2:15 P.M. EDT
NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR
MODERATOR: Good afternoon and welcome to the New York Foreign Press Center. It’s my pleasure to introduce to you our briefer for this program, Anthony Malkin. Mr. Malkin is the President of Malkin Holdings and a leader in existing building energy efficiency retrofits – trying saying that three times fast – specifically the Empire State Building Sustainability Retrofit, which he’ll be speaking about today. So without further ado, Mr. Anthony Malkin.
MR. MALKIN: Thanks. So, thank you all very much. I actually was told that I had five hours – (laughter) – and then I was just told actually it’s less than that, so I’ll try to compress the 450 slides into the short time we have together.
So the Empire State Building – I like to refer to it as the world’s most famous office building – this slide refers at the bottom to the Empire State Rebuilding, which is a program we undertook starting back in 2006. So the Empire State Building today is 82 years young, but I would say that before we got started on this program, it was 76 years old. It was, of course, the parent, grandparent, great-grandparent of every tall building – every super-tall building. We were actually doing a bit of a script for the tour that people take when they go through the building, visiting the observatory, which has a handheld guide for it, and speaking to – addressed to people when they get off on the 80th floor. In 1929 elevator technology, 80 floors was the highest that any elevator had ever been designed to move people. And when you think about that, it was probably another 40 years, 50 years before they ever needed to go higher than 80 floors in any building. It’s kind of an interesting thought.
My grandfather and father and another investor named Harry Helmsley purchased the building in 1961. And over that period of time, the building had been well maintained but had not been improved, and there had been an awful lot of change technologically since then. So when I came in and really was assessing the building in 2006, I came to the conclusion with my father that either the building should be fixed or sold. And what I meant by fixed was really brought into the 21st century – make the building what it should be as far as a point of leadership for the world, which it always had been. And the interesting thing was the building had maintained its leadership position, if you will, as the icon of the New York City skyline, the international symbol of New York, but it had not been appropriately updated on the inside.
So with that in mind, what I think I might do if you don’t mind, since we are talking about buildings, we’ll show a couple of pictures. There is the – one of the lobbies of the Empire State Building. There are three lobbies. That is the 34th Street lobby. That is a tenants-only lobby. And if you look at the ceiling, those are actual restorations of the original ceiling murals. The entire building took 13 months to build. It took us two years to redo the ceiling.
Give you an idea of how things are different: That’s actually aluminum leaf and gold leaf, because aluminum in 1930 was far more expensive than silver. So, silver was used at the lower lobby ceilings, like you see right there. And if you look at those, you’ll get the sense that what we did is we brought the building – by the way, that ceiling was plastic with fluorescent lights in 2006. The glass cast in lead, which you see at the edge of the silver ceiling there, was actually again plastic by 2006.
So we’re making the building back to what it was. On the right side, you see the lobby in 2006; on the left, you see the lobby today, restored to its original art deco grandeur. But then we also wanted to do a step further. The Empire State Building – 102 stories, 2.95 million feet, probably around 270,000 square meters, over 4 million visitors a year to the observatory; excluding the observatory, there are 30,000 workers and their guests into the office building on a typical day; $11 million in annual energy costs before we started our work, and a peak electric demand of 9.5 megawatts, which is down with our – that’s the new amount, by the way. It’s down from 11.6 megawatts before we started our energy efficiency work.
So the whole concept here came about in a meeting with the Clinton Climate Initiative that followed the launch of the C40 Cities initiative, which took place in New York City, I guess it was back in 2000 – in early 2008. And the idea behind it is to – at the time, the view was to reduce carbon. In the United States, carbon has not proven to be a useful measure of energy consumption or waste output. So I tend to focus, for Americans and for our work, both in working with Congress and with states and municipalities, in dealing with kilowatts and with dollars because kilowatts are more commonly traded and it’s a more commonly accepted unit than a ton of carbon in – certainly in the United States.
While I wanted to make an example for the world, I had a separate challenge which was in 2006, the Empire State Building was really what I would call a secondary office building. It did not have a tremendous following from the tenant community as far as being a top-tier destination at all. So what we wanted to do with our work was to make sustainability a component of its repositioning. So as a component of its repositioning – if you all would do a favor, take all the pictures you want of me now because I’m going to take this jacket off because it’s so bloody hot up here. (Laughter.) So if you want to do that, we’ll do that. (Laughter.) And I’m just going to – because it’s warm. No, I’m good here. Thanks. I could pretend, but then I’d – you’d think I’m a wax figure starting to melt up here. I’m envious of those of you without ties.
So in any event, a big component in 2006 was attracting a better tenant. And I don’t know; how many of you have heard of the Natural Resources Defense Council? So the Natural Resources Defense Council is the largest environmental group actually in the United States. It actually may be the largest in the world therefore. And my wife and I are very seriously involved. She’s been a trustee there, which is the equivalent of a board member, for over 15 years. And we believe that if we want to do anything for our children, for our futures, for our lives, we should work on the environment; we should not just preserve the environment as a place to go visit, but it’s also where you live and where you work. So making the Empire State Building a repositioning challenge by working on making it a model of sustainability and energy efficiency was a great opportunity for me to rebrand the building.
A component of that – we actually started out working with the Clinton Climate Initiative, Johnson Controls, Jones Lang LaSalle and the Rocky Mountain Institute – I don’t know if anyone’s heard of the Rocky Mountain Institute. They’re based in Boulder, Colorado. They’re really a thought leader as far as sustainability and energy efficiency, working, by the way, for everything from various departments of defense to industry and to commerce. And the idea: We worked in secret to prove or disprove that energy efficiency retrofits were economically viable.
We used our work – we intended to use and we have used our work to publicize and differentiate our building from other competitive buildings and to attract tenants. But the most important thing is that we produced a replicable model. So all of you can go to esbnyc.com or you can go to esbsustainability.com, and you’ll see on those websites every single piece of information that we produced from the Empire State Building, from the contracts we used to contract with our vendors for a price guarantee, energy savings guarantee contracting, to the measurements that we put in to our first-year monitoring and verification of our savings. The second year monitoring and verification has just been completed. It has not yet been posted, but it will be posted shortly.
And all of the different steps as well as many, many more slides than you’ll see today about this, because our idea is that if the only place we succeeded was the Empire State Building, we failed. So from my view, it was all about really massive and disruptive change.
We made it all quantitative, so I’ll get into a comparison of being, quote, “green,” unquote, if you will by many common measures to be sustainable and energy efficient. But the biggest component of this is this actual work with regard to cost and benefit. So this is measured in C02 savings, which is a measurement which I use for people who are not from the United States, because folks seem to focus more on that.
And if you’ll notice, there is a midpoint there. As we move from left to right, the savings in dollars decrease. And that’s – it’s a 15-year measure, and the actual costs get to a point where you can actually do immensely greater savings in C02 but the costs spiral up, the benefits spiral down. So our goal was to find that net present value midpoint and to target our work after that, and we targeted a five-year payback for our work. I’ll talk through the work a little bit with you.
These slides that I’m showing you are actually in our energy efficiency installation that we have at the building. If you visit the observatory, you walk through a waiting area after you buy your ticket, and these are actually posted there. You can see them. It’s a large installation.
Interestingly enough, the first piece starts with the windows and the radiators. So I don’t know how many of you are familiar with a building in Paris called the Gare Montparnasse Tower or Tour Montparnasse. It’s probably the ugliest thing that was ever built in Paris, but it’s right atop a train station and it’s a high-rise and it actually has probably one of the nicest observatories for a view of everything from Notre Dame to the Eiffel Tower, the Hotel des Invalides.
I went to visit with them to talk about sustainability because they were looking at doing a retrofit. And what they said to me was we would love to spend money on energy efficiency, but the reality is first we have this issue that the curtain wall is degrading, the curtain wall being the glass exterior of the building. Second, we have an issue that the air conditioning needs to be replaced. And third, we have an issue that the electric distribution in the building isn’t adequate. So when we fix all those things, if we have money left over, we’d be happy to look at energy efficiency.
Well, if you look at the first step you do here, it’s actually the curtain wall. The Empire State Building looks like a stone building. It’s actually a stone curtain wall that’s been hung on a brick and steel building. And the window refurbishment, we actually took 6,514 windows and we took those 6,514 windows which were already duo-pane, thermo-pane windows, and we took them apart. We built a 5,000 square foot facility on the premises of the building, 479 square meters or so, and we actually reused 96 percent of the original glass and frames. We took them apart, we washed them, we put in a mylar sheet, we resealed them and we infused them – the gap –with krypton argon gas. Is anyone familiar with the R-ratings for resistance of temperature transfer? So air is zero. A single pane of glass has a resistance factor of one. A thermo-pane glass has a resistance factor of two. A masonry wall which is insulated has a resistance factor of 15. So our windows went from R2 to R8, reusing 96 percent of the original glass and frames, costing about $700 per window to redo.
We then put in insulation between the radiators and the exterior wall, because what the radiators were doing without insulation is they’re basically heating the outside of the building at the same time as they’re heating the inside of the building. This way we reflect the cold out and we reflect the heat back in.
So I guess the comment that I would make is there you just look at these windows, that at the Tour Montparnasse the whole idea is by starting with the curtain wall they were taking the first step for integrating energy efficiency in their retrofit. What they do on the exterior makes the big difference.
Those are your radiators, and on the left you see something leaning against a wall, and surprisingly that is a piece of insulation. So you see the brick exterior wall of the building on which the – the stone which everybody thinks is the building was hung back in 1930 and ’31, but the reality is it’s very basic stuff. You start with the envelope of the building, and that’s 7.9 percent of the guaranteed 38.4 percent of the energy savings to the building, those two steps.
So the next thing is you’ve got to make the building smarter. Who here knows – and you probably have the answer for yourself – what is the number one complaint in any office building of any worker? We’re experiencing it right now in this room.
MR. MALKIN: Yeah. Too hot, too cold. And the reason it’s so hot in this room if if you look around, there’s no thermostat and the air conditioning comes wrapped around these – here from above, and the temperature for this room is set for whatever the most important person on this room likes. So wherever that office is, that’s where the temperature is set. So by putting in better controls, okay, that’s a huge component.
We actually did not replace our chiller plant. Our insulation created such a reduction in heat load to the building that all we did was upgrade the original air conditioning plant from 1950. Now, the building was built in the 1930s. Only the bottom five floors were originally air conditioned. Everything else was not air conditioned, which has an interesting play going forward because these older buildings did not have very deep floors because they needed fresh air. Well, that also plays in today in energy efficiency: the shorter the distance between the window and the interior is the more natural light that comes into a building space. But in any event, we only updated our chillers from the 1950s.
We also put in variable frequency drive pumps in our chilling system, fans in our chilling system, and air handling units within the building. So the whole building – when you pull away from a stop light, you don’t immediately floor it and go to full speed, but that’s essentially what buildings are like. They’re on or they’re off. So by putting the ability to dim the lights, if you will, instead of turn them off, you slow the fans, the pumps, and the air handler motors. The reality is what you end up doing is you end up fine-tuning the building. And then by using variable air volume dampers around a floor with lots of wireless thermostats – and wireless thermostats are probably the most impressive thing that we did at the building from a technological perspective – you actually end up having a much more fine-tuned building where you deliver cooling to where your cooling is wanted and you deliver heating to where heating is wanted, and the plant slows down and the pumps slow down to the actual demand for chilled water and for forced air.
So there you go: 1950s equipment repainted. New controls, variable speed drives, the variable air volume air handling units, and the microprocessor controls and that wonderful wireless thermostat. So in New York City there’s a set price with unions for how much it costs to touch a thermostat, to put in a light, to change a light switch. So by going to wireless, it’s literally it’s just a piece of Velcro that’s stuck on the wall. And the other interesting thing about that is if some person goes and puts a bank of laser jet printers underneath the thermostat, suddenly you’re trying to balance the air temperature on what the basis of the temperature is around a bunch of office equipment. You can just take the thermostat off the wall and move it to another place where there are humans within that zone and you get a better effect.
So smarter, efficient buildings – 19.1 percent of the total reduction. The third thing is energy consumption. And the energy consumption that we’re talking about is day lighting. We’re talking about plug loads.
So there are three aspects to energy consumption in a building: heating, ventilating, and air conditioning; plug loads; and lighting. So for us, coming up with steps to do better in those areas is a big component of our energy savings. If you go to work, you turn on your workstation, your computer, your lights, whatever else you might happen to have there, and then you go to a meeting, and then maybe you go to lunch, and then you come back to your desk. Well, if that system’s been on all day, it’s just a waste of energy. So actually having workstations which operate off of infrared and motion detection, so equipment powers down if people aren’t there, first auto saving whatever equipment you may have been working, whatever document you may have been working on. Similarly, lighting: In the Empire State Building, we have a requirement with all of our new tenant installations. We’ll get to that in a moment. But within 15 feet of the exterior wall, all the light fixtures have to be auto-dimmed and auto-shutoff. And then within the interior spaces, all the lights have to be auto-shutoff.
Now it’s not like – everyone’s been in the bathroom when the motion detector timer goes off, and you’re stuck there in the dark waving your newspaper to get the lights to go back on. So it also uses infrared. But the whole idea is that if there’s not enough light, people turn the lights on, but if there is enough light, people never turn them off. And within 15 feet of the window line, there’s typically enough ambient light for people to work. Plus we bring in workspace lighting. So what’s the number one complaint about people after too hot/too cold is I’ve got to leave the office, I’ve got a headache. Well, there is way too much light in this room. Having the appropriate amount of ambient light combined with actual workspace lighting makes a huge difference. So energy efficient lighting and plugs, day lighting, and tenant energy management we’ll get to in a moment.
So of the things which I just mentioned, here’s the interesting point. There are actually eight different pieces of work that we did. No one was greater than a 6 percent change – contribution towards what was our guaranteed 38.4 percent reduction in energy, and no one was less than 2 percent. So you get to the point of people are looking for silver bullets, and there aren’t silver bullets. There’s silver buckshot, lots of little pieces combined together, without really any technological innovation. There’s very little technological innovation. It’s actually just integrating into the process as you go. In addition, to me, if we go back to this comment about the power of change, apply these changes to the Empire State Building. Now, you can spend a lot of time working on single-family homes and making them more energy efficient, and that’s interesting. But at the Empire State Building, with an approximate 40 percent savings because our guarantee is only of 90 percent of our total savings, we removed 16,000 average households from the electricity and energy grid. One building, one project. Now it’s a building, it’s a big project, but my argument is that to maximize the immediate impact and magnify the opportunity for change, you go for your biggest targets first, because that’s really where you can effect the biggest change, and it’s where you’re going to teach the most people, and you’re going to have the most transparent effect, the most verifiable effect.
So this to me is another piece which is of great value, green versus energy efficiency. Green, in my view, has become hijacked by people who make you think that a bike rack and a shower in your office is going to change the world. No. It will give you a place to park your bike, and it will enable you to take a shower if you got all hot while you were biking to work, but it is not going to change the world. I hear too often about people who are following the U.S. Green Building Council’s LEED process. And I don’t know if people are familiar with the LEED process on building. Some countries have green pearls, some people have other ratings, but the whole concept here is that I think we need to understand what we’re doing for feeling good, what we’re doing for economics. Okay? And what we’re doing for a neutral economic effect, but with a lesser result on the environment.
To require people to use bamboo where there is no bamboo grown is like these idiots who are bottling water in Fiji and shipping it to New York City. If, in fact, you need bottled water, the last place from which you should get it is Fiji. Similarly, if you need bamboo and it has to be imported from Indonesia in order to get a point for the U.S. Green Building Council or for whatever the UK is or the different groups, to me you can carry this stuff too far. I think there are worthwhile green building practices: renewable, recycled content in carpets, locally produced materials where they’re available, VOC low off-gassing materials – that means paints, wall coverings, adhesives. If you use recycled content in your carpet, someone who has asthma like me can just walk right into the room to a recycled content-carpet room. If it’s new carpet made with oil products, that thing is going to off-gassing oil fumes for weeks. And anybody who has a health issue is going to be really impacted by it, and everybody else is still going to have a headache by the end of the day.
Recycling programs are – there’s no reason not to do them. We actually get paid for our waste in our office buildings in New York when the markets are good. And they take it away for free when the markets are soft – markets for glass, for metal, for aluminum, for tin, for plastics. Water reduction makes sense, green cleaning solutions, green pest management, but these are all practices. Don’t confuse having a green plant wall or a water feature in your lobby or a bike rack or a shower in your office with progress. It’s not. In fact, it’s expensive, and it probably means that the richest tenants who can pay the most in rent can feel good about themselves. But we should really focus on these energy efficiency retrofits.
So there are a bunch of different things coming together at this time with regard to energy efficiency. First of all, there is the business opportunity, and that’s what I focus all of our work on with regard to the Empire State Building and the lessons that come out of it. The business opportunity is to show people you can spend money to make money. The return on investment from energy efficiency measures is as high or higher than any other investment you can make as a company or as a tenant. And the fact of the matter is that the best credit quality tenants have the biggest focus on sustainability measurements as corporations. So if you want to attract the best tenants, you should be offering them the healthiest, most efficient, most sustainable work environment. And this has worked very well for us at the Empire State Building, where since we started this project, we’ve brought in Skanska, Li & Fung, Coty, The Federal Deposit Insurance Corporation, LinkedIn, Shutterstock. From the third floor of the Empire State Building to the 25th floor of the Empire State Building, we are 100 percent leased to seven tenants. Before we started our work in 2006, there were 250 individual offices, individual suites, and they were 60 percent leased. And none of them was as good a credit as the tenants that I just mentioned. So we’re moving our way up the building, aggregating those floors, demolishing those smaller offices, leasing to larger tenants, better credit quality. That’s part of the marketability and competitiveness.
There’s also a movement in the regulatory world towards greater focus on energy efficiency. Building to code, meaning the required way of building in New York City today, is significantly more energy efficient than building to code 10 years ago, and these sort of changes are taking place across the United States. But the interesting thing to talk about to me, I think, is tenant spaces. So tenants actually consume in office buildings between 50 and 65 percent of all the energy consumed in a building. So the question is: Is there an opportunity, is there a chance to get the same economic result from building out energy-efficient tenant spaces that you have in looking at the whole building?
So many of you may be familiar with Skanska. It is a Swedish company. It has international presence in engineering and construction. They built a full-floor office at the Empire State Building. They invested $210,000 in energy efficiency and they did do lead. Over the 10-year life of their lease, that $210,000 spend resulted in a net $405,000 savings. Now, that’s including a discount rate. The actual dollars on a nominal basis, the savings are higher. So you’re talking about getting your money back plus two times over a 10-year lease. So we use a measurement of watts per square foot. For those of you who want to convert to meters, it’s about – a meter is about 11 square feet. A square meter is about 11 square feet.
But Skanska, including air conditioning, peak consumes about 1.85 watts a square foot, about 12 watts, 12.5 watts a square meter, including air conditioning. Now, that office is no darker, it’s no hotter, it’s no colder – it’s actually a lot colder than this room – it’s just extremely energy efficient.
QUESTION: What’s the normal?
MR. MALKIN: The normal would be about twice that. (Cell phone rings.) Excuse me. The normal would be about twice that to three times that. So, actually, their engineer produced what we call an energy demand letter saying that they were – they needed 7.5 watts a square foot. And they built out distribution for 7.5 watts a foot and they’re consuming less than two.
So we started something at the Natural Resources Defense Council, my wife and I, called the Center for Market Innovation. And I would encourage you to go to – you can Google Center for Market Innovation at the Natural Resources Defense Council, or you can go out to NRDC.org. And you’ll see a lot of detail about this next and final piece of which I’m going to speak to you.
We wanted to test out the concept of energy-efficient tenant installation. Skanska proved that it could be done. We wanted to try to do this in a more broad scale, because think about it: Buildings get retrofitted once every 20, 30, 40 years. But tenant spaces typically get built out most often every time somebody signs a new lease. So over a 10-year, 15-year period, a space is going to be rebuilt and you get a much quicker set of actions you can take on the component of the building, which is consuming 50 to 65 percent of the energy.
So the concept here is to show the tenants, look, you can decide how much you spend on rent by where you choose to rent. You can decide how much you pay in salaries by what you offer and who’s prepared to come work for you on the salaries you’re prepared to pay. You cannot decide how much you pay for energy. The market is going to dictate that. But you can do something about how much energy you consume. So the concept here is that the tenant, in doing the installation, actually can do the installation and get a reduction in energy consumption over time, as we saw from the Skanska presentation, by spending a little extra money up front.
And the concept on the tenant installation project – so the high performance demonstration project by the Center for Market Innovation has actually just published its first findings, so the participants in this include major office tenants who are building out their spaces, who have agreed to do it either because they’re in one of my buildings and they have to, because we have a set group of activities that they must do as part of their tenant build-out in the design and execution, or they have decided just to do it on their own. We’re comparing the performance compared to the required New York City building code. So a lot of countries have national building codes; in the United States, we do not. We have – all the building codes are localized by county or by city.
And we start on this six-step process, and the tenants with whom we’re working include Bloomberg LLP, which is the mayor’s company, but not where the mayor is presently working; Coty, Li & Fung, Shutterstock, LinkedIn, and then also doing work with Deutsche Bank at present.
This is what a high-performance tenant space looks like. The comment here is the two photos on the left, by the way, are both Skanska’s offices, so it kind of looks like any other office. However, if you look at where the savings can come, when we did our work at the Empire State Building, all of those measures on the right all take place within a tenant space. The radiated barrier, tenant energy management windows, variable air volume, air handling units, controlling plug loads, and DCV is direct ventilation – it’s bringing fresh air in from the outside in the wintertime, basically, when it’s cold enough. Typically, buildings run air conditioning in certain parts of the building year-round, so it’s cold enough to have that air conditioning without requiring air conditioning actually to be running; you just bring in fresh air. Shows you the different savings which are possible.
We are actually producing our first monitoring and verification results from the tenant high performance demonstration project, and it’s producing exactly the savings that we would expect in line with what happened at Skanska.
Here’s a little thing that we’ve put in on our buildings which assists tenants as well. This actually gives tenants readings of what their actual energy consumption is for their space. And with that information, they’re able to monitor what their loads are and we can actually give them ideas, interactive, how to reduce their energy consumption, how to make it easier for them to consume less while doing the same thing they ordinarily do. We find tenant engagement is very important. Workers want to know, and better workers want to work for better companies which have better practices.
So, change the Empire State Building, change the world. Our 40 percent reduction – 38.4 percent reduction in energy consumption at the Empire State Building saves $4.4 million a year. Our incremental cost for incorporating energy efficiency into the half-billion dollar Empire State rebuilding program was $13 million. That’s a three-year payback. We were targeting for five, if you recall. In the tenant fit-ups, we do the same requirement. Tenants only have to spend additional dollars to the extent that they get a payback of five years or less. And the early results come in a little more than three years, so over a 10 to 15 year lease, it makes a huge amount of sense.
So that is the end of my presentation, and I’d be happy to take any question or to get air conditioning, whichever comes first. (Laughter.)
MODERATOR: If you have questions, just raise your hand and we’ll bring a mike to you.
MR. MALKIN: Just so you know, it’s a lot hotter up here than it is down there. (Laughter.)
MODERATOR: Please wait to receive the mike before you begin speaking because we are recording this, and also remember to state your name and media affiliation.
QUESTION: Hi. My name is Christina from the German press agency DPA, and I have a question. It might sound a little bit silly, but you start to wonder when you live in New York and you have all these commercial skyscrapers and then you see them at 4:00 in the night on a Saturday and they’re all lit up. And I was just wondering --
MR. MALKIN: Not the Empire State Building.
QUESTION: Exactly. I was just wondering, on the regulation, then, how you see that. Is there some kind of code that they have to be lit up, because otherwise, tourists will just be scared, or --
MR. MALKIN: No. So it’s really very --
QUESTION: -- how do you deal with that?
MR. MALKIN: Yeah, it’s really very interesting. What it is, is that, believe it or not, entire banks of lights in old installations get turned on at once.
MR. MALKIN: Okay? So the whole concept, New York City building code, if you build a new building today, you’re not allowed to do that.
MR. MALKIN: All right? But the fact of the matter is probably more than 90 percent of all the buildings which are going to be in New York City in 2040 are here today. So there may be more building with more individual controls. But the fact is that that’s a point where you need to retrofit the building. So oftentimes what you’ll see is someone is cleaning the building, or they’re doing work inside the building, but they’re only doing it on a floor. But then what you’ll typically see is the whole building isn’t lit up, but you’ll see a giant chunk of it lit up. And that’s what it is. They’ve got the lights on for the person working on that floor.
QUESTION: But how do you – I mean, tourists still want to probably see this lit-up New York, or lights in New York, city that never sleeps, and is there a way to come to some kind of compromise with that, to still have --
MR. MALKIN: They can look at the top of the Empire State Building. (Laughter.) Look at the tops of the building. We’re doing a great job at illuminating our buildings at the tops in New York for a nice skyline. But I think it’s just ridiculous to have all those lights on. I really do.
QUESTION: So how is this climate control within the micro areas of what you – oh, sorry. Claudia Steinberg. I wanted to know how the microclimates within an office space can be controlled. I mean, you say it’s – this is the big conflict between people. Some find it too hot; others find it too cool. How does an individual have a possibility to regulate it?
MR. MALKIN: So it goes back to a slide which I had shown a ways back, which is – it’s this one right here. You get individual – many more individual thermostats, and you get variable air volume air handling units. And what that actually means is that you’re able to direct the air to the place which is required. So you have controls. There’s something on TV called, like, the “Ronco Turkey-matic” or whatever, and this guy advertises, “Set it and forget it.” That’s what people do with air conditioning and heating systems in New York City buildings. When the space is built out, they come in and they do what’s called a balancing, okay? And they typically balance the air conditioning so that it satisfies the most important woman or man on the floor. And then once they do that, that’s it.
So they’ve taken all these louvers that control the flow of air – but they’re not mechanical; they’re set – and they screw them into place, and that’s it. So what we have is actually – our building is much more like an organism. We have the largest wireless network in New York City, and all it does is thermostats and controls. And our louvers are not set. They operate, okay? So depending on the flow of air which is required in order to create a temperature, it’s a master computer brain, and it actually orchestrates both the movement of air, the speed of fans, and the speed of pumps in order – required to deliver hot water or cold water, depending upon if it’s heating or cooling season, to the area which is requiring it.
QUESTION: Hi. This sounds crazy, but there is another German journalist: Nikolaus Piper, Sueddeutsche Zeitung.
MR. MALKIN: I think there are a lot of German journalists here today.
QUESTION: Yeah, we are crazy about the environment. One question: Could you elaborate a little bit about the future? When will you have your IPO? What will – will you take the proceeds, the – what you’ve taken from the IPO for further environmental measures? And yeah, what are your plans?
MR. MALKIN: Okay. The answer to that is no. Next question.
I’m in a quiet period. I’m not allowed to talk about anything in the future. So that’s securities and exchange law in the United States.
QUESTION: Okay. But you are in a quiet period already.
MR. MALKIN: No, so I – meaning, I can’t make a forward-looking comment.
MR. MALKIN: Sorry.
QUESTION: Thank you.
MR. MALKIN: I should have said that ahead of time. I can answer no question about the IPO or anything having to do with that.
QUESTION: My name is Jostein Loevaas. I’m with the Norwegian Business Daily. But I just want to know --
MR. MALKIN: I did this slideshow in Oslo.
QUESTION: Oh, you did? Yeah, well, actually I visited Skanska’s office as well. But anyway, it’s well-known that there’s been some controversy among the owners – (laughter) – and I was wondering if this has ever been a topic of, like, disagreement surrounding the whole renewal project in the past.
MR. MALKIN: So actually, I’m not really – I can’t really even imagine that there’s any conflict. I – we don’t think of any conflict. And what I can tell you about things which have already occurred, well over 90 percent of everyone who’s expressed an opinion has – is in support of our deal.
With regard to the energy efficiency work, it’s like much else with regard to even those very few people who have been against our transaction. They all are unanimous in their support of the work that we have done on our buildings, on improving the buildings, on the work which has been done in the buildings. And so there’s never been a criticism of that work.
I’ve been criticized by other landlords because we’ve done such a good job differentiating our building that we get tenants that we didn’t used to get that might have gone to them, but certainly not from an ambassador.
QUESTION: Have the rates – I mean, rents gone up or --
MR. MALKIN: Rents have gone up, yes.
QUESTION: How much more?
MR. MALKIN: Well, so the average rents per square foot in the Empire State Building in August 2006 per occupied square foot was $26.50, and the average rents in place – well, see, here’s the thing. What can I say? Have to think about what’s in our filings with the Securities and Exchange Commission. (Laughter.) In the range of $40 as of several months ago, as of January 25th, 2013.
QUESTION: And compared to the general market, how much is that?
MR. MALKIN: We still, throughout our portfolio, have opportunity to increase the rents. So we still – don’t forget, the Empire State Building, as I mentioned, we’ve re-leased the bottom of the building and parts of it, but we still have a lot of older tenants in there who are paying much lower rents. So this sort of a transformation takes place over years, and that is nothing other than the disclosure which is in our S-4 that has been declared effective by the Securities and Exchange Commission, meaning that’s no breaking news. That was published and filed many months ago.
QUESTION: Hi, I’m a journalist from Japanese newspaper Nikkei. Have you done any analysis as to how much this project has helped in boosting the occupancy rate? Obviously, the market situation has changed, so I think it’s not easy to analyze, but have you – how positively did the project influence this?
MR. MALKIN: So I can just tell you that we’re – I can tell you that we feel that we’re seeing a quality of tenant and broker come through the building and lease in the building who we just never saw before. And the work that we’re doing here and we’re discussing as the Empire State Building, we’ve done improvement programs throughout our properties. And the fact is that the changes that we’re seeing here are in the form of fewer lost rents from bad credit tenants, from a greater degree of occupancy on those floors which we have redone, certainly higher rents. So it’s a completely different picture.
And I think part of it is we restored a lobby, part of it is we redid the energy efficiency of the building, and part of it is we got rid of older tenants and created the opportunity for large spaces to begin with. But when you look at our advertisements, clearly on all of our buildings, we feature not just the energy efficiency of the building, but the energy efficiency of the individual spaces which people can lease.
MODERATOR: We have time for a couple more questions.
QUESTION: Hi, Christine Mattauch, yet another German journalist from Absatzwirtschaft. I have a very small question. I just wonder why you kept these – I think the name was chiller plants from 1950. Why did you not replace them, buy newer ones?
MR. MALKIN: So this is really an important analysis to be done. It’s called life-cycle cost analysis. And who here has ever seen a Hummer or a Gelandewagen? Okay. So you see somebody with a 6.3 liter Gelandewagen or whatever roaring down the Autobahn, and you’re in your hybrid. And so let’s say you bought a brand new Gelandewagen and then the next day your children convince you you’re an idiot because you’ve bought this giant gas-guzzling monster and how can you be so insensitive.
Well, it’s not as simple as saying, okay, I’m going to throw that out and I’m going to buy a hybrid, because a tremendous amount of the energy which goes into that has nothing to do with the gas consumption. It has to do with the raw materials and everything that went into it its manufacture in the first place. And then, of course, there’s the cost of taking it apart and the reduced value of its component parts when they’re recycled.
So we have this thing called life-cycle cost analysis. Are there more efficient chillers that we could put in the Empire State Building? Yes. What would the payback be of putting in those more efficient chillers versus updating the chiller plant? Well, and the answer to that is there is no good measurement, meaning the payback would be so long it would just be wasteful to take this equipment, which is perfectly useful, and scrap it.
So the answer is we looked at it, and the other fact of the matter is that we reduced the heat loads in the building so much with insulation and the new retrofitted windows – remember these are retrofitted windows, only 4 percent of the glass and frames are new, everything else was there originally – that we didn’t need to increase the cooling power. So we’re actually able to run our old chillers at much slower speeds most of the time. So it would have been just wasteful to throw them out.
So that’s the same analysis you have to do on anything when you consider changes. It also means, by the way, that when something has reached the end of its useful life is the logical time to replace it with something which is more efficient. So you, as part of this whole building retrofit program, you come up with an integrated program from the start, even if you only have one or two things which you’re going to be doing, but you have a roadmap for the entire program and you put the pieces in place as they reach the end of their useful life and they’re replaced.
MODERATOR: Last question.
QUESTION: Hi. My name is Vanya Bellinger from the Bulgarian newspaper Capital. And my question is – you started this grand project, this big project. Can you tell us what was the hardest part from it? What was the biggest challenge for you personally? What didn’t you expect?
MR. MALKIN: Well, there’s been a lot we haven’t expected. So we have demolished the building down to its exterior walls and to the slab above and the floor below. And I just keep waiting for a pirate holding a chest of gold to fall out of a wall, but we haven’t gotten that yet.
Other than that, there have been a lot of surprises. But I would say that the biggest challenge was, frankly, getting all of the different teams to work together constructively. And that challenge was upfront work of about three or four weeks, because every single one of the groups who – with whom we were working insisted we didn’t need anybody else, we could just work with them. But once we all started working as a team, with everyone all together, it actually worked out extremely well.
And I’d say the other big challenge was coming up with a replicable benchmarking and costing analysis program. But that’s been done. So – and that’s available. It’s a free program that’s put out by the U.S. Government called eQUEST and it’s part of the analysis program and it works out very well. So it’s really just a lot of hard work. But it’s very logical, it’s replicable. We didn’t patent it, so it’s free and it’s open source. Anybody can use it. And we – again, I said if – we want more people to copy it.
You have one more question if it doesn’t have to do with the IPO. (Laughter.)
QUESTION: Okay. The question is sort of, I guess, skyscrapers traditionally don’t have the best reputation when it comes to economics and energy efficiency. But how does this building sort of compare to a modern low-rise in terms of those metrics?
MR. MALKIN: Okay. So here’s the interesting thing. In a low-rise environment, okay, people are necessarily more spread out. So I don’t know what the statistics are in your native country, but I’ll take a city called Phoenix, Arizona, which is a lot of low-rise buildings spread out. What do you think is the number one consumer of energy in New York City? Is it cars, buses, trains, subways? What do you think?
MR. MALKIN: Yeah, buildings. Eighty percent of all energy consumed in New York City is consumed by buildings. In a city like Phoenix, it’s more like 55 percent. So in New York City 20 percent is spent on collecting trash, running the subway, running the trains, buses, cars, taxis. And in Phoenix, that’s 45 percent, more than twice as much. So, actually, buildings are – taller buildings are incredibly efficient. And if you look at what they’re doing in China, it’s all about bringing people into cities. You can deliver services more efficiently, infrastructure is more easy to maintain and more dense.
It’s actually – I would argue with your premise, actually, that I think it’s far more – and then you have the buildings. Once you have the buildings, you have the ability to make those buildings more energy-efficient much more easily, frankly, than perhaps other things over which you don’t have such concentrated control.
MODERATOR: We have one final question – really, this is the last question – from Venezuela right here.
QUESTION: Thank you. Good afternoon. Andres Correa from Caracas, Venezuela. My question is just doing this process of rebuilding the Empire State, based on this experience, how often do you think that that process have to be happen over? When will be the next updating for the building? Thank you.
MR. MALKIN: So this is a good question. It’s very interesting. So it really comes down to cost of energy, okay? So, number one, we continue to be doing things in the building which are part of this program. So we are replacing our elevators. We have the largest elevator replacement program in the history of the world. We have almost 70 elevators being replaced at once in one building.
And we’re using something that’s actually produced by Otis Elevator, Otis being the people who designed the original elevators and built the original elevators in the building. It’s called a compass program, but it’s known as destination dispatch. You walk into the building, you put in the floor to which you want to go, and it tells you to which elevator to go, instead of saying, “I want to go up.” And then when you get into the elevator, there are no buttons. It just makes a note of the floors at which it’s going to stop and it lets you know when it gets there.
So those elevators are 30 percent more efficient because they do two things. One, when they slow, it’s like applying the brakes in a hybrid car. The energy of slowing doesn’t just go into heat from brakes. It actually goes into a regeneration loop into a battery, which is then used to help power the elevator when it starts moving again. And the second thing is because it’s all controlled by a master brain, it uses fewer trips to move people, because it groups all the different trips that are being requested.
Elevators, windows, lighting, air conditioning equipment, they all have different useful lives. So when they reach the end of their useful life, elevators – the ones we’re replacing now are 80 years old. Actually, the ones we’re replacing now are 82 years old. And the ones we finish in 2016 will be 85 years old by that time.
But air conditioning equipment doesn’t last 80 years, so air handling equipment will probably be replaced – 15, 20, 30 years is the appropriate time. Lighting, well, in the hallways, when will we next redo the hallways? In the tenant spaces, when is a tenant space rebuilt? So it’s all lifecycle pieces. And the point is, by the way, if you start from a fully upgraded base, and then each time you spend money, you spend money in a way which integrates the opportunity for energy efficiency – in theory, you shouldn’t have to do this big redo.
Now, there are lots of modern office buildings out there. The Empire State Building, I think people would look at and say, oh, that’s a great iconic pre-war – pre-World War II, as we call it in the United States, pre-war. But the fact is there are buildings which were built in 1980 which are 33 years old today, and a lot of their systems are past their useful life. So there are – to me, it’s not so much a question of when we will redo it, because we’ll continue to upgrade, but this whole concept, this whole program, this whole process didn’t exist before. So I think everyone needs to – you got to install the building brain so that tenants and building systems can plug into it, and then as you spend money, you have to upgrade. Once you’ve done those basics, it’s just a matter of continuing to upgrade every time you replace something.
MODERATOR: Okay, everybody. Thanks for coming and for bearing with the heat, and please join me in thanking our speaker, Mr. Anthony Malkin.
MR. MALKIN: Thanks. (Applause.)
# # #