7 world trade center new york city’s first green skyscraper jonathan mendelson josh...
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7 World Trade Center
New York City’s First Green Skyscraper
Jonathan MendelsonJosh Kunin-GoldsmithJohn R. Forbush
May 4, 2007
7 WTC is the first building to open on the site destroyed on 9-11
Symbolic value to City, State, and Country
Built by developer Larry Silverstein Building green was a big
selling point ample natural light superior air quality energy and water conservation
Several ‘green’ studies were combined for this analysis
California Green School CBA, 2006 Massachusetts State Green Building Cost-
Benefit, 2005 Green Office Buildings Development Guide,
2006 New York State Energy Research and
Development Authority Numerous other articles, press releases,
and sources
7 WTC has been Gold certified by LEED
The EIA predicts steady real energy prices over the next 20 years
0
5
10
15
20
25
30
35
1980 1990 2000 2005 2010 2020 2030
Crude Oil
Electricity
Coal
Natural gas
ProjectionsHistory
2005 dollars per million Btu
Green Building CBA uses alternative energy pricing forecasts
From 2003-2006 Electricity prices rose 6% Natural gas prices rose 14%
A recent study school of green schools predicts for both gas and electricity a real 3% increase equal to 5% nominal
7 WTC energy savings varies substantially with different forecasts
With a 33% energy reduction and a 7% discount rate the 30 year PV of savings is; 2003-2006 growth continues= $42
million School study estimate= $25 million EIA projection= $18 million
Increased efficiency would eventually decrease nationwide energy demand
Lawrence Berkeley National Laboratory – reduced demand leads price reduction of 100% to 200% of the direct energy savings”
Massachusetts state report - 90% Even at 75% 7 WTC being
green yields in $19 million indirect savings (30 yr. PV)
Energy savings enhance property value
“Increasing Net Operating Income increases appraised value by 10x Cost Savings…”
7 WTC = 1.7 million sq ft
1 year Energy Savings = $.67/sf/yr
7 WTC worth $11.4 million more than without energy savings
The more energy prices increase, the more valuable these ‘green increases’ become
Green buildings have other benefits
Productivity Benefits/Health $2.00 /sq.ft
$45.6 Million 30-year PV
Existence value How much is society willing to pay for
development at 7 WTC?
Cost savings in 7 WTC go beyond strictly ‘green’ benefits
Tax Incentives ‘Green’ tax incentives $.34/sq.ft Special WTC Rent Reductions $3.80/sq.ft Sales Tax Savings (no est) Commercial Rent Tax Savings (no est) Low. Manhattan Relocation Assist (no est)
WTC 7 benefits from ‘green’ tax credits offered by NYS
Estimated $1.72/sq.ft in ‘green’ tax credits over five year period
Equates to $.34 tax annual credit
1.7 M x 1.72 = $2.9 million ($2.4 million 5-year PV)
NYS subsidizes the first 750,00/sq.ft. rented in 7 WTC
$3.80/sq.ft for first 750,000 sq.ft rented
$2.8 million nominal amount
$33 million 30 year PV (7% Discount rate)
Silverstein “prices in” almost $20 extra into 7 WTC’s rental price
Avg Lower Manhattan Class A Office space = $34/sq.ft
7 WTC = $50/sq.ft
That extra rent "sits in the context of a lot of new vacancy" downtown, said one real-estate broker who asked not to be named. – Tenant Wise ‘05
Symbolic value of WTC site pressures NYS to pass incentives
o June 2005 bill passes NYS legislature awarding tax credits to WTC site
o Governor assigns “a message of necessity” to the bill, a tool used to bypass the state’s constitutional requirement that the final version of a bill must be on each legislator’s desk for three days before it can pass.
o As a result, many legislators were forced to vote on the bill almost immediately after receiving it.
Who gets the benefits? Indirect energy savings
Lower prices = Public Existence value
Symbol = Public Reduced energy costs
Higher rent = Silverstein Property value
Higher price = Silverstein Health, productivity and others
Higher rent = Silverstein Tax credits/exemptions incentivizing occupancy
Public Money = Silverstein
LEED promotes green through its point system
Category Possible PointsSustainable Sites 14Water Efficiency 5Energy & Atmosphere 17Materials & Resources 13Indoor Environmental Quality 15Innovation & Design Process 5Total 69
LEED promotes green through its point system
Category Possible PointsSustainable Sites 14Water Efficiency 5Energy & Atmosphere 17Materials & Resources 13Indoor Environmental Quality 15Innovation & Design Process 5Total 69
LEED Rating Points RequiredCertified 26 - 32Silver 33 - 38Gold 39 - 51Platinum 52 - 69
The cost of achieving LEED points can vary
o Mainly front-end
o Many factors:o Locationo Weathero Bidding climate
California study: average cost premium of LEED Gold is about 2%
Langdon study: cost premium of “green” can vary greatly
Green premium: 7 WTC
o Under 5% of costo At $700M, green premium of $0-35Mo At 2%, would be $14M premium
Financing for 7 WTC: Mainly Liberty Bonds
$475M in tax-exempt bonds Three types:
Issue A, 10 years, 6.25% Issue A, 30 years, 6.5% Issue B, 10 years, 6.75%
Callable after 4 years at 3%
Liberty Bonds: cost to federal government in lower tax revenue
Joint Committee on Taxation: $8B bonds to cost $1.23B in tax revenue over ten years
But higher than normal interest rates
Cost depends when called $114M if after 4 years $220M if after 10 years $265M if not called
Liberty Bonds: significant benefits to Silverstein
If bonds decrease interest rates by even 1%, benefits to Silverstein at least: $20M if called in 4 years $33M if called in 10 years $41M if not called
Conclusion: Net benefits
Type Present Value
Beneficiary
Energy $25 m Silverstein
Property Value $11.4 m Silverstein
Aggregate Energy $19 m Public
Productivity $45 m Silverstein
‘Green’ Tax Credit $2.4 m Silverstein
WTC Rent Credit $33 m Silverstein
Total Benefits $135.8 m
Conclusion: Cost of green premium, Liberty Bond effects
Cost Type Present Value
Source affected
Green premium $0-35 m Silverstein
Liberty Bond Effect
Present Value
Source affected
Benefits $20-41 m Silverstein
Costs $114-265 m Fed Gov’t