………

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.

We outline the salient details below:

• Scheme starts from 1 July 2011 – 30 June 2015.
• Applies to Retro-fits of existing buildings.
• Applicable to buildings 2 Star NABERS rating or lower looking to achieve 4 stars or higher.
• Available for Office buildings, Hotels and Shopping Centres.
• Provides a 50% increase in deductions over the life of eligible assets.
• Anticipated cost $1bn.

How does it work?

• The scheme will run in the same manner as the recent investment allowances scheme.
• From the 1 July 2011 applications will need to be made to the Government for review and approval prior to any works taking place.
• NABERS assessments will be required before the works commence.
• Upon completion of the works 12 months will need to pass to enable a post construction NABERS assessment to be completed.
• Application with results will need to be submitted to the Government for approval.
• Claim for depreciation may be made with approval in that year accounts.
• Depreciation claims that would otherwise be available can be claimed from the date of practical completion.

The Good

• Fairly generous deduction available given the scale of likely expense to achieve a two star rating increase.

The Uncertain

• This is a proposal and not final legislation.
• There is no current indication what assets will be considered eligible for the 50% allowance.
• The $1bn may be capped by the Government so fewer projects may be eligible.
• How the Government will effectively assess applications.
• Likely to take 3 – 4 years before the incentive reaches owners returns.

Napier & Blakeley’s head of sustainability Roger Walker is one of the members of the committee reviewing the assets that will be included within the scheme.

Napier & Blakeley will keep you informed as more information comes to light. In the mean time should you wish to discuss the above article or any other matters relating to Sustainability or Tax Depreciation please does not hesitate to contact us at Napier& Blakeley.

NSW / ACT / WA / NZ  -  Roger Walker, Alastair Walker -  02 9299 1899
VIC /  SA  / TAS  -  Peter Frith, Rob Howells -  03 9915 6300

 NBNews:  What is NB Sustainability?

RW:          Sustainability is not only about Corporate Social Responsibility; it’s responsible financial management. 

                 Environmental and social sustainability initiatives directly impact the productivity and financial bottom line of running and occupying a property profitably; building, buying, tenanting, selling and demolishing.

                Responsible sustainability is applying the right initiative at the right time to maximise corporate and financial returns during the life cycle of a property development.

                Napier & Blakeley not only have the reputation and breadth of services to deliver this technically, their knowledge of the needs of both tenants’ and landlords’ also allows them to provide valuable strategic, positioning and portfolio priority advice.

 NBNews:  Are there differences between Tenant and Landlord Sustainability needs?

RW:          Yes.  The two perspectives are not necessarily mutually exclusive, but often opportunities are lost in the tenant and landlord relationship that could be leveraged with objective mediation.  You need to work with a partner that understands where the best returns for your investment exist.

                Owners need advice and due diligence that delivers the best market return on their property whether it’s during demolition, construction or refurbishment of existing buildings while tenants’ needs focus on their Corporate Social Responsibility commitments and maximising day to day productivity, such as energy use, recycling and staff wellbeing.

NBNews:  You recently presented at the PIR forum in Coolum.  How was your paper received?

RW:          In a forum of Property Investment Managers, the fiscal bottom line is always the top priority, and with the recent global market strain there’s no doubt that everyone there was firmly focused capital adequacy and cost.

                Some delegates saw Sustainability as something that is ‘worthy’ but low priority right now, while others understood that neglect now may reduce their opportunities in the longer term.  But the business principle for both positions is constant – “How do I maximise returns?”. 

                Sustainability is not just a ‘feel good’ initiative.  It is a cost management tool.  If you have a 4 star premises and a Government tenant requires a 5 star rating next year, you have to consider

§     how much the tenant is worth to you?

§     what options are open to you to reach a 5 star rating cost effectively? 

                Sometimes the solution is “to do nothing” and sometimes it’s a matter of applying an initiative that works for your budget and your required rating.    To ignore it completely is ignoring possible ‘pay back’ initiatives that could cost you market share.

NBNews:  Can you give me some examples of Pay Back on initiatives you’ve implemented?

RW:          The waste management recycling I put in place for Optus recycled 92% of the waste at the Macquarie Park Campus and was 5% cheaper than standard cleaning contracting/waste management services.  I was at Optus for 3 years with the same budget and was able to increase services and deliver significant reductions in emissions across our office portfolio.

NBNews:  What innovations impress you in property sustainability right now?

RW:         The focus of technologies to not only have a positive environmental impact but also a positive impact on occupant productivity impresses me. The biggest breakthrough is in lighting which for a new building can now deliver Australian Standard compliant lighting at around 5 Watts psm for office space. The solutions now exist for retrofitting lighting in existing buildings to deliver 6 watts psm without changes to the ceiling grid so paybacks are around three years and you can complete the work without disturbance to the tenant.

                The demand for reducing green house gas emissions is generating new technologies every day. Manufacturers of technologies such as nitrogen cooled computing and low energy lighting fit outs promote payback periods of less than three years. 

                 Sustainability is a perfect fit for Napier & Blakeley’s commitment to Cost Risk Return and I am looking forward to demonstrating that responsible sustainability equals responsible cost management.