Berlin Hyp's inaugural social mortgage pfandbrief made the commercial real estate lender the first European financial institution to issue bonds in three different ESG bond formats: green, social and sustainability-linked.

Proceeds of the 10-year, €750 million ($800 million) issuance went towards financing or refinancing affordable housing in Germany and the Netherlands, and particularly targets lower income households.

"Rental price increase in Germany outpaced the European average," commented Maria Camilla Neubauer, treasury funding & investor relations at Berlin Hyp. "Households with low incomes are particularly affected by this. The proportion of households that have to spend 40%, or more, of their income on rent is rising continuously.

"In the Netherlands, where we also provide commercial real estate financing, the situation is similar. There, rents have risen by over 15% in the past five years.

"What is special about the Berlin Hyp social bond is that it considers geographical differences", adds Neubauer. A project selection approach considers regional differences when determining what is affordable and what is not.

Orders from 126 investors from Germany and abroad resulted in a more than fourfold oversubscription. At over €3 billion, it was the largest order book achieved for a mortgage pfandbrief at the time for Berlin Hyp.

The bond was finally priced at a mid-swap rate of plus-2 basis points. ESG investors accounted for about 40% of the order book, according to Berlin Hyp.

Berlin Hyp's social bond framework also aims to ensure 'eligible social assets' are not harmful to the environment, with only the most energy-efficient national residential building stock being eligible for financing. Berlin Hyp is one of very few issuers to include an environmental 'Do No Significant Harm' criterion in its framework, which aims to ensure eligible investments do not harm any other sustainability objective as identified by the EU's sustainability taxonomy.

Berlin Hyp currently has 22 different EUR-denominated sustainable bonds outstanding. The bank was the first to issue a green pfandbrief in 2015 and integrated EU Taxonomy green building criteria into its green bond framework in early 2022.

Deal highlights

Issuer: Berlin Hyp
Size: €750 million ($800 million)
Maturity: 10 May 2032
Coupon: 1.75%
Use of proceeds: Affordable housing in Germany and the Netherlands
External reviewer: ISS ESG
Lead manager: ABN AMRO, Commerzbank, Credit Agricole CIB, JP Morgan, Landesbank Baden-Wurttemberg
Co-lead manager: Hauck Aufhäuser Lampe Privatbank
Credit rating: Aaa (Moody's)