Commercial Real Estate Loans

Methods
1

Would the following types of loans both fall under commercial real estate?

  1. Real estate debt where loans are secured against specific building(s)
  2. Debt which has been used to purchase a building among other general corporate financing. For example, if a association uses just part of a loan to purchase a block of flats? Units within the block are bought/sold relatively easily which impacts the portfolio. Data quality for this type of debt will likely be a challenge.
1 Like
2

Hello! Following up on this question. What happens if the asset management division of an insurer lends to companies (whose business line is not real estate) so they can purchase property with a commercial purpose and m2 data is missing? (i.e. not possible to calculate the 67% coverage).
Many thanks!

3

Hello! Can you please follow up on these questions?
Thanks!

4

Hi @katie.murphy,

  1. Yes
  2. So, the debt is not secured against the property, but used to buy property? Are you saying the borrower has a good enough credit rating to be able to issue debt at terms that are more favorable than mortgage/real estate debt and is using the debt raised to fund general corporate spending and assets including buildings? In that case it might classify as a corporate loan, but SBTi would need to look into this in greater detail.

Data availability and quality is often an issue in most asset classes. However, it is part of the commitment to SBTi to engage with counterparties to improve data quality and, if needed, change product design and terms to collect the data necessary to set and monitor progress towards targets. Hence, lack of data is generally not a reason for exclusion, rather the opposite, as that is often the area where most efforts need to be spent to achieve real world emissions reduction.

5

Hi @Donald

Replying to the old thread here but could you still confirm how should banks treat loans that are given to companies not in real estate business but the loan is to construct a new building? Example: Loan is given to a municipality owned university to build a new building for the campus - should such loan be classified as a commercial real estate loan and thus included in the target setting? Would the answers be different if the loan is secured vs unsecured?

6

The construction of a new building involves embodied emissions, rather than operational emissions (while the building is not operational). Loans financing this would be considered real estate project finance.