an easy decision for investors and developers to build green. I’ll be writing a detailed piece on this soon, but to name a few Latin American programs to support this effort:
Peru – the Mi Vivienda fund’s “Bono Verde” program provides incentives of up to S/. 31k (US$8,400) for buyers of a certified green home. As developers, we are heavily incentivized to build green to help absorption rates with this boost to affordability. If we’re doing it, our competitors need to do it, which also creates a positive chain reaction.
Mexico – Under the “30 for 30” initiative, several private banks have pledged to dedicate 30% of their loan portfolios to green products by 2030. As such, buyers of EDGE certified projects can get discounted mortgage rates of 200 to 300 basis points vs. traditional mortgages. Developers of such projects can also get discounted interest rates on construction loans.
Colombia – BanColombia and Davivienda have issued green bonds with lower costs of capital that they can thus lend at lower interest rates (up to 200 bps) for green mortgages and green construction loans for certified projects. No margin sacrificed by the bank, lower interest expense for developers, lower mortgage payments for buyers, and sustainable housing—a win for all.
The common thread that holds it together is the EDGE certification program from IFC. With EDGE, there is no issue of taxonomy or conflicting language, roots out greenwashing, and is a user-friendly tool used from country to country, by banks, developers, and housing authorities.
About Paladin Realty
Founded in 1995, Paladin Realty is a U.S. SEC Registered Investment Advisor and boutique real estate investment firm focused on value-added real estate investments in the United States and select markets in Latin America, with a focus on workforce housing. Over the past three decades, we have invested in more than 420 properties in 8 countries comprising $7 billion of total cost across a range of residential and commercial property types, with a particular emphasis on workforce housing (rental and for-sale). Our workforce housing investments to date include 90 value-added U.S. rental apartment properties totaling over 15,000 units and nearly $1 billion of cost. In addition, the firm has developed nearly 40,000 for-sale residential units across Latin America totaling about $5 billion of total cost. The firm was founded in 1995 originally in partnership with the family office of former U.S. Treasury Secretary and corporate leveraged buyout pioneer, William E. Simon. The firm’s senior management team acquired 100% of Paladin Realty in 2006. See www.paladinrealty.com
This report reflects the opinions of Paladin Realty and does not constitute legal advice. Paladin Realty is not a legal expert. Readers should not rely on the accuracy of the information herein and should consult carefully with their legal counsel to further understand existing and potential rent control laws, ordinances and regulations and should not make investments based on the brief summary of complex laws, ordinances and regulations provided herein. This report does not and will not constitute a part of any offering memorandum and is not intended to constitute investment advice and does not take into account the investment objectives, financial situation, or particular needs of a recipient. Paladin Realty does make any representation or warranty as to the accuracy or completeness of the contents of this report and takes no responsibility for any loss or damage suffered as a result of any omission. The opinions contained in this report are subject to change without notice. The author(s) of this report and Paladin Realty’s research team may participate in investment decisions and receive compensation based upon the performance of Paladin Realty and/or certain of its investment funds.
