Nuveen Real Estate and Lambert Smith Hampton aim to deliver impressive carbon emission reductions for the Janus Henderson UK Property PAIF (JHUKPPAIF) by partnering with a retail warehouse occupier in Croydon to install a 210 kWp solar array. This project demonstrates how property owners, managing agents and occupiers can collaborate to improve the sustainability of properties where there are full repairing and insuring (FRI) leases. Building on this success, additional projects are in the pipeline.
Projected 653 tonnes CO2 saving over 25 years (1)
Low carbon electricity for occupier at a discounted rate
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.
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.
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.
How to partner with an occupier on a live site?
Nuveen Real Estate, LSH and Syzygy engaged closely with the occupier at every stage. Substantial work was carried out early on to make sure that the PV system would not impact the occupier’s operations, including ongoing health and safety and security, as well as the customer experience during installation. The occupier’s structural engineer was involved at the design stage and provided sign off on the plans. There was also significant interaction between the occupier and the installation team to ensure that the installation process went smoothly. For instance, with the mobile elevator platform used for installation needing to be located by the service entrance, the team carefully scheduled this operation and maintained constant interaction with site staff, so it did not affect the site’s deliveries and works. As a result of the close engagement throughout the project, the installation was completed on schedule, only taking a few weeks, with everything done to the occupier’s satisfaction.
How to overcome specific technical challenges?
Technical challenges on this project arose when the structural survey revealed that the main central area of the roof would not be able to support the additional weight of the panels. Syzygy adapted by redesigning the PV system around this structural restriction, using different areas and set-ups to achieve the same forecasted output. They also redesigned the existing safety system for people to access the roof. This allows for the ongoing operation and maintenance of the PV installation. This new system will also make access easier for other works on the roof. A further challenge arose when the National Grid requirements for connecting PV systems changed at a late stage, following a power outage elsewhere in the country. The National Grid introduced a requirement for additional testing, which would have added significant project costs. However, this challenge was overcome through discussions with the National Grid and extensive documentation provided by the diverter manufacturer, which gave the necessary level of reassurance so the system could be successfully connected to the National Grid.
(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.
Important Information: The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, tax or legal and regulatory developments. The material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor's objectives and circumstances and in consultation with his or her advisors. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. This information does not constitute investment research as defined under MiFID.
A word on risk
Investing involves risk; principal loss is possible. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. YOUR CAPITAL IS AT RISK.
Abigail Dean, Head of Sustainability at Nuveen Real Estate
“Our collaborative solar installation in Croydon is a good example of how we are working in partnership with occupiers and managing agents to accelerate the transition to a low carbon economy and future-proof our portfolio, creating value for our clients in tomorrow’s world.”