By Tina Perinotto
25 March 2010 –For the smarter and more determined operators taking part in the Australian Direct Property Investment Association conference last week, the environmental challenges gathering force over the horizon are not so much a threat as an opportunity.
Peter Fahey of Clarence Property and Warren Ebert of Sentinel Asset Management both told of how they had to battle entrenched, traditional attitudes by builders and consultants in order to develop sustainable, energy efficient buildings for their investment funds – Fahey in northern NSW and Sydney and Ebert in Brisbane.
Both have made substantial gains from pushing ahead of the sustainability curve and the rewards have been tens of thousands of dollars less in outgoings, they said.
“It’s a no-brainer,” Fahey said, yet, he added, “there are developers now building buildings who don’t know the word NABERS [energy rating system].”
If there was a single take-home message from the sustainability component of this conference, that was it.
Many of the 80 per cent of the property investment market that comprises private property owners and syndicates are way behind in the amount of education and information about what they need to shape up, or potentially lose the value of, their most important assets.
It’s a scenario that ADPIA has declared a central issue it wants to redress.
The sustainability sessions and the finance sessions alike revealed a no-nonsense approach that belied the idyllic setting of the conference in the Mirvac-owned golfing resort in the heart of one of Victoria’s winegrowing regions, the Yarra Valley.
Kicked off by former ADPIA president Owen Lennie, it was a no-holds-barred examination of the difficult circumstances faced by many members who are still reeling from the global financial crisis. Perhaps the fund models need to be reinvented, Lennie suggested, referring to still-frozen funds and the near impossibility of access to finance for many members.
The often adversarial role of the banks needed to be clearly understood, he said, illustrating his point with a case study of how sudden changes to lending criteria had destroyed the viability of a property vehicle.
“Never trust the banks,” he warned, and he was only partly facetious.
Taking a lead perhaps from this approach, the participants who made up the roundtable discussions on sustainability were forthright and challenging.
Market drivers – carrots and sticks
Warren Guymer of Thinc, who led one of the sessions along with Gavin Gilchrist of Big Switch Projects, presented the broad scenario that in terms of minimum energy standards, in particular, the market was moving fast.
He cited Daniel Grollo of Grocon saying “if you don’t go for 4.5 star rating now your building will be obsolete by the time it’s finished”.
Arup’s Andrew Pettifer, who headed another sustainability session, said: “Interestingly, if you build a new commercial office building now, from an energy efficiency point of view, you would not build it to the Building Code standards” because the market standard of 4.5 star NABERS was “well above” the Building Code of Australia standard.
However, compared globally regulations in Australia, especially in the Building Code of Australia “lag well behind what’s happening in the UK and other parts of Europe but they are nevertheless moving in the right direction”.
What will change the market fast would be the advent of mandatory disclosure, participants all agreed. [See our article for details]
Guymer pointed out that the Federal Government’s Green Building Fund of $90 million, allocated to assist building owners to retrofit their buildings sustainably, had been well taken up, but the fear was that it funded projects that would have been undertaken anyway, with most recipients companies at the top end of the market.
It was meant to capture the smaller market but it hasdn’t, one participant said. The word on the street is that it could be extended, said another.
Accountant and consultant Tony Rose said he bet that the Green Building Fund would work better when mandatory disclosure was in force.
Peter Fahey had no doubt that greening makes sense. By engaging the right consultant on an underground car park and changing the exhaust system, “we saved $30,000 so then we decided to do it in another building and that’s $60,000 [savings] in outgoings – it’s a no brainer”.
What will push the rest of the industry is mandatory disclosure, Fahey said.
A major impediment for the direct property industry was that unlike their listed cousins, individual or small syndicate and funds did not have an in-house sustainability manager to advise them, one commentator said.
As Adam Murchie, ADPIA’s vice-president, asks in a related article published in The Fifth Estate there seems to be no structural framework of ways to reach educate and advise these silent and disparate members of the property world. Perhaps the most obvious route is through local councils, he suggests.
It was thought by one of the participants that the states were showing some leadership in the sustainability space, but there were conflicting notions about how councils were performing.
Some councils were very unaware, participants said, but leaders included the likes of Orange City Council, which has a sophisticated water recycling policy, and others that had started to require detailed sustainability reports to accompany development applications. “Government and city authorities are setting their own benchmarks,” Andrew Pettifer said.
Melbourne City Council had introduced a 4.5-star minimum standard in its planning instrument and Sydney City Council had examined a similar route (but will not proceed because of legislative impediments, an SCC spokesman later told TFE).
Pettifer shared the results of a study undertaken by his company on behalf of the ACT Planning and Land Authority. “They wanted to see how we could help them improve their buildings in Canberra, so we did a global search and … identified strategies being put in place by governments.”
What the search found, says Pettifer, were a wide range of strategies, such as interest-free loans; seed capital to investigate possibilities; grants and performance modelling.
Some governments have taken to the so-called “green doors”, whereby development approval is faster for green projects, or has lower fees than regular development.
For the ACTPLA, the seed funding method to investigate possibilities was recommended, given that the budget was small – about $2 million.
Education and training
Education and training is critical – but dealing with individual asset managers is tough when the response is likely to be, “I know we are supposed to be doing something and we have this massive report but I haven’t had time to read it yet”.
The other weak link is the major commercial property agencies. This is changing, however, with companies such as Jones Lang LaSalle and Colliers engaged, and others starting to “crank up” for fear of being left behind.
“In the property world, some property owners are realising the best energy savings they can get is by sending the operations manager to go and become accredited [in the sustainability field],” was another thought.
As part of a commission for a city council, Pettifer related Arup’s investigation into the impact on the market of raising minimum energy standards from 4.5-star NABERS to 5-star.
The result? “The interesting thing is it’s not much more at all,” Pettifer said.
For the exercise Arup looked at small, medium and large buildings. “In the worst-case scenario, getting a small building from 4.5-star to 5-star you’re looking at $20 a square metre in addition to a build cost of about $3000 a square metre – it’s not that significant.
“In a medium-sized building the cost jumps to around $60 a sq m, so we concluded that it would not have much of an impact on the market [in terms of cost]”
But go beyond – to a so-far theoretical 6-star NABERS energy or 6.5-star, the cost jumps. Costs in this case could be an additional $350 to $400 a sq m, or an additional 15 per cent of the capital cost of building.
Green bling or new trend?
In a highly entertaining insight into the phenomenon of green marketing, Gavin Gilchrist produced: a beer coaster that promoted green beer; an ad for green fashion; a green Porsche; green Post It notes; a green GPT group; a carbon- neutral resort in the Blue Mountains and Mark “Tubby” Taylor promoting energy efficient air-conditioning.
“I call it the beer coaster principle. If we’ve got to the point where Cascade is promoting itself as a green beer, then there are advertising and marketing people who think there is a market in going green and promoting themselves as green.”
On the other hand, the Australian Competition and Consumer Commission has received a mountain of environmental complaints in the past 12 months
“I don’t think the public gets it at all,” Tony Rose said. “I think they’d like to get it, but they don’t understand that petrol will go up and electricity will go up.”
Gilchrist said “innovation drives profit” and pointed to the huge attention the Harvard Business Review had recently lavished on the concept that it was green innovation in particular driving progress.
And the key message? “We all get it, but it’s the small private investor – they don’t get it. They don’t come to these forums. They have properties of $10 million and $20 million [and] they will react [only] when they see mandatory disclosure.”
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