JackT

Jack Terranova: LEED Certification-Why the Stone Throwing?

New York City, Property Management, Sustainability No Responses »

Jan 212011

LEED Certification and the U.S. Green Building Council (USGBC) have been discussed lately, with an attempt to discredit the USGBC and the effect certification has on reducing energy consumption. USGBC is concerned about many things from sustainable purchases, to the indoor and outdoor environment to energy conservation. Comparisons to EPA’s Energy Star were made but Energy Star is a completely different tool. Energy Star provides you with a snap shot of how your building is performing compared to other buildings across the nation. Though EPA has been making great strides, this tool has many flaws, including how it calculates source and site energy to how it determines the score. Energy Star vs. LEED Certification is not a true “apples to apples” comparison.

Obtaining LEED certification for your building is an incredible achievement. As a member of the REBNY Board of Directors and Sustainability Committee, we are presently reviewing the next revisions to LEED which are coming out shortly. One major suggestion I have is that consultants should not be allowed to assist with the certification, and only those directly responsible for managing the property should be allowed to compile and enter data. Though the templates require assistance, many hire consultants who do the work and then state the Property Manager is the declarant. Having experienced this effort as a consultant, you learn so much about the functionality of your building. And this is thanks to LEED and the USGBC. Certification should not be an achievement that becomes a source of revenue for those who know very little about your building but understand the loopholes that may be present within the ratings systems and know how to exploit such.

Another recommendation would be to have two sets of rating systems, one for properties that are within an urban environment and those in a suburban setting. Furthermore, those buildings which are multi-tenanted should have an exemption or a means of having a level playing field against those buildings which are owner occupied and whose corporate culture promotes sustainability and whose occupants are willing to participate in many of the credits which require tenant surveys versus multi tenanted buildings and whose tenants may or may not be interested in participating in surveys.

What are your thoughts?

Jack Terranova, PE, LEED AP
Senior Vice President
Cassidy Turley, New York

Local Law 26/2004 Sprinklerization-Is the Timing Correct?

New York City, Property Management No Responses »

Nov 082010

On October 22, 2004, the Department of Buildings by enacting Local Law 26/04 amended Local Law 5/73. Local Law 26/04 added sections 27-228.5(b) and 27-929.1 to the 1968 Building Code (which has been superseded by the 2008 Construction Code). The law requires all commercial office buildings 100 feet or more in height which are not equipped with sprinklers (the building code had allowed for what is called “compartmentalization” which would no longer be acceptable) to be fully equipped with sprinkers by July 1, 2019.

This law, like it’s sister law of Local Law 26 (installation of photoluminescent markings along egress paths and emergy power source requirements for all exit lighting) were enacted based on the findings that came from the commission investigating the events of September 11, 2001.

As we approach July 1, 2011, owners are now required to submit what is called a “7-year plan” which will document the percentage of each building that has been sprinkled, illustrate all progress that has been made to date, and present an implementation plan discussing how the subject building(s) will reach full compliance by July 2019. A “14-year report” will be required also to be submitted by July 1, 2018.

With the date for a 7-year plan submittal fast approaching and with real estate mired in a 2 year downturn, many owners do not have the reserves to pay for a study, design, the installation of the infrastructure to support the sprinklers (risers, rigs, taps, alarms,etc) all of which can cost $10 per square foot or more while trying to keep and attract tenants. An even bigger dilemna is what to do with existing tenants who are renewing with 10-year leases whose space is not sprinkled, do not want to relocate and whose lease term would pass the 2019 compliance date.

In summary I find it very disconcerting that as the deadline nears, no guidance has been forthcoming from the Department of Buildings, and I fear like others that they are waiting to levy fines to help balance the city’s budget or reject the plans submitted

What are your thoughts?

Jack Terranova, PE, LEED AP
Senior Vice President
Cassidy Turley, New York

Con Edison Steam for Cooling-Is it Still a Viable Alternative?

New York City, Property Management 1 Response »

Aug 302010

Con Edison steam has provided reliable service to its customers for over 100 years, with over 1,800 steam customers south of 96th street Con Edison has capacity close to 13,000 Mlbs.

More importantly, the steam system provides close to 625,000 tons of cooling, relieving the Con Edison electric grid of close to 375 MW of electricity that it does not need to carry or a supplier produce in the peak of summer.

Each year with the summer peak cooling season about to commence, various energy consultants (Curtailment Service Providers or “CSP’s) begin to offer enrollment incentives to sign up for NYISO sponsored Emergency Demand Response Programs (EDRP) which offers a higher incentive but is mandatory and for a longer duration or Day Ahead Emergency Demand Response Programs (DADRP) which is voluntary but offers less of an incentive for demand side peak load reduction when called upon in order to relieve this strain on the grid. NYSERDA also offers under their Existing Building Program 0.55/kw/ton avoided for replacement of a steam driven chiller with another steam chiller and not to install electric. Con Edison also offers $2/Mlb to steam cooling customers (for only two years) as an incentive to stay with steam cooling and not consider electric. All sounds like found money for those whose steam chillers are coming to the end of their useful life.

Leaving loyalty to steam aside, one has a fiduciary responsibility to explore all options when a steam chiller comes to the end of its useful life. Cassidy Turley, managing agent for 12M square feet of commercial space in the tri state area, recently performed a study to replace two 330-ton low pressure steam absorption chillers serving a Class A office building in Midtown Manhattan. Using actual data such as steam costs which ranged from $20 to $25 per Mlb, with Single stage (low pressure) absorbers consuming about 17 lbs/ton and Double stage (high pressure) absorbers consuming about 8 lbs/ton. To obtain an apples to apples comparison of steam driven versus electric driven cooling chillers, 1100 full load hours per year was applied against a peak load of 650 tons. Inputting the above resulted in a first year cost of $300,000 to operate single stage steam chillers and $150,000 a year to operate two stage steam chillers. In comparison, electric drive machines whose efficiencies range from $.55/kw/ton to $.60/kw/ton; the annual electric cost was calculated to be approximately $125,000 per annum. Additionally, the first cost of a single stage absorber is approximately 25% greater than a comparable electric drive chiller; with a two stage high pressure chiller almost double the cost. Taking the above into account and even with the inclusion of an electrical upgrade tips the balance of going with an electric drive chiller with a break even of around 10 years. Cassidy Turley therefore recommended, and ownership accepted our recommendation with validation from an independent consultant.

In summary, I find it very disconcerting that these two business units operate independently, with the end user in the end paying higher costs even as they continue to implement energy conservation measures year after year.

What are your thoughts?

Jack Terranova, PE, LEED AP
Senior Vice President
Cassidy Turley, New York

Distressed Asset Property Management-Will the Tide Begin to Turn?

Property Management No Responses »

Jul 072010

With the recent increased activity in the distressed asset market, I find myself thinking back to before 2007 and 2008 when the purchase of an asset was performed with little money down and was highly leveraged. There was little in the way of equity and purchases were made with the anticipation of a quick sale and profit. This changed in late 2007 and 2008 as borrower’s started to default and there was no interest to purchase these securities anymore, and lending all but dried up. Distressed Assets and the management of these assets were now the concern, as it was assumed the banks were coming immediately as logic dictated that banks in financial trouble could get back into the black by repossessing and selling these properties

The perception was that, like Distressed Asset funds and departments were being advertised daily with access to the lenders in order to gain an opportunity to purchase or manage these assets that were top of mind.

Instead of repossessing and selling, the banks decided to allow the borrowers to hold onto these assets. If you happened to be the Property Manager of one of these properties on a life line taught, to provide all lease required services, while at the same time reducing costs (but not to the bare bones), you were in a very precarious situation. Having managed vacant and partially vacant properties under extreme financial hardship over my 20 plus years in the business, I have had the experience of balancing these constraints.

For other individuals that may have only managed Class A Trophy Properties, who in the past were typically owned by financially stable corporations with tenants paying high rents, having a top support staff was to be expected as compared to Class B and Class C properties where rents are less and net operating income not as great as a trophy property. Therefore, many Property Managers had to learn to provide the same services making due less would not be out of their environment in having to manage a distressed asset.

With the recent sales of properties on Madison Avenue and Lexington Avenue exceeding expectations along with pent up demand and cash on hand to buy, banks are now looking at taking back these assets.

There will be an estimated $750 Billion dollars of commercial real estate that will most likely be taken back into the lenders hands, needing management by those experienced in distressed assets like myself. The wave appears ready to take place, a few years later than anticipated, better late than never.

What are your thoughts?

Jack Terranova, PE, RPA, LEED AP
Senior Vice President-Cassidy Turley New York

Are We There Yet?

Property Management No Responses »

Jun 012010

For those with children, depending on their age, the cry from the backseat “are we there yet?” can invoke either wonderful memories of years gone by or dread with your summer vacation nearing. However, most recently, this cry is not heard from children, but from some of the most intelligent and respected real estate industry experts and analysts, who are much more intelligent than I with respect to Capital Markets and rental numbers.

With the national office vacancy rate edging up from 16.4% in the fourth quarter of 2009 to 16.7% in the first quarter of 2010, this rise in vacancy was described as being positive, as this was “the fifth straight quarter of decelerating declines.” This is good news in many ways, as we are all searching for the next run up in real estate values and rents, which of course translates to higher profits, commissions and salaries. For simplicity, business cycles typically consist of 4 components, and having gone through an extreme contraction, it would appear we are in the trough and ready for expansion.

Over the past few months, we have seen the sale leaseback of 452 Fifth Avenue, the purchase of 417 Fifth Avenue, 125 Park Avenue, 600 Lexington Avenue and most recently 340 Madison Avenue. 340 Madison sold for $570M or $760/square foot. Comparing this price to what was paid only four years ago ($550M) does not show that large of a drop off in base price but a closer look reveals that today the building is 92% leased as compared to 4 years ago when 340 Madison was only 40% leased. Though it should also be mentioned that four years ago, a building with pending turnover or even vacancy was looked upon as increasing value positive and not a negative.

Have fundamentals returned? Economic principals of real estate value may indicate that scarcity and supply and demand may have contributed to the cost not having dropped even further, but a positive capitalization rate for one would/is nice to see.

What does the sale of 340 Madison have to do with Property Management? Simply, many who are in the profession of property management forget it is our responsibility to help increase value by reducing costs and continuing to educate ourselves on the fundamentals of what constitutes value. The industry has evolved and has entered the “trough.” Many owners have lost properties and or gone into foreclosure due to many reasons, namely timing, but they also strayed from the basic fundamentals. These investors have learned, and will not make the same mistake. It is my belief that unless all team members responsible for managing an asset can help in increasing its value, then they may need to find another line of work. What do you think?

Jack Terranova, PE LEED AP
Senior Vice President
Cassidy Turley, New York

Will Tenant Demand Spur LEED EB Building Certification?

Property Management No Responses »

Apr 282010

Sustainability, much like global warming to the scientist, is a word that has now become part of every Property Manager’s vocabulary. Having witnessed this evolution first hand, one must applaud the U.S. Green Building Counsel (USGBC) in how well they have been able to sell the greening of commercial office buildings. Survey any property manager and ask if they believe that they must be sustainable to be successful in their career, they will overwhelmingly all answer “yes!” because they must. Why is this?

America is a capitalistic society with property value predicated on supply and demand. With this in mind, what exactly is the supply of LEED EB certified buildings? And how many square feet of commercial space in Manhattan is LEED EB Certified? By last count, only twelve (12) commercial properties in all of Manhattan were LEED EB Certified which total a little under 13 Million square feet. In comparison, there is somewhere in the neighborhood of 400 Million square feet of office space in Manhattan.

Therefore, the percentage of LEED EB certified space is about 3%. Has this certification increased their property value? Are tenants demanding that they occupy space within a LEED Certified Building? By my count, I have counted almost 100 commercial office buildings registered for LEED EB. These property owners/managers, myself included, are making a bet that prospective tenants will eventually request from their brokers, much like what is starting to happen on the west coast, that they reside within a LEED EB certified building. Is this assumption correct or will New York City buck the trend and supply far outweigh demand? What do you think?

Jack Terranova, PE, LEED AP, RPA
Director of Operations
Cassidy Turley New York
212-318-9734