Take one ageing multi-storey commercial building, add a dash of applied grey matter and an owner aiming for a greener asset – and you have a recipe for great returns all round.
420 George Street in Brisbane was a “bit of a concrete bunker” when Forza Capital acquired the 6300-square-metre 1970s tower for $20 million in 2015, the fund’s director Adam Murchie told The Fifth Estate.
The building had been fully tenanted by the Queensland Department of Transport, however it was 88 per cent vacant at the time the fund added it to their portfolio as the department had upped stumps, a casualty of the former Newman government’s public sector cutbacks.
It comprises 13 levels of commercial space, plus a ground floor retail tenancy and basement car parking.
Good bones and location matter
One thing going for it was location – being right opposite the new Brisbane Supreme Court and Magistrates Courts. Murchie says location is one of the key things the fund looks at when considering acquiring an asset.
They also look to identify the positive attributes of the asset itself. In the case of George Street that included already having integrated glazing units comprising cartridge windows with blinds in the middle, and while not full-length windows, they are all one-half to two-thirds the height of each floor.
“There were a few things that appealed,” Murchie says. “The orientation helped in terms of sunlight.”
Some of its other strengths included a side core floor plate that enabled all four sides of the commercial floors to have natural light, and elements such as end-of-trip facilities and improvements to building services that had been carried out prior to acquisition.
“There had been a bit invested in plant,” Murchie says.
Some of the major investments that have been made to improve the building’s performance include tuning the plant, upgrading lighting and installing lighting sensors in common areas such as stairwells and toilets.
These small steps add up.
Just swapping the carpark lighting to LED added “significant value” to the investment, Murchie says.
Solar PV has been added to the roof. Murchie says PV technology is like “manna from heaven” for an asset owner.
Analysis has been a valuable tool. Looking at the building’s BMS data gave valuable insights. When the power configuration was being looked at, power factor correction was introduced.
The HVAC system also needed a “bit of balancing”, which was carried out.
The overall result has been significant savings on energy use. During a period where there has been a large increase in tenants – it’s now about 75 per cent leased – there has still been an overall decrease in common area electricity use in the order of $20,000 a year.
The building, while currently reflecting a 0 star NABERS rating due to low occupancy over the rating period, is expected to rate 4.5 stars on a fully leased basis. With some further tweaking Murchie is confident it can be raised to 5 stars.
Murchie says he “was blown away” when he saw the consultant’s NABERS modelling.
However he says a higher rating is not necessarily a drawcard for tenants.
“Most people are not too fussed about NABERS ratings.”
A good rating does, however, make economic sense and, taking the broader ethical view, if a tenant can occupy a higher-rated space, they probably should.
The costs for upgrades have been modest, with many quick paybacks.
“There has not been oodles spent,” Murchie says.
For example, the general lobby refurbishment was kept to about $125,000, with LED sensor lighting paying back over several months. Sensor LED emergency lighting in fire stairs cost $25,000 and will be paid back in two years. LED light replacements in car parks and back of house areas cost $3000, with a payback period of only about five months, as they were replaced as they failed. BMS upgrades were done at no additional cost, as was revision of the cold water reticulation system.
Murchie says the interior of the building was like a 1970s hospital fitout.
“I thought it was the most uninspired space I’ve ever seen.”
Upgrading the lift lobbies and entry spaces was part of changing that. The office floors had “super high partitions”, so these were cut down and the areas opened up to lines of sight and natural light.
Murchie says a fair bit of the fitout was recycled on site.
The team turned one of the lower floors into somewhere almost like a furniture showroom, and tenants were invited to select any fitout elements including furniture they would like to re-use in their new space.
Murchie says many tenants were happy to take a significant amount of recycled items.
“We had the advantage with the building being vacant that we could shuffle people between floors,” he says.
The end result was retained as much of the entire building including fitout as possible.
“It’s the result that’s interesting, not necessarily what you spent to get it there,” Muchie says.
Overall, he says his fund gets “really excited” by bringing new life to older buildings.
“My personal view is that taking an existing building from one star to five star is better than the big new six star building.”
The key ingredient is smarts.
“You got to exercise the grey matter.
“It’s about how do we improve a building and make it more occupant friendly… just chipping away and where you can do something, doing it.”