Cromwell Property Group says ensuring reliable returns for self-funded retiree investors means putting sustainability front and centre in the development and management of its portfolio, with greener leases, reduced fitout churn and an eye on the prize of low outgoings for energy.
Driving the achievement of green results are the company’s facilities managers and building services engineers, who are kept on the frontline from design through to tenancy support.
The result is a portfolio of Australian commercial properties valued at $2.3 billion occupied by long-term tenants including Origin Energy, AECOM, Qantas and most recently Melbourne Metro, which signed a 10-year lease on three floors of the refurbished 700 Collins Street. The core portfolio’s weighted average NABERS rating is 4.9 stars, with other assets either transitioning into the core portfolio post-repositioning or having reporting aligned with Cromwell’s methodology post-acquisition. The group’s target is a weighted average NABERS Energy rating of five stars.
Green leasing inspired tenancies
Chartered engineer and director of projects and technical solutions for Cromwell Philip Cowling told The Fifth Estate that while the new tenant had not signed a specifically “green” lease, there were elements of green leasing principles in the company’s standard approach.
For example, the fitout left behind by Medibank when it relocated from 700 Collins Street to Docklands may help minimise fitout churn with the company working with the new tenant to have elements such as ceilings and services retained where possible.
An overall modernisation and upgrade has been carried out for the entire building, with a new foyer and cyclist end of trip facilities added to levels two and three. The building has a NABERS rating of 4.5 stars for energy and four stars for water, which was achieved a few years prior through re-commissioning all building systems.
100 Waymouth Street, Adelaide and long engagement with tenants
Cowling says retaining fitout and minimising waste to landfill is a priority for all projects. Another recent project, at 100 Waymouth Street in Adelaide, utilised an approach similar to the Soft Landings Framework developed by the Chartered Institute of Building Services Engineers to facilitate a rapid upgrade process, so a tenant could take up space left vacant when Workcover departed. The tenant had already been through a similar process with Cromwell at 321 Exhibition Street.
The Waymouth Street project is achieving a greater than 90 per cent reuse, re-life and recycle of fitout and other materials during the refurbishment, and Cowling says lessons learned from the Exhibition Street tenancy informed the approach. The company worked with its tenant to deliver a fitout, and then involvement was maintained “for years” to resolve issues, including technical issues.
This gave the project team a clear understanding of what can go wrong when repositioning and upgrading an older building with state-of-the-art systems, and also the particular needs of the incoming tenant.
The knowledge was put to good use in Adelaide, where the same project team and consultant team liaised closely with the local contractors to advise on issues likely to occur if a “business as usual” approach was implemented, and how to avoid them by taking new approaches.
“We have developed a close relationship with the consultants we use, so together we spend a lot of time working with what’s there already in a building, with extremely detailed surveying of every system. There is a lot of front-end effort,” Cowling says.
Educating the contractors and subbies
Associate director of projects and delivery Stuart Deacon says educating the contractor and subtrades is critical.
“You can have consultants come up with the most wondrous designs in the world, but we are talking about the average 45-year-old tradie who has not heard of these approaches, and doesn’t yet understand them. So you have to ensure it is picked up and that the process is really well managed,” Deacon says.
Overall, Cowling says it is a case of not just learning from mistakes – though there has been some of that – it is also a matter of now having specifications that have been developed over the years that make for more sustainable outcomes.
The next step for the group in terms of the Soft Landings Framework is to look at how to document this knowledge so it can provide long-term support and also act as a learning resource, for example, whether particular lighting solutions worked well – or not – and if not, what needed to be changed?
“When we refurbish afterwards we look at, ‘what did we get called out on?’ So we alert contractors to those issues now, and come up with solutions,” Cowling says.
“If we make stupid mistakes to cut costs, for the next eight years or more [our people] bump into that tenant and are reminded of what a daft thing it was.”
In house leasing and sustainability
The company has a long-term ownership approach and manages most activities inhouse, such as acquisition, project management, facilities management and leasing.
Cowling says in-house leasing is complementary to having long term tenants, as there is no commission at stake for brokering new leases. Sustainability is also regarded as a key ingredient of keeping people.
“If you want to keep tenants, you make being there cost-effective, and support them and their aspirations,” Cowling says.
Some tenants are definite about their preferences – some of the younger companies that want to attract and retain quality Gen Y staff look for office space that reflects the value this demographic puts on amenities like end of trip facilities, natural light, good air quality and an obvious commitment to sustainability in terms of staff behaviour programs and support for a green work-style and lifestyle, he says
For the public sector tenants, high levels of energy-efficiency and other sustainability criteria are now mandated in their choice of office. One of the company’s first green leases was for public sector tenants at Centenary House in ACT. This shaped a direction where environmental plans have now become standard across every property.
An engineer’s perspective on sustainability
Cowling says the aim of integrating sustainability is to ensure reliability and protection of the asset portfolio, to guarantee stability of returns for retail investors.
These are “atypical” investors, the self-funded retirees who rely for their quality of life on the “rather complicated machinations” of the money market. There is a core company sense of social responsibility in keeping those investor’s needs in mind, he says.
“The sustainability culture goes to the core of corporate governance.”
Cowling, an engineer for more than25 years, says that before it was called “sustainability” energy-efficiency was basically just good engineering.
“If you did the right thing well, it works efficiently.”
Coming into the Australian property sector from the UK 12 years ago, he says he found a culture in terms of services engineering that often appeared to be one of “run a thing until it blows up and then buy another, and get the cheapest you can for any capital investment.”
While that approach may be changing, Cowling says there is still an imperative to do due diligence and discern the real value and benefit of any sustainability initiative. Some, such as reducing airflow to reduce running costs for ventilation plant, he says, may be risky from a health point of view.
What to upgrade? Chiller or lighting?
Others, like a tenant who says they want to replace a chiller that is not yet at end of life so their building is more energy-efficient – but they only want to replace the chiller – may not get the right bang for the buck.
Cowling says simply replacing a chiller is not going to deliver on a firm-wide sustainable development plan or do anything for staff perceptions or engagement with sustainability, as effectively, nothing appears to change in an office when the chiller gets swapped.
A lighting upgrade was suggested instead, along with a staff engagement program, and this achieved the energy-efficiency outcome desired with a two year return on investment, plus retained the embodied energy of the plant that was not replaced.
“If you’ve just gone out and bought new chillers, [your company] is not energy efficient, only the chillers are. The question is not necessarily answered in that one activity,” Cowling says.
The other matter that needs to be considered about any technology or plant item is whether it will be understood through operation, servicing and maintenance for a 20-year life or more.
Tenant education programs are key to achieving sustainability, he says, as that leads to some of the incremental gains relating to behaviours such as switching off computer screens when not in use rather than leaving them on standby. The hands-on FM-centric approach facilitates these occurring and ensures ongoing support for building users.
Cromwell is continuing to expand its portfolio through both redeveloping existing properties and developing new ones and $700 million worth of developments underway, including a development application in progress for Northpoint Tower in North Sydney, for a significant repositioning and upgrade in line with the local area plan.
The company recently acquired European property funds management business Valad Europe for A$208 million. It is a Pan European platform managing $A7.6 billion in assets across 31 countries and with A$1 billion of projects under development.
For Cromwell’s domestic property portfolio, Cowling says it focuses on the revival of distressed assets, and expects the company cultures will find common ground, including on sustainability, with one of Valad’s senior managers also on the board of the Green Rating Alliance.
While the Europeans have stronger building regulations in terms of the green factor, he says Australia is a leader in energy-efficiency, including systems such as NABERS. By combining the two, he “very much hopes we will take the best of both organisations.”