(pictured: Ulrich Braun)
In the past few years, ESG management has taken on a holistic hue over most big fiduciary funds as an integrated part of their strategies. It is now also starting to permeate niche asset classes that the funds invest in. The latest to be offered in Australia is European property.
Through its asset management direct real estate business, Real Estate Investment Management, global bank Credit Suisse has started to promote its European Climate Value Property Fund, which has its own targets for CO2 emissions reductions and can point to a track record of added value through its ESG strategy and process.
According to Ulrich Braun, Zurich-based head of real estate strategies and advice for Credit Suisse Real Estate Investment Management, the tenants of its big office buildings that have gone through a “greening process”, for instance, tend to stay longer in that building. As with other asset classes, sustainability is starting to matter from an investment perspective in property.
Matthew Perrignon, Credit Suisse’s head of distribution for Asia ex-Japan, including Australia, says that Australia tends to be more in tune with these green factors for property than other countries, such as the US. Australian super funds have, after all, been big investors in direct property for many years and most were early signatories to the United Nations’ Principles for Responsible Investment.
Data from Credit Suisse’s property investments going back 50-60 years, shows that an estimated 80 per cent of the total costs of a building arise from its operation rather than construction. Of that big proportion of costs, 40 per cent is due to energy consumption, 30 per cent maintenance and 10 per cent incidentals.
What Credit Suisse does is look for non-green properties and then to change them through a range of green initiatives, particularly due to energy savings, which lift both the rental value and the actual value of the property.
Credit Suisse has a relationship with Siemens to provide improvements in energy consumption and other operational efficiencies, with more than 1,000 properties monitored for carbon emissions. Between 2012 when the relationship began and 2017, these small savings will add up to over 10 per cent.
Braun says that Credit Suisse’s European Climate Value Property Fund is the first climate-neutral real estate fund in Europe. It invests primarily in commercial properties, offering a potential yield of 4 per cent (in euros, which may also be a good value bet at the moment) and a total return of 5-6 per cent.
The manager tries to add value through the process of “greening” the properties, investing through steady “core”, value-add and opportunistic investments.
Most of the assets will be in the regions of Germany, Switzerland and Austria, and the UK, with smaller allocations to France and the Netherlands and other European states.
Braun says that “core” rather than opportunistic buildings tend to make up the bulk of the portfolio. The investments tend to offer a similar short-term return as the whole market but a much better longer-term return due to the value-add that the managers provide.
Australia, he says, also provides a lot of opportunity for these sorts of property investments as the ESG concept is far more advanced, for instance, than the US.
It is an open-ended fund which provides liquidity twice a year. It is currently approaching a second closing for US$50 million.