Situation

Nuveen Real Estate has set itself ambitious sustainability targets, including signing up to the BBP’s Climate Change Commitment to deliver a net zero carbon portfolio by 2050 (more here). Nuveen Real Estate manages the JHUKPPAIF on behalf of Janus Henderson and this fund has taken a leadership position, setting a target to achieve operational net zero carbon by 2030. One of the largest real estate investment managers in the world (2), Nuveen Real Estate has asked its property management partners to identify opportunities to accelerate the transition to a low carbon economy. Lambert Smith Hampton (LSH) is rising to the challenge.

LSH looked at ways to increase the coverage of solar arrays across the portfolio of properties it manages for the JHUKPPAIF. Many larger roofs are under full repairing and insuring (FRI) leases, which means they come under the control of the occupier rather than the property owner. Therefore, rooftop solar installations on these properties need to be done as collaborative initiatives.

Actions

LSH contacted major occupiers to explore levels of interest in taking forward solar projects. Installations would be funded by JHUKPPAIF, within occupier demises, with the energy sold back to occupiers at discounted rates.

The first response was from an occupier in a 3,320m² retail warehouse in Croydon. LSH brought on Syzygy Renewables to deliver the project. Syzygy carried out feasibility studies, initially desktop and then on site. They engaged closely with the occupier throughout and all plans were signed off by the occupier’s structural engineer. The installation of the 210 kWp system – the measure used to indicate the size of a solar system – was completed on schedule and within budget. It was connected to the National Grid in December 2019.

LSH is now looking to replicate this project with other occupiers, especially those in the industrial sector, which tend to have large roofs that lend themselves to photovoltaic (PV) installations. LSH is promoting solar opportunities during occupier meetings and there are already two additional projects in the pipeline. They also continue to prioritise energy efficiency, which is a significant area for Nuveen Real Estate and Janus Henderson, in addition to renewables.

Financial

The JHUKPPAIF funded the installation of the PV system and hopes to recoup these costs in an estimated 13.2 years, after which it could generate profit by selling discounted energy to the occupier, with the potential to benefit from an estimated 6.27% return on investment over the 25-year lifespan of the system. At the same time, the occupier is benefiting from lower energy costs, as they are purchasing the electricity at a discount compared to market rate.

Benefits

• 52 tonnes operational CO₂ saving in the first year, projected to total 653 tonnes over 25 years.
• Supporting the sustainability goals of the Janus Henderson UK Property PAIF, Nuveen Real Estate, LSH and the occupier.
• Strengthening the occupier relationship, collaborating on a successful low carbon project.
• Demonstrating how property owners, managing agents and occupiers can partner to improve the sustainability of FRI properties.

(1) LSH, 2019.
(2) ANREV/INREV/NCREIF Fund Manager Survey 2019. Survey illustrated rankings of 172 fund managers globally by AUM as at 31 Dec 2018.

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