Net-zero or no loan

The July’s €29 million green loan for Lisbon’s Palácio da Baronesa highlights how green finance is moving into the hospitality mainstream. A PwC survey finds nearly 90 per cent of respondents expect net-zero capital and financing needs to shape real-estate funding over the next five years. Despite ongoing hurdles in standardising procedures, respondents also acknowledged that buildings with weak ESG credentials may not be able to be refinanced in the near future.

Green and sustainability-linked loans are becoming more popular in the hotel sector, though I haven’t come across many in extended stay. The July’s 15-year, syndicated facility signals that lenders now view high-quality aparthotel conversions as institutional assets. For operators, it suggests that credible ESG plans – such as refurbishing and retrofitting a historic property to meet BREEAM certification – are also becoming a prerequisite for competitive financing.

The fact that The July is now majority owned by super fund Aware Super has likely influenced the success of the transaction; the backing of a large investor is reassuring to banks. Smaller, independent aparthotel owners and operators may struggle to access similar financing or to meet the more rigorous ESG demands and reporting standards that lenders are increasingly embedding in to terms.

Yet development trends across Europe, particularly the conversion of hotels, offices and retail into aparthotels, presents an opportunity. Green finance that explicitly funds retrofit and certification can make these conversions possible and attractive. The obligation to measure and report on ESG progress will also raise operating standards in a largely fragmented industry, and those that fall short may struggle to keep pace.

Editorial commentary first published on Serviced Apartment News.