7 World Trade Center New York City’s First Green Skyscraper Jonathan Mendelson Josh Kunin-Goldsmith John R. Forbush May 4, 2007.

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