REITs Are Rushing To Green Bonds As ESG Heats Up

Proceeds from green bond offering proceeds account for 16.4% of all capital raised through U.S. REIT debt offerings so far this year.

Green bonds are picking up steam as the ESG movement gains traction among property owners, with an increasing number of REITs issuing the instruments

Proceeds from green bond offering proceeds account for 16.4% of all capital raised through U.S. REIT debt offerings so far this year, according to S&P Global. At that rate, the segment is poised to hit an all-time high this year. Last year, green bond offerings constituted 10.3% of total debt capital raises.

JP Morgan Securities is the leading underwriter of US REIT green bonds, a title it’s held since 2020. The company is also the top underwriter of REIT bonds overall for the same period. BofA Securities is the second most active underwriter of REIT green bonds and the third-most active REIT debt underwriter,. Goldman Sachs underwrote $1.05 billion in US REIT green bonds since the beginning of 2020, according to S&P Global, finishing third among REIT green bond underwriters for the time period.

The issuance market is also being flooded with new entrants, including AvalonBay Communities Inc. in the apartment sector, Healthpeak Properties Inc. in healthcare and life science, and Realty Income Corp. in single-tenant retail and industrial. 

“Green bonds are really on track to become much more of a mainstream financing vehicle for many of these companies,” Ana Lai, a senior director and real estate sector lead at S&P Global Ratings, told S&P Global Market Intelligence in an interview. Lai added that if rates rise toward the end of 2021, issuers may be able to tap into a pricing advantage for green bonds.

REIT green bond proceeds typically are earmarked for future or recently completed development of sustainably certified buildings that have office and apartment property tenants, Lai said.

In May, Vornado Realty Trust priced an offering of $750 million in green bonds, with the allocation to be used to repay a $675 million mortgage on theMART, the largest privately held commercial building in the US.  The offering was Vornado’s second in the green bond space: in June 2014, it made its initial $450 million offering.

Around that same time, WashREIT expanded its green bond framework with $350 million in green bonds for eligible properties. The REIT said it would target BREEAM In-Use Very Good certifications for the assets, which include an eight-property apartment portfolio that WashREIT acquired in 2019