Green Ratings

Buyers Beware… Investigate or Reach for your Wallet

In the last year Napier & Blakeley have undertaken more than 100 physical due diligence and capital expenditure forecast exercises with a combined value in excess of $10billion.

It’s rare to find nothing that would be considered problematic for an incoming owner, but the last few years there have been a few issues that have become commonplace through either lack of ongoing investment and maintenance or as a result of new market legislation.

The GFC brought substantial financial constraints to the entire economy but for property owners it brought pressures through loan to value ratios (LVR’s), reductions in value and rental income. This created a catch 22 situation where many knew they had to keep maintaining and spending capital to keep their assets compliant, relevant and therefore rentable, but were unable to directly fund or borrow funds to do so.

We recently re-analysed an asset that we had prepared due diligence and capex forecasts for a few years ago, and the list of items that we identified in our initial report were almost completely the same as now. Nothing had been fixed, maintained or repositioned. So, many years down the track the asset has fallen deeper into redundancy and therefore costs more to rectify. Continue reading

R & M Diminished

Is your ‘too good to be true’ property deal rally sustainable?
According to Napier & Blakeley managing director Alastair Walker, lack of capital post GFC has lead to a significant neglect of repair and maintenance (R&M) and Capex spend.  Having worked on property due diligence valued at plus $10B since the GFC, Napier & Blakeley has seen only nominal spend on upkeep compared with previous years.

Reduced Life Expectancy and Premature Capex
Recent technical due diligence and condition assessments have also found that the lack of R&M and Capex budgets for economic life driven plant and equipment overhauls and refurbishments has resulted in increased short and medium term Capex.

To put this in context, without appropriate R&M, major plant items may have an economic expected life of (say) 25 years, however the reduction of removal of maintenance can result in a major shortfall in expected life to around 15 years.

The Reaction
Astute purchasers have become aware of this risk and look for these patterns in their technical due diligence reporting to ensure that appropriate Capex costs are factored into the purchase price to account for a vendor’s R&M expenditure shortfalls. 

Condition assessments, maintenance reviews, energy assessments and risk weighted strategic Capex forecasts have become 2010’s essential tools for good asset and facility management and sustainable property solutions.  Continue reading

Greening the Inner Buildings

An ambitious North Sydney project intends to set a “follow me” example for the industry and demonstrate the possibilities for greening existing buildings.  Chris Larsen reports in the Property Australia Magazine Dec 2010/Jan 2011.

When the 76 Berry Street project is complete, it may not look different from the outside – but underneath will hum a world-class sustainable building.  76 Berry Street, North Sydney is the flagship project of the re-lifing program for the Local Government Superannuation Scheme’s (LGS) property portfolio. 

The program encompasses six office buildings, plus retail and industrial properties, but 76 Berry Street is the most ambitious.  “The opportunity is to take this asset to the next level and make it iconic as far as existing buildings are concerned,” says LGS property portfolio manager, Brian Churchill.  LGS had previously repositioned the 1980s vintage 76 Berry Street from what it dubs “B” grade to an “A” grade asset in 2005.  However, that refurbishment had not included a major upgrade to the building’s plant, because it was not at the end of its lifecycle.  The earlier upgrade had repositioned the building and it received higher rent because of it. 

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Tax Breaks for Green Buildings

 

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Using depreciation as a way to encourage the greening of the build environment has been a hot topic for a number of years. During the recent federal election the Labor party announced policies that included the delivery of such incentives.

Last week via their web site Labor provided a little more flesh to their approach in this area.

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CBD Legislation Update – Exclusion for Mixed Use Buildings

 

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Today the Australian government announced that mixed use buildings will be excluded from the CBD legislation for a period of twelve months and major new refurbishments will have a two year exclusion from date of refurbishment.

Following industry consultation the Australian Government Department of Energy Efficiency  and Climate Change set up an industry forum to review the implementation of the Commercial Building Disclosure legislation (mandatory rating legislation).

This group includes Roger Walker, Head of Sustainability at Napier &  Blakeley. We are pleased to advise that Roger’s advice that the legislation should exclude buildings which do not have a minimum of 75% office use has been accepted by the Hon Minister Combet.

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Future Proofing your Commercial Property

If you are contemplating an upgrade of your office, retail, hotel or industrial property, you may be left with a redundant building if you are not  considering a sustainable property solution. 

Napier & Blakeley offer a wide range of consultancy services that will help you deliver  a more efficient and marketable solution for your property. Our services include:

  • Energy assessments      
  • Sustainable design advice
  • Government Funding advice
  • Project financing options
  • Cost Planning and Life Cycle analysis
  • Project Management
  • Property Tax profiling

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Green Building Funding Available for Hotels

A part of the Green Building Funds $30M Grant program is available for Hotels but what will you be required to do to access the funds?

Formal guidelines have not been established but in line with the previous Green Building Fund you will be required to demonstrate greenhouse gas savings. A NABERS Energy assessment is a sure way to demonstrate existing property performance so you can then measure the improvements being targeted through upgrades.  

If you are considering upgrading and applying for a Green Building Fund Grant for your Hotel then we can assist you in this process. Napier & Blakeley have been successful in obtaining over $5M in funding for our clients in the previous Green Building Fund rounds.

The Hotel NABERS Energy rating is not applicable for all hotels and you should consider the following when reviewing the requirements to obtain a rating.

 

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Recent Trends in Technical Due Diligence

Is your ‘too good to be true’ deal really sustainable ?

Lack of Capital post GFC has lead to a significant neglect of R&M and Capex spend.

Having worked on property due diligence valued over $10B since the GFC, Napier & Blakeley have seen only nominal spend on upkeep compared with previous years.   

Risk of Non-Compliance (i)

During this period the increasing trend has been a notable reduction of Repair and Maintenance (R&M) and Capital Expenditure (Capex)  budgets. Whilst this strategy may have been necessary in some circumstances e.g. postponement of non-essential Capex, we have found too commonly evidence of non-compliance regarding statutory maintenance such as testing, auditing and reporting of essential safety measures and fire safety systems.

Reduced Life Expectancy and Premature Capex 

Recent technical due diligence and condition assessments have also found that the lack of R&M and Capex budgets for economic life driven plant and equipment overhauls and refurbishments has resulted in increased short and medium term Capex.

Continue reading

How the energy disclosure is to impact on the Aussie property market

Australia will start requiring landlords to disclose energy efficiency ratings for their office buildings when leasing or selling from the start of November.  Nearly a third of the Australian office market is currently rated for energy efficiency by the government and the new legislation will likely have an impact on valuations and create a push for upgrading efficiency.  Here are some questions and answers on how the new regulation works, how foreign investors and REITs will be affected, and what implications the new rules could have on the property market.

How do the new rules work ?

Sellers or lessors of office space of 2,000 sq metre (21,530 sq ft) or more will have to disclose an up-to-date energy efficiency rating. Starting from Nov. 1, owners will need an energy rating from the National Australian Built Environment Rating System (NABERS) when leasing or selling. When putting properties on the market, advertisments should include the ratings. The NABERS rating measures energy performance on a scale of 1 to 5 stars with the median market performance currently at 2.5 stars.

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Does the election outcome create further opportunity for greening your office building, retail centre or hotel ?

 

The short answer is yes it does, with direct financial support for improvements in emission reductions for commercial buildings.

Election promises impacting the commercial property industry were:

  • Green Building Fund extension (now office, retail and hotels that can be NABERS Energy rated) with $30Million dollars available for funding for new application rounds from now until July 2011.
  • Tax allowance bonus for Green building improvements, for office buildings, Retail Centres (over 10,000sqm) and Hotels. Conditions will apply, but if you meet them then this is a 14.5% reduction in project costs for improving energy efficiency.

With the details yet to be defined by the responsible departments we assume that the green building fund mark 2 will be delivered fairly quickly and with their previous rounds offering around $15million per round then another two rounds should be undertaken. Perhaps one for January and one for April 2011, which allows for time to set up and then for all funding agreements to be finalised before the tax allowance bonus commences in the following financial year.
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