Investigation of the Greenium in Commercial Mortgage-Backed Securities

Kahveci, Sena
In recent years, environmental factors seem to play an important role in financial decisions, particularly due to the increasing popularity of sustainable investing strategies. One of the investment alternatives in this field is green commercial mortgage-backed securities (CMBS), complex financial products supported by loans on commercial properties with environmental certifications or sustainable characteristics. This thesis investigates the presence of a "greenium" in CMBS by comparing note rates of green-labeled and traditional mortgage loans, as well as the pass-through rates (PTR) of their corresponding CMBS. Findings indicate that green-labeled multifamily properties secure mortgage rates 12-20 basis points lower than non-green properties, while the evidence for PTR is mixed. Notably, green certification from independent third parties doesn't significantly affect mortgage note rates but does lower the PTR of CMBS by 48.46 basis points, suggesting secondary market participants value these certifications. Policy changes in September 2019 and the Covid-19 pandemic influenced note rates and PTR of green-labeled and green-certified CMBS dıfferently. Overall, the research underscores the existence of greenium in both commercial mortgage loans and CMBS markets, with certified green properties benefiting more significantly in the securitized market. The findings of this thesis add to the expanding knowledge of sustainable finance, and the pricing of commercial mortgages and CMBS. Furthermore, the findings have significant consequences for investors, policymakers, and market participants interested in comprehending the connection between environmental conditions and the valuation of commercial mortgage-backed securities.
Citation Formats
S. Kahveci, “Investigation of the Greenium in Commercial Mortgage-Backed Securities,” M.S. - Master of Science, Middle East Technical University, 2024.