By Lynne Blundell

Michael Friedlander, smiling all the way to the bank

19 November 2009 – So you own a building. What if you could get investment returns of 23 per cent on retrofitting it without having to invest any of your own money? And get an energy star rating at the same time. Sound too good to be true?

Well that’s what dozens of building owners who Michael Friedlander visited with his proposition thought as well. Those who took him up on the offer are now laughing all the way to the bank.

Chief financial officer of one of the largest pension funds in the world, APG Asset Management Asia, Friedlander has travelled the world trying to convince building owners to do sustainable retrofits. He told them he would put up the cash and all they had to do was reap the benefits. Most were sceptical.

Of course it was not his money he was offering to invest, but that of hundreds of thousands of Dutch pension fund members. It is a fund with a strong sustainable philosophy.

“Nine million Dutch people live below sea level so there is a strong awareness of sustainability. In the fund we must consider climate change in our investment decisions,” Friedlander told delegates at last week’s Profitable Sustainability in Property conference in Sydney, at which The Fifth Estate was media supporter.

Friedlander put together an innovation fund where two per cent of the pension fund’s total assets were dedicated to innovative solutions. He very quickly saw the investment potential of reducing energy consumption in buildings.

That was the easy part. The hard bit was getting other people to see it as well.

“I tried for a year to convince people and got nowhere,” said Friedlander.

The concept is simple. APG puts up the money for building owners to do sustainable retrofits and then they share the financial rewards. The returns come from the financial savings that result from making a building more energy efficient, such as electricity bills. Maybe it’s the simplicity that makes building owners wary.

“Usually they think it’s too good to be true and so we had to do a pilot project to convince them,” said Friedlander.

He channelled $300 million into a separate fund to do sustainable retrofits in China. Then along came the perfect opportunity for a pilot project in Beijing with a brand new building. The owner of the building, Beijing Gateway Plaza, lived in New York and was doubtful that a new building could be improved enough to make any difference to its performance but he decided to see what APG came up with.

The results were astounding. The building was assessed and five areas were targeted for energy improvement, particularly electricity use.

The cash-on-cash return of the project after tax and fees was 23 per cent. And the building owner also walked away with a LEEDS energy rating.

Payback for the project was over 4.1 years with terms of agreement with the fund over 10 years.

“The shared savings model equals shared benefits,” said Friedlander. “For the owner, for tenants and for investors.”

The problem for pension funds is that they can only invest in such projects through fund managers, so Friedlander is on the hunt globally for more fund managers to operate his shared savings model.

“So if you know any fund managers who want to make money out of energy efficient buildings let me know,” he told conference delegates.

lblundell@thefifthestate.com.au