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Commercial Department: Q&A: Mike Italiano, Capital Markets Partnership: April 2014

 

Q&A: Mike Italiano, Capital Markets Partnership

Mike Italiano, CEO, Capital Markets Partnership

Can green building bonds reverse climate change?

Even though “green” may be a hot buzzword in real estate construction, the drive toward sustainable building practices has been a decades-long journey. Mike Italiano, chief executive officer of Capital Markets Partnership (CMP), has been on the frontline of the movement toward environmentally responsible construction and financial practices. The CMP is a nonprofit coalition of banks, investors, governments and countries that implements sustainable investment products based on green building and manufacturing consensus standards. We spoke with Italiano about the importance of this work and the abundant opportunities it offers commercial mortgage professionals and capital markets.

You’ve been senior analyst in the White House Science Office during the Carter and Reagan administrations, among other governmental roles. How has that influenced your subsequent involvement in advocacy for green construction and business practices?

I’ve worked a lot on national environmental standards because of the need for the private sector to get engaged — the federal government can’t standardize everything, in particular in the building industry. I became involved in voluntary consensus standards — that’s how the industry is regulated. There’s no dominant federal or state role. The building codes are a collection of consensus standards. That’s one of the key reasons Leadership in Energy & Environmental Design (LEED) took off: We developed a standard, there was a market demand, we had a lot of companies that supported it, and local governments and cities adopted it.

What shifts in attitude in the building industry did you observe between when you co-founded the U.S. Green Building Council in 1993 and when Capital Markets Partnership was launched in 2005?

There were a lot of important shifts. Environmental issues had been prominent in many other industries, but this was the first time in the building industry. It moved from “doing the right thing” to “Hey, I see some really great business advantages.” The owner-occupiers of buildings really embraced it first, and the market for it became competitive. Cities and states started picking it up, and then the federal government saw that it wasn’t going to go away. That made it a very compelling business case. In 2009, we put that business case together with Wall Street and released it; it was quite comprehensive, with over 30 reports, consensus standards and industry surveys.

What has been the effect of the move toward green construction, the consensus standards and greater awareness of the urgency of environmental responsibility?

In our updated due diligence with leading economists this year, JPMorgan [Chase & Co.] published a report noting that there’s a very high probability of climate change going irreversible. We thought we had needed 6 gigatons of climate-pollution reduction; now we need 18 gigatons. Eighteen gigatons is equivalent to retrofitting the U.S. building stock at about a 40 percent pollution-reduction rate, which is what green buildings average. We need to get $2 trillion to do this. There’s nowhere else we can get $2 trillion, other than the real estate capital markets, but fortunately there are investors with over $70 trillion in assets in their management. So there’s plenty of money.

How will green building bonds tap into capital markets and help turn the tide on climate change?

The bonds are no different than mortgage-backed securities, with the only exception being that they’re 100 percent green mortgages. We developed them through the green-building underwriting standards as a simple add-on to the normal due-diligence process. It’s pretty easy to do a green-value score for each property; the underwriting standards we “baked into” it. The bonds have to have a green-value score. We see a huge demand for them. It can reduce the 18 gigatons of climate pollution. When we get the first bond launched, because the demand is so high, the market will move automatically.

There’s so much riding on it. It’s a little scary to be dependent on the capital markets to solve climate change in the near term. We believe this will create a $1 trillion private-sector stimulus and add a lot of jobs.

What do you recommend to mortgage professionals who want to take greater advantage of the opportunities provided by green building?

I would be giving a lot of extra push to my customers and clients toward those properties that are green. Those are the properties that are more valuable, and although the market doesn’t fully recognize it now, data shows they’re on top of the market in rent, occupancy and highest valuation. I would focus on those because you’ve got much more valuable collateral and property that’s going to be very competitive.


 

Kurt Stephan was editor of Scotsman Guide's Commercial Edition. For questions about this article, call (800) 297-6061 or e-mail articles@scotsmanguide.com.

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