CEFC to fund new non-prime building upgrades through EG Group fund
Andi Yu | 18 June 2015
Michael Easson and Adam Geha’s real estate fund management firm wants to lead the property industry into a new era with upgrades of inefficient, ugly office buildings.
The Clean Energy Finance Corporation will chip in to finance a new project run by EG Group to buy a dozen office buildings, refurbish them and install sustainability improvements.
The $400 million High Income Sustainable Office Trust will be part funded by a $125 million from the CEFC, with another $125 million to be sought from investors and the balance in debt finance.
The fund will purchase office properties in major cities across the country at an average of $30 million each.
EG Group has seen the benefits of such a scheme already through its experience upgrading an old building in Elsie Street in Burwood, Sydney.
The prerequisite for all HISOT buildings is that they have a low NABERS energy rating so that EG Group can increase the rating by at least two stars, get a longer tenancy and re-sell for a “handsome return” a company statement said.
The company plans to spend three per cent of the purchase cost improving the building to achieve a NABERS rating of at least 4.5 stars.
EG Group co-owner and chief executive Adam Geha said the motivation for taking old buildings and improving their energy efficiency was that there was “a quid to be made”.
“We have believed for some time now that the market doesn’t fully appreciate how cost effective it is and how commercially sound it is to upgrade low NABERS office buildings to high NABERS office buildings,” Mr Geha said.
“We believe it can be achieved on a budget of five to 10 per cent of purchase price.”
Mr Geha said the secondary reason for the project was to make a positive contribution to greenhouse gas emissions.
“We think that it’s overdue that there is an effort being made by commercial property owners to significantly improve energy efficiency and to do it in a cost effective way,” he said.
“Twenty per cent of greenhouse gas emissions come from the built form and there’s not enough progress. People have overestimated the complexity and cost of achieving that efficiency and we’re excited to show property owners all over Australia that it can be done very cost effectively.”
Mr Geha said EG Group would use smart software to analyse plant and equipment in the buildings it bought to find out what systems were “working against each other” and “chewing up energy unnecessarily”.
He said EG Group would mainly look at office buildings in the eastern states cities but in areas outside central business districts, to meet demand sparked by government decentralisation, CBD supply constraints and infrastructure development.
Although, he said, location was not as important as finding buildings with a low NABERS rating.
Once upgrades are completed EG Group hopes to attract blue chip tenants so they can practise what they preach.
“For the most part they profess in their own literature that they are committed to sustainability,” Mr Geha said.
“They should commit to a longer term lease because moving to another brand new build isn’t the best thing for greenhouse gas emissions.”
CEFC chief executive Oliver Yates said the HISOT marked a change in the body’s property program.
“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.”
Mr Yates said the commercial property sector was a key area where energy efficiency investment could 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,” he said.
“More than 90 per cent of the emissions from commercial buildings come from the consumption of grid-supplied electricity.
“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 when compared with buildings with low NABERS ratings.”