ecoinvestor.com.au June 2015

Property

Office Trust to Make Buildings Sustainable

Real estate fund manager EG Funds Management (EG) is establishing an unlisted $400 million wholesale fund with a portfolio of sustainable office buildings and has secured the Clean Energy Finance Corporation (CEFC) as a cornerstone investor for up to $125 million.

Chief executive Adam Geha said EG has identified sustainability as a key value driver and the High Income Sustainable Office Trust (HISOT) will make a real improvement in the energy efficiency of selected buildings in a way that also produces great commercial outcomes for its investors.

A significant number of office buildings have been identified that are coming up for lease renewal in the near future and a large proportion of these have NABERS ratings of less than 4.5 stars.

EG is in the process of closing the fund and reviewing the assets for acquisition. It will invest in up to a dozen B and C Grade office buildings on the eastern seaboard and in metropolitan areas outside central business districts.

Mr Geha said the demonstrated demand for higher performing commercial space in these areas has been sparked by government decentralization, CBD supply constraints, infrastructure development and urban regeneration.

The focus is toward taking older buildings reaching the end of their economic life and installing the right equipment to reposition them to meet modern standards and become attractive to high quality tenants.

Improvements will include the latest integrated building and HVAC management systems with real-time energy monitoring technologies, energy efficient technology upgrades, and installation of renewable energy technologies.

A previous building upgraded by EG realized an internal rate of return of 25 per cent on investment. EG purchased a 6,400 square metre Burwood, NSW, government-tenanted office building in 2010 for $25.35 million. A $600,000 upgrade increased the NABERS energy rating from 3 stars to 4.5 stars through installation of a new chiller, pumps and variable speed drives, and a building management system and heater controls.

EG has over $1.5 billion in assets under management. Its portfolio is across the retail, commercial and industrial sectors. It is a signatory to the UN Principles of Responsible Investment (UNPRI).

The chief executive of CEFC, Oliver Yates said this is the first time the CEFC has made an equity investment in the Australian real estate sector. "Our investment in the fund marks a change in the CEFC's property program. We are focused on achieving better buildings by accelerating investment in greener buildings to deliver increased performance and lower carbon emissions."

"There are compelling reasons for property owners to upgrade older commercial buildings," he said. "Apart from lower energy costs, greener buildings have been shown to deliver higher rental income and higher net operating income. At the same time, upgraded buildings require lower capital expenditure and have lower vacancy rates."

About 20 per cent of Australia's greenhouse gas emissions come from buildings, and half of these come from commercial buildings. More than 90 per cent of the emissions from commercial buildings come from grid-supplied electricity, he said.

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