In the latest Capital Letter, I wrote about the problems facing the office property market. One of the points I made was the way that regulations designed to (allegedly) lessen climate change will make a terrible situation worse. According to a report produced last year by researchers at Columbia and NYU, $500 billion in value could be destroyed in New York as demand falls and (allegedly) green regulations take effect. And that, I suspect, is before considering the impact of higher interest rates on valuations.
That’s not a pretty prospect for New York City (not to speak of what it could mean for lenders, investors, landlords, and so on). I suggested that one way to do something to alleviate this burden would be to remove the obligation to retrofit buildings, something that is not only ruinously expensive but (effectively) retrospective legislation.
When people think of retrofitting buildings, they tend to think of older buildings (which are the most vulnerable part of the office property sector), but this is not necessarily so.
In that connection, this story from the New York Times in February is worth a look:
One Vanderbilt, a commanding new skyscraper in the heart of Manhattan, seems to be reaching for the future. One of the world’s tallest buildings, it pierces the sky like an inverted icicle and fuses seamlessly with an expanding network of trains and other transport at its foundations.
It is also the rare skyscraper designed with climate change in mind. It holds a self-contained, catastrophe-resilient power plant capable of generating as much energy as six football fields of solar panels. The building captures every drop of rain that falls on it, and reuses that runoff to heat or cool its 9,000 daily visitors . . .
“It’s a commercial-grade science project,” said Jonathan Wilcox, a director of engineering at SL Green Realty Corp., the company that owns it.
But One Vanderbilt is also something else. It is already out of date.
Some of the building’s most important green features were the right answer to the climate problem in 2016, when design work was completed. “And then the answer changed,” Mr. Wilcox said.
Unlike many skyscrapers, One Vanderbilt generates much of its own electricity. This was a leap forward a decade or so ago — a way of producing power that saved money for landlords and was cleaner than the local grid.
However, One Vanderbilt’s turbines burn natural gas. And while natural gas is cleaner than oil or coal, it is falling from favor, particularly in New York City, which in recent years has adopted some of the most ambitious climate laws in the world, including a ban on fossil fuels in new buildings.
As that transition happened, SL Green was caught in the middle. Although One Vanderbilt went up relatively quickly, topping out after three years, its owner had to watch as the city’s environmental strategy raced forward.
Madness.