Melbourne has claimed victory in the race worldwide to sign the first Environmental Upgrade Agreement. In a $400,000 deal announced today (Thursday) Sustainable Melbourne Fund has financed an upgrade program for Varga Brothers’ 460 Collins Street, Melbourne, as part of the City of Melbourne’s 1200 Building Program.
This long awaited first contract opens the door to a potential bonanza in investment into building retrofits using a mix of private and some public funds, secured by covenants that channel repayment of loans through a levy on council rates.
NSW has also passed legislation to allow a similar mechanism to operate state wide.
It’s been a closely watched space: the deals are believed to be complicated and fraught with sensitivities over tenants’ rights, and those in the know have been closely watching for the first arrangement to get over the line, giving confidence, it is hoped, to others to follow.
According to a statement today from the Sustainable Melbourne Fund, which administers the environment upgrade finance for the 1200 Buildings program, the agreement will allow for the installation of an energy efficient chiller unit and building management system upgrade in the Collins Street building.
Chair of the Future Melbourne (Eco-City) Committee, Councillor Cathy Oke said the agreement meant Melbourne now led the pack of cities in the UK, USA and Australia with the scheme.
“The retrofitting revolution has begun. The opening of this financial mechanism is a key step toward unlocking $2 billion in retrofit activity in the municipality of Melbourne,” Ms Oke said.
The mechanism enabled provision of finance at “reasonable” rate Ms Oke said and she was confident the would be more agreements to come.
Chief executive of the Sustainable Melbourne Fund Scott Bocskay said the EUAs essentially allow property owners to share the cost of retrofitting with tenants, who could also enjoy the benefits of higher performing tenancies.
“Building owners and occupiers can now access an innovative financial mechanism that enables them to unlock greater savings and improve competitiveness,” Mr Bocskay said.
“Financiers now have a strong incentive to advance funds for retrofit works, with the ability to recover funds as a statutory charge providing them with certainty. The development of the environmental upgrade charge has created a new marketplace, underpinned by a new asset class.
“Sustainable Melbourne Fund’s investment in the first agreement is representative of our commitment to developing this new market. We congratulate NAB for developing Australia’s first commercial financing structure for environmental upgrade finance and look forward to seeing many deals being transacted through this mechanism into the future.”
NAB partnered with Low Carbon Australia Limited and Eureka Funds Management Limited to develop the finance product and is optimistic of more to come.
The bank’s managing director and head of property finance, Andrew Balzan, said: “The funding solution allows City of Melbourne to dually incentivise property owners and their tenants to upgrade buildings and reduce carbon costs. NAB is proud to be a part of developing Australia’s environmental finance market and looks forward to building on the program.”
Chief executive officer of Low Carbon Australia Meg McDonald said: “This innovative financial program will help the commercial property and business sector realise cost-effective energy efficiency gains and contribute to Australia’s move to a low carbon economy.”
Sustainable Melbourne Fund is expected to soon announce another project to be funded through NAB Environmental Upgrade Funding.
