Stop talking about going green and start underwriting new technology
By Hannah Duncan
There’s no choice anymore. We’ve run out of time. Buildings must become green. The construction industry pumps out 38% of the world’s carbon emissions, heavily contributing to floods, wildfires, plagues, natural disasters, mass extinction and more.
It’s the sector inflicting the most damage. More than twice as much as all the cars, trucks, lorries, motorcycles, buses, planes, ships, trains, and oil pipelines combined. And nearly eight times more than global agriculture and meat consumption.
Soon it will be too late to undo the damage, as rampant fires heat the planet beyond human control and water levels rise past the point of mitigation. The “irreversible changes” which seemed so far away have already started, now it’s a question of how bad it will be.
The institute for Economics and Peace estimate that 1.2 billion people will need to find a new place to live by 2050. The first half of 2020 already saw 9.8 million forced from their homes due to climate-related disasters. There’s no escaping it, our carbon emissions are destroying the planet.
Consumers know it. Governments know it. International and national regulators know it. Even the crumbling old institutional investors are acutely aware.
With 51% resolute that sustainability means profit, they’re looking to the lagging construction industry for green investment opportunities.
In turn, the construction industry needs bridging lenders to help them out. And they don’t mean installing a recycle bin or re-using water bottles.
The industry needs strong bridging lenders who can understand and underwrite green technology at pace. Technologies which empower them to ditch dirty construction methods and revolutionise the entire industry.
“Bridging is very much a facilitator in the long-term value chain”, explains Chris Gardner, co-founder of Atelier Capital. “The product itself is short-term in nature [but] it helps facilitate the longer term vision”.
Underwrite green innovations like modular technology
Gardner stresses that today’s bridging lenders must get to grips with the latest innovations. “The very, very first thing you need to do is to understand what these technologies are and how you are going to underwrite them”, he explains.
“Everybody knows what the construction risk is. There’s lots of documentation. Lots of knowledge in the market. If you then contrast that with modular (and modular is becoming more and more popular), very few people understand the risk”.
Modular technology, which pre-fabricates the structure before bringing it to site, improves efficiency and safety for the labourers.
It also helps reduce some of the 30% of landfill waste that construction is responsible for. What’s more, modular structures tend to use a variety of sustainable and recycled materials too.
The buildings themselves can even be recycled. Picked up or dissembled and moved elsewhere seamlessly – like a caravan.
There’s a myriad of environmental reasons why property developers and architects want to use modular technology. We’ve listed just a few above, but the green and social benefits are significant.
It’s not surprising therefore, that 67% of contractors believe demand for modular structures will soar over the next years, according to research from the U.S. Chamber of Commerce.
Yet, despite urgent need and rocketing demand, few bridging lenders underwrite modular technologies. It’s baffling but true.
There is such a gap in the market, that lenders like Atelier Capital can easily swoop in and snatch up business with little competition.
“Very few [bridging lenders] understand the risk”, explains Gardner, “to the extent that we see this regularly in our business, and we get offered transactions because we have a good knowledge of modular technology”.
Underwrite green technology or get left behind
For firms like Atelier Capital, understanding green technology is not just about reducing carbon emissions.
“From a business perspective, [you need to have] an understanding of the technologies that you are going to have to underwrite as a Bridging lender. By mastering those risks, you will get a competitive advantage”, Gardner explains.
Globally, the value of green buildings is expected to hit $24.7 trillion by 2030, according to the International Finance Corporation.
This is 128 times more than the value of the green building market in 2016. Clearly, it’s an extremely profitable sub-sector to be in. For Gardner, green is the only way forward.
“Those businesses that are going to surge ahead with a big competitive advantage are those that understand the new world”, he explains.
For bridging lenders to ride the wave of sustainability and benefit, joining an occasional webinar in modular technology is not enough. Nor reading a few scattered articles. No.
The lenders that succeed will be those who embrace green technology whole-heartedly at a strategic level.
The ones who adopt technology and run with it. Keeping up with the tech pays. Ignoring it is fatal. You only need to look at Kodak or BlockBuster to see that. (For readers born after the 90s, these were huge brands who failed to keep up with technological change… which is why they are no longer household names).
“Wherever you can get a situation where you can align your commercial objectives with sustainability, that’s when it really clicks because then its not a burden to your business – its actually critical to the success of your business”, stresses Gardner. “Start looking around at your business and thinking about what you can do today to make an impact”.
It’s not something you can pay for either. “You can’t go and buy ESG, it’s something you need to have in your heart”, Gardner concludes.
Contractors and service agencies might be a good start. But at some point, all bridging lenders will need to underwrite technology.
Today, bridging lenders have a choice: Surge ahead now or become a forgotten business. Either way, green technology is inevitable.
Hannah Duncan is a freelance writer with a passion for finance, sustainable investing and fintech. She loves writing engaging content for industry magazines and investment services, as well as keeping a personal blog at www.hdinvestmentcontent.com
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