LGS Property
2-4 Lyonpark Road, Macquarie Park

Local Government Super (LGS) has scored a 5 Star Green Star Performance rating for its entire direct property portfolio, doing so with buildings aged 28 years on average.

According to LGS property portfolio manager Scott Armstrong, the super fund’s eight property assets are in the most part B-grade and first-generation A-grade buildings.

“They’re not the big shiny glass towers designed to achieve the ultimate sustainability achievements,” he told The Fifth Estate.

Mostly built in the ’70s and ’80s, Armstrong says it proves you can reach “Australian excellence” in sustainability with older buildings through thoughtful management.

Scott Armstrong

“It’s a testament to the mid-tier market, and proves that these assets can be transformed over time with the right sort of management approach and focus, rather than being designed to achieve sustainability outcomes from the outset.”

In contrast, Lendlease last year was awarded a 6 Star Green Star Performance rating for its Australian Prime Property Fund Commercial, though this strictly comprises new Premium and A-grade buildings.

The eight LGS assets include four office buildings, three retail centres and one industrial premises. All up total floorspace is about 95,000 square metres, with the average 11,900 sq m.

The current value of the property portfolio is $600 million. Returns on the property portfolio since the fund’s inception in July 1997 have been sitting at 11 per cent a year.

“It’s been going very well,” Armstrong says.

There’s currently no plans to acquire more properties as property is capped at five per cent of the total $11 billion fund, and it’s already at allocation.

“We plan to keep holding and working value.”

The management of the property portfolio is handled in-house by Armstrong and a property analyst, with a number of outsourced contracts. Armstrong says the way the property management contracts are structured and the fact LGS is in property for the long-term made Green Star Performance an attractive tool.

“One of the reasons why we liked the Green Star tool is that it gave us a fairly focused and disciplined tool to manage property and manage our service providers,” he says.

There are a number of strategies LGS has used to get its rating (including 5 Star NABERS Energy and 4 Star NABERS Water ratings), including:

  • Building management systems – metering/reporting, web-based data and fine tuning of plant and equipment
  • Life-cycle replacement of plant and equipment – new chillers, boilers and lift upgrades
  • Energy-reduction strategies – Type II energy audits, LED lights, solar panels, variable speed fans, chameleon sensor lights in car park/fire stairs, time clocks
  • Water-reduction strategies – dual flush cisterns, low-flow taps and reusing water from sprinkler tank drain
  • Green cleaning – avoiding hazardous substances and vacuum filtration
  • Transport – GoGet cars and end-of-trip facilities
  • Waste and recycling – diverting waste from landfill, tenant waste and recycling programs, recycling of building materials and re-use of tenant fitouts

GreenPower is another strategy LGS has used to cut its carbon footprint, becoming the first portfolio to complete the Green Building Council of Australia’s “Powered by Renewables Innovation Challenge” across all its assets, thanks to its commitment to purchase GreenPower since 2007.

GreenPower covers 100 per cent of the base building energy needs, and Armstrong says LGS has engaged with tenants so 80 per cent of them are purchasing 100 per cent GreenPower for their energy too.

“We go through the Better Buildings Partnership model for our green leasing, and there’s been a strong take-up rate of GreenPower.”

He says LGS’s focus on energy efficiency and the fact that most leases are small (between 200-400 sq m, though also some up to 3000 sq m) has made it easier to get tenant buy in.

“We keep our outgoings low. It’s not like we’re just saying, ‘Sign up to GreenPower’. Plus having things like GoGet cars and end of trip facilities… all of our buildings have modern foyers and the rest of it.

“Tenants feel they get value for money, and they’re more inclined to stay with us and renew [their leases].”

The small size of most tenancies allows LGS to also install basic “speculative tenancies” – speculative office fitouts owned by LGS that Armstrong says helps to reduce the churn and waste that can often occur from the typical fitout process.

“If the tenant goes, it means we can recycle almost 100 per cent [of the fitout] to a new lease.”

Next on the agenda for LGS’s property sustainability is furthering the solar PV rollout. Already there’s a 200-kilowatt system at the Batemans Bay retail centre and a 100kW system at the Macquarie Park office. And there’s a DA approved for a 430kW system at Marketplace Leichhardt, which will double as shading for a carpark.

The $1.4 million system is expected to have a seven-year payback, representing a 14-15 per cent return in investment.

LGS was last year named Australia’s Best Green Super Fund for the sixth time at 2017’s Money Magazine “Best of the Best” awards.

Armstrong says property has played a large role in that achievement, and aside from the $600 million in direct property there’s also indirect holdings in funds like GPT’s shopping centre fund ($40 million) and Investa’s office fund ($35 million). LGS is also looking to further its exposure in new categories, such as US multi-family.

LSG chief executive David Smith said the fund’s commitment to sustainability meant there would be further improvements to the property portfolio.

“We aim to continually improve the environmental performance of our direct property assets, and understand the social and financial impact which the built environment has on the environment, and the wellbeing of the tenants of our investment properties.”

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