Better buildings through CEFC $125M cornerstone investment in sustainable property trust
17 June 2015
The Clean Energy Finance Corporation (CEFC) is committing up to $125 million* in a $400 million trust which will invest in older office stock to upgrade their energy performance to revitalise and reposition them in the market.
CEFC CEO Oliver Yates said the $400 million unlisted High Income Sustainable Office Trust (HISOT), managed by EG Group, marked a step change in the CEFC's property program, which is 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," Mr Yates 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."
Leading real estate fund manager EG will manage the HISOT which will buy, own, refurbish and introduce sustainability improvements in up to a dozen commercial office properties.
EG CEO Adam Geha said the trust would help meet the demonstrated demand for higher performing commercial space in metropolitan areas outside central business districts. This demand has been sparked by government decentralisation, CBD supply constraints, infrastructure development and urban regeneration.
"The CEFC's cornerstone investment will help us accelerate these opportunities for investors who are seeking returns from greener office space," Mr Geha said.
"Our focus is toward taking buildings reaching the end of their economic lifecycle, making the right choices and installing the right equipment to reposition them to meet modern standards and become attractive to high quality tenants."
In broad terms, the improvements will target bringing properties to the equivalent of at least 4.5 stars under the National Australian Built Environment Rating System (NABERS).
Mr Yates said the commercial property sector is a key area where energy efficiency investment can have a substantial and beneficial cross-economy impact.
"About 20 per cent of Australia's national greenhouse gas emissions come from buildings, and commercial buildings account for nearly half of these. More than 90 per cent of the emissions from commercial buildings comes from the consumption of grid-supplied electricity," Mr Yates said.
"Office buildings with a high NABERS rating have been found to have higher rents, higher net operating income and lower capital expenditure. They also have lower vacancy rates and longer Weighted Average Lease Expiry (WALE) when compared with buildings with low NABERS ratings."
*The CEFC commitment was adjusted to $50 million in January 2019.
The CEFC and the property sector
The CEFC's investment in HISOT is part of its property investment program, which is focused on making a real contribution to improving the energy and emissions performance across all segments of Australia's property sector. Financing programs and projects already underway include investments in revitalising and rejuvenating older commercial properties through energy efficient technology upgrades and the installation of renewable energy technologies. Other investments being targeted include funding for significant new building and precinct projects which are targeting significant improvements in building energy performance and on-site generation to provide demonstration of the business case for green property. Existing CEFC property-related investments include:
- A joint initiative with the Commonwealth Bank, which is making up to $200 million available to businesses and local government through Energy Efficient Loans to finance energy efficient technology upgrades and solar installations
- A commitment of $70 million towards a $116 million solar PV Power Purchase Agreement (PPA) program delivered by global solar provider Sun Edison, which is accelerating expanded opportunities for commercial property owners to harness solar to reduce energy costs
- Up to $30 million to leverage up to $80 million in Environmental Upgrade Agreements, to help facilitate the rejuvenation of poorly performing commercial office space
- Project finance for the transformation of a 0-star bulky goods retail centre in Ipswich, Queensland, to a high performing office building reducing energy use by more than 50 per cent
- Project finance for a 1970s Brisbane office building transformed to achieve 5-star NABERS Energy Base Building Rating, reducing base building electricity use by nearly 50 per cent.
EG is a leading real estate fund manager founded in 2000, with over $1.5 billion in assets under management. Its ability to identify and realise opportunities has helped it achieve consistently high, risk-adjusted returns for investors. Its current portfolio spans the retail, commercial and industrial sectors. Its developments across Australia have a pipeline value of more than $2 billion.
EG is a signatory to the UN Principles of Responsible Investment (UNPRI). With offices in Sydney Melbourne and Perth, privately owned EG employs 35 staff. For more information about EG see www.eg.com.au/
Media release, 2015