19 April 2012 – A Brisbane commercial property has delivered a major profit of 33 per cent for the Harvest group after an energy efficient retrofit using Low Carbon Australia finance.
Harvest Property and the Harvest Denison Opportunity Fund are owners and managers of the building, O’Connell’s OBM House, at 26 Wharf Street, Brisbane.
The owners paid $7.95 million for the building in 2010 and sold it for $12.25 million. The sale, less costs, reaped 33 per cent profit – $2.5 million.
- See a previous article in The Fifth Estate: Low Carbon Australia springs to life with first funding deal
The upgrade reduced the building’s energy consumption by more than 40 per cent, increasing the building’s NABERS rating from zero to a targeted four stars.
Chris Slack and Todd Pepper are founding directors of Harvest Property and co-managers (with Denison Capital) of the Harvest Denison Opportunity Fund.
Mr Slack told The Fifth Estate the LCA funding “meant we could expand our quality of service to tenants, allowing us to do some works we may not have done in a less capital intensive way.”
“We were able to help drive up value by using Low Carbon Australia finance to invest in commercial energy efficient technology which delivered immediate energy savings, improved tenant amenity and appeal thereby driving up value.”
“The commercial office property market is highly competitive in Australia, and through its partnership with Low Carbon Australia, Harvest has given itself an edge over its competitors. This resulted in the property delivering a 17 per cent internal rate of return over 24 months and investor return on equity of over 33 per cent,” he said.
The company is planning two similar transactions to the O’Connell’s project in the next few months, Mr Slack said, with opportunities to acquire B and C grade buildings, and upgrade them to A. He would not reveal the buildings as negotiations are underway.
“We have a blend of commercial office buildings and residential villages along the eastern seaboard, we are attracted to the commercial office market because of the growth rate here in Queensland.” he said.
He said A grade buildings attracted top tier companies as tenants, such as major accounting and legal firms, mining and resources companies. B and C grade buildings tended to attract local consulting firms, smaller legal companies.
Mr Slack said his professional backround was in retrofitting. “I saw the value in it. I saw people ‘s economic circumstances, they were distressed, often forced to sell.”
It made sense to add value to a property with new technology or features to older systems such as happened at O’Connell’s OBM House, where new building airconditioning was installed along with the replacement of the base building metering and building management system.
Mr Pepper previously worked in Babcock & Brown’s real estate division, sourcing and structuring debt and equity transactions for complex deals. His achievements in master planning include Horton Park Golf Course in Maroochydore on Queensland’s Sunshine Coast and the Darwin city waterfront redevelopment.
Mr Slack’s views on sustainability are clear. “It is not a fad, it is a sociological movement that reflects a need for a greater degree of responsibility about how it is managed.”
“An office building is going to be there for 50 years, we have a broader responsibility to the community to make sure it is sustainable; we are socially responsible.”
The fully leased O’Connell’s building is a further joint venture with Denison Capital, comprising 11 levels of office accommodation and about 3013 square metres of net lettable area. Tenants include Macquarie Telecommunications, APT Allgas Energy, Cougar Energy and Roy Morgan Research.
Tenants had limited disruption from the retrofit. “We engaged directly with our existing tenants about the work. It was easy to identify and articulate the value proposition,” he said. Each floor was done over a weekend and no tenant was temporarily relocated.
LCA and Harvest developed a tailored financial solution for energy efficiency improvements.
LCA chief executive Meg McDonald, said the sale proved greening buildings paid dividends.
“This demonstrates the significant gains for the commercial property sector through energy efficiency retrofits. Reducing energy consumption delivers energy cost savings and increased value for owners, tenants and benefits for the environment,” Ms McDonald said.