Green Buildings in Commercial Mortgage-Backed Securities: The Effects of LEED and Energy Star Certification on Default Risk and Loan Terms

We study the impact of green building on loans in the CMBS market. A hazard model shows green buildings carry 34% less default risk, all else equal. A matched-sample analysis gives similar results. We attribute the effect to a loan-to-value channel, where risk is lowered by a green price premium. The benefit comes at least partly from the level of green achievement, not only the label itself. Loans on buildings that were green at loan origination have slightly better terms than loans on nongreen buildings. That difference is growing over time, but the effect is economically small compared to default risk.