TRANSITION RISK MASTERCLASS: If there were just 10 Adam Murchies in the country, we’d probably decarbonise Australia’s mid tier buildings a lot faster than the current rate. Either that, or quickly repurpose them once they’re declared stranded assets.
Murchie, who is co-founder and director of Forza Capital, attracted a trail of media stories for his company’s upgrade of a Brisbane building from 1 star NABERS to 6 stars. But the biggest interest came from learning that the investment, bought for about $41 million was recently sold it for “just shy of $60 million”.
Finding similar contenders for upgrades is a challenge, Murchie says. The company has a spreadsheet that ticks off on whether the “bones” of prospective buildings are suitable for such upgrades. But the biggest hurdle, he says, is buying into investments at the right price.
It’s clear though that Murchie has immense curiosity for sustainability innovations and the appetite to make solutions work equally for both investors and planet.
He recently took the long trip to Perth from his home town of Melbourne to meet with the chief investment officer of a “substantial family office” to chat about their impact investments.
“I went, not to talk investment but to pick his brain on what they’re actually doing in some of their projects and to understand if there were things that he was seeing that were relevant to what we do.”
Murchie also pondered whether anyone had done the numbers to see if tall buildings could become a kind of pumped hydro facility, capturing energy they way lifts do these days, given they pump water to top and then let it fall to the ground level again.
He’s also taken a keen interest in a powerplant in the Victorian border town of Mildura to see if it has urban applications.
The plant run by RayGen heats water then uses the heat to spin a turbine to create the energy equivalent for the needs of 1000 homes. One report calls it “a water battery, turning the sun into a 24-hour power source.”
“It’s two massive underground tanks. One’s liquid ammonia, and one’s cold water. And then it’s got a focused solar array [a heliostat tower]. It uses the tower to superheat the ammonia, converts it into a gas that spins a turbine, produces energy, and then they run the gas back through the cold water that liquefies the ammonia, and it goes back into the tank.
“It seems like such a simple system and I often wonder if there is a similar model for buildings in some way.”
Batteries are another challenge.
Forza has looked to see if it could make the installation of a 1 megawatt battery in a commercial building work financially. The cost of the battery was about $1 million, but making it fire safety compliant would have added another $750,000 to the investment.
That started to eat into the economics, Murchie said.
“We’ve got an asset producing revenue sitting inside a real estate asset, and so when you go and sell that real estate asset, how does an incoming purchaser value those revenues?”
The critical factor was that the “electricity profit” trades at about four times or a 25 per cent yield, whereas the property trades at 15-20 times yield or around 7 per cent. We’d actually be losing money as a capital investment.”
Flow batteries are interesting, Murchie says. These are essentially electrolyte solutions and can’t catch fire but their size makes them often impractical to locate in urban locations.
“We’re trying to wrap our head around the platform, how they best work, where they’re best applied.”
Murchie says he’s committed to sustainability but the ESG factors don’t always stack up financially – especially in the current market with capital values falling.
“It’s a perverse irony that it’s in those kinds of markets where there’s a lot of risk around, that you would think ESG and sustainability step up, but it tends to run inverse to that because of the cost of money and other risks.”
There’s plenty of large tenants who say they want sustainable buildings for instance – and that’s evident in some of the Forza properties the group currently owns, but whether they’re prepared to pay more for it is a moot point.
Why does he do this?
In his Perth meeting the family office CIO asked him why he was so interested in these issues. It took him till the next day to think clearly about the reasons and formulate the responses he wanted to share.
There are two answers he told the CIO in an email. One is “why wouldn’t you” given it’s a logical thing to do. And the second, “what’s the cost of not doing it?”
“There might be a small financial cost of doing it. In some cases you might make money out of it. In some cases you might break even. They’re both good outcomes because you’ve got a return that’s you haven’t distilled down to $1, but there’s still a return in some way. On occasion, it might actually cost you money, but then the big question is, what’s the cost of not doing it?”
In some ways, Murchie says the cost is incalculable.
Adam Murchie has more to share. Don’t miss him at Transition Risk in Melbourne only, 8 September.
