Higher valuation and green financing due to sustainability measures

– This made a significant difference in our valuation of the property at Tevlingveien 15, says Jon H. Dahlberg Årstad, CEO at Newsec.

Karlander Eiendom and the tenants of Tevlingveien 15 initiated a series of sustainability measures to improve the efficiency of the 6000 square meter office-building at Alna in Oslo.

– We installed solar panels on the roof, improved waste separation with Carrot, changed ventilation system and established a centralized operations system, says Joakim Fuglerud, CEO at Karlander Eiendom.

Green financing

Documenting their sustainability measures using software from Carrot's partner VARIG®, Karlander Eiendom applied for green financing.

– We showed how the tenants could effectively be engaged and how accurately we could monitor and measure the effects through VARIG®. The bank saw how our green measures contributed to more value being created. This ensured a green loan to finance the measures, Fuglerud explains.

The measures was aimed at making the building operations more effective.

– This way we could reduce the shared costs, making the building even more attractive for tenants. Which in turn would increase the building’s value, he says.

Depreciations and increased ESG-demands

Higher interest rates, the risk of reduced financial operability from tenants, and general unease in the global financial markets, are already affecting valuations of commercial real estate in Norway, according to Dahlberg Årstad at Newsec.

Dahlberg Årstad explains that they generally see increased demands from investors, banks, and partially tenants, for ESG-documentation within commercial real estate.

– The most important driver is the EU-taxonomy, issuing the standards for what can be classified as a green investment, or not. The energy consumption and classification of buildings are having a steadily increasing impact on the property values. Sustainability and energy are therefore becoming more key in our valuations, he says.

Subdued depreciation

– The measures and documentation made it possible for us to lower our estimated depreciation, Dahlberg Årstad says.

The valutaion ensured Karlander Eiendom did not challenge the LTV (loan-to-value) or any of the other terms of the building’s financial agreements.

– In addition, the sustainability measures contributed to expand the down payment horizon on our loan, providing us with flexibility. Our tenants will also be net positive from our collective effort. We are now far better equipped to meet the increasing sustainability demands with which our industry are faced, Fuglerud says.

Linking sustainability with profitability

Sustainability is becoming a the real estate sector needs to become either profitable or a compliance matter before it really takes off.

– What we are experiencing right now, is that the requirements from the EU takes sustainability from a nice-to-have to a need-to-have. Eventually, no one will have any excuse for not becoming more sustainable. At that point, the rest will take care of itself, says Tore Totland.