Renewal strategies and CO2 reduction for UBS “Sima”
October 4, 2022
The UBS Sima real estate fund, the largest in Switzerland, has for many years been intensively concerned with the issue of sustainability, particularly with the reduction of CO2 emissions from its existing properties. By 2050, Switzerland, and thus its entire building stock, must become CO2-neutral. UBS Sima sees itself as having a responsibility to drive forward the reduction of greenhouse gas emissions while at the same time achieving the best possible return in the interests of investors – all in a forward-looking, systematic, strategic manner.
Tradeoff between sustainability and profit
In the area of conflict between CO2 reduction and value development, Wüest Partner was commissioned to develop a strategic plan that not only takes into account the measures necessary to achieve the sustainability goals, but also includes economically attractive utilization reserves. The decisive consideration was that the period up to 2050 covers just under 30 years and thus roughly an entire renovation cycle. During this period, all properties will be renovated once. This means that structural measures will be necessary in all cases.
Gray emissions: A new look at costs and returns
A responsible approach to the issue of greenhouse gas emissions is only possible if both the emissions generated during operation are taken into account as well as the so-called gray emissions, i.e. those resulting from the construction measures. It was therefore part of the assignment to include these emissions when determining the best possible strategy. The solution was to put a price on them. This price, together with the investments, forms the cost side. On the revenue side are the economic added values, achieved thanks to the construction measures and the emissions saved.
Four standard strategies are available for existing properties:
Verzicht auf jegliche baulichen Massnahmen. Diese Strategie kommt in Anbetracht des langen Zeitraums von 30 Jahren und des in dieser Zeit zu erreichenden des Netto-null-Ziels nicht infrage.
1. Energy renovation:
Replacement of the fossil heat generator, insulation measures, and possibly a photovoltaic system.
Energy renovation of the existing buildings plus extension, annex, superstructure or additional construction. Only useful in the case of utilization reserves.
3. New replacement buildings:
Demolition of existing buildings plus new construction. Only sensible if the existing buildings are of a certain age and there are significant utilization reserves.
In concrete terms, the task was to determine the best standard strategy (yield minus costs) for each property and the optimal time for its implementation. Since not all properties can be built, renovated, or expanded at the same time, a prioritization mechanism was developed that makes it possible to find an economically and ecologically sensible sequence for the implementation of the planned measures. This takes into account the availability of financial resources (limited annual investment volume) and human resources, as well as the constructional requirements.
“Social” and “Governance” complete the ESG rating
The project is about to be completed. In the near future, it is to be expanded into a complete ESG rating: After focusing on component E (Environmental) to date, the next step will be to focus on the two other components S (Social) and G (Governance).
The following article deals in detail with the renewal strategies outlined here:
Renovation strategies taking into account economics and ecology
For more articles on the link between real estate values and sustainability, see the following links:
Investor survey on the value relevance of sustainability
10 factors that influence the value of sustainable properties