2 November 2012 – Environmental Upgrade Agreements ­– your guide to Australia’s finance innovation for retrofit, was authored by Lynne Blundell for The Fifth Estate.  Following is the text of her speech at the Sydney launch for the book.

Good evening. I hope to give you a flavour of what I discovered while writing about Environmental Upgrade Agreements, or EUAs as they are known.

When Tina and I first started talking about writing an e-book on Environmental upgrade agreements we imagined a smallish booklet that outlined the main facts and benefits of EUAs. We had been writing about EUAs since they first emerged a couple of years ago and we could see they had the potential to kickstart retrofits of older buildings.

But once I started on the project I realised pretty quickly it was going to be a bit larger than that. Because writing about EUAs, like writing about anything to do with property, is never just about the subject itself.

That’s why writing about property is never dull. And writing about sustainable property is definitely never dull. It doesn’t matter if the subject is the latest green technology, or a building that has the most brilliant design for its climate and location, or a financial product that overcomes some of the obstacles that are stopping old buildings being upgraded.

In the end, whatever the topic, writing about property is about people and what motivates them.

Peter Frith, Napier & Blakeley; Simon Wild, David Collins, Cundall

Environmental Upgrade Agreements to the minds of many could be seen as a pretty dry topic.

After all what is an EUA? A financial agreement, a loan, a council levy. So what?

It is what is at stake, the motivation behind the creation of EUAs that is the real story here. Why the need for these agreements?

If we look around us we see a smattering of well designed buildings, the award winning buildings that already have the latest energy-saving technology and where people enjoy a comfortable work environment.

But these buildings are not the norm and they are not the real story of the built environment and climate change. They represent less than five per cent of the buildings in our CBDs. I knew this before writing this book on EUAs. But it was through researching and writing this ebook and talking to people who are passionate about the need to upgrade older buildings that the significance of transforming our cities really hit home for me.

More than 95 per cent of the buildings in our cities are existing buildings and more than half are aging, energy guzzling structures desperately in need of upgrading. The average age of buildings in our CBDs accrording to research by the Total Environment Centre is 28 years, the average time since their last refurbishment,19 years. Many of course are much older than that.

In some cities secondary buildings account for much more than half of all buildings – Property Council figures reveal that in Adelaide and Canberra 64 per cent of buildings are B, C and D grade. In regional cities the figures are also high, often with a higher proportion of C and D grade buildings. In Parramatta 43 per cent are C and D grade.

So how to change this?

There are already incentives out there for building owners to upgrade – government grants, the prospect of rising electricity costs, disgruntled tenants. Studies also shows that energy efficient buildings experience reduced business costs, improved tenant retention and increased property values. We’ve included data from several of these in the e-book.

So that should be a major incentive for building owners.

It seems like a no brainer, particularly as research also shows utility costs are the primary driver for building owners to upgrade. In 2009 the City of Melbourne commissioned Arup to analyse Melbourne’s CBD commercial building ownership to aid in the design and delivery of the 1200 Buildings Program.  They found that rising utility costs was the number one driver for building owners in the decision to upgrade across all owner categories.

Some case studies from TEC, which we’ve included in the e-book, highlight the dramatic results of upgrading older buildings.  Upgrade of a C grade building at 100 George St Parramatta resulted in

  • increased  NABERS rating from 1 star to 4 star within 12 months
  • reduced energy costs by 50 per cent
  • reduced outgoings by $96,000 a year.
  • Building value increased by an estimated $6 million
  • Rent increased by 16 per cent  (pre-completion), and was expected to increase 25 per cent post completion
Andrew Aitken, Green Building Council of Australia, Carmelo San Gil, BuildingIQ

A low cost upgrade of the Royal Prince Alfred Medical Centre in Camperdown, Sydney, resulted in:

  • 52 per cent energy saving
  • 20 per cent reduction in water use
  • $84,000 saved per year in outgoings
  • payback time: 1.6–1.8 years

So surely all owners of older buildings would jump to upgrade and reap these benefits.

But there are also obstacles – a shortage of funding and the ubiquitous split incentive where building owners spend the money but tenants reap the rewards of the savings in energy bills.

Enter EUAs. A financial agreement that allows building owners to borrow for upgrades at very competitive rates because the loan is attached to the property and repaid via a special charge through the council rates. And because it is repaid by tenants but covered by the energy savings they receive from the upgrade the issue of the split incentive also disappears.

Jonathan Price, NDY; Simon Fox, Napier & Blakeley; Craig Rodgers, Charter Hall

And the landlord gets a happier tenant.

One of the most fascinating aspects of EUAs for me when writing this booklet, apart from the potential of course to transform our cities, is the difference these agreements could make to the landlord/tenant relationship. Which, let’s be honest, is not always that open and trusting.

A major barrier to upgrades of existing buildings has been the divide between landlords and tenants. According to both landlords and tenants I spoke to, real, open dialogue between the two sides is rare.

EUAs have the potential to turn this around because tenant engagement is an integral part of the agreement structure. EUAs by their very nature require tenants and landlords to talk to each other. Landlords have to talk to tenants about the fact that they are going to be using an EUA to upgrade the building. And tenants have an opportunity to be involved in the upgrade of their buildings – to have more of a say about the sort of place they want to work in.

Some people who spoke to me when researching this book said they could see a time when tenants would actively seek out EUAs – they would go to the building owner and suggest it. That’s because EUAs can bring substantial benefits to tenants. Assuming EUAs are done properly, tenants get a better building and lower energy costs in the future.

So it’s a happy story all round – building owners get a more energy efficient building, which is now worth more, filled with happier tenants who actually want to talk to them.

L to R: Paul Schlaphoff, NuGreen; Tina Perinotto, Lynne Blundell, The Fifth Estate; Tony Arnel, Norman Disney & Young

That’s the story that a writer hopes for – one that comes full circle and wraps up neatly at the end.

But of course real life is never like that – there are people involved and the story of EUAs is still unfolding. People are cautious and they want to see examples and results.

And the word may take some time to filter through. Education is needed – that’s another major thing that those behind EUAs were keen to tell me.

Once those examples start accumulating and tenants and landlords underst

and the real benefits, EUAs may yet be the enabler of great change in our cities.

Stay tuned…and I hope you enjoy the -ebook