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Setting an ambitious target
Maintaining a high-rise building in New York City is no simple task. From elevators to HVAC to standard wear repairs, there are countless factors that go into keeping the literal and metaphorical lights on—and each of those factors has its own environmental footprint.
As responsible investors, we need to look at the environmental costs, as well as the financial, for every property we operate. So when we assessed our office property at 575 Fifth Avenue in Midtown Manhattan, we took aim at an ambitious target: reducing the property’s greenhouse gas emissions by 63%.
Taking a three-pronged approach
We initiated a tri-generation energy project that modernizes the building’s heating, cooling, and electricity systems, together. Here’s how it works:
Natural gas-fired engines generate 750 kWh of electricity, producing 2.7 million kWh/yr of electricity for the building to use.
Heat recovered from the engines produce 101,000 therms/yr of hot water to heat the building.
A two-unit absorption chiller system takes any excess hot water generated that the building can’t use. This system is capable of producing 240 tons of chilled water (for an expected chilled water output of 705,000 tons/yr) to support building air conditioning needs.
Better for the environment, and the bottom line
We negotiated an Energy Services Agreement with an experienced third-party energy developer to design, install, own, and operate the tri-generation system. The contract runs for 15 years, during which the property will purchase the electricity, hot water, and chilled water generated by the system. The system will meet about 55% of the property’s energy needs, and reduce our GHG emissions well below any carbon emission levels required by the new NYC Local Law 97.
Not only is this a big improvement for the building’s environmental impact—it also has financial upside. Under the Energy Services Agreement, the property will pay the developer the same price for the generated energy as it does from purchasing it from the local utility companies. In return, the developer will pay the property 25% of the value of the energy produced by the tri-generation system as a Host License Fee. At current utility rates and an assumed occupancy of 90%, there is no cost to the property and the approximate $250,000 per year payment is booked as revenue, positively impacting Net Operating Income. The property only pays for the energy that is produced by the tri-generation system and used in the property, and at the end of the term, the property has the right, but no obligation, to purchase the system at fair-market value.