7 World Trade Center New York City’s First Green Skyscraper Jonathan Mendelson Josh Kunin-Goldsmith John 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 pointselling 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 Crude Oil Electricity Coal Natural gas ProjectionsHistory 2005 dollars per million Btu

Green Building CBA uses alternative energy pricing forecasts  From 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; 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

The cost of achieving LEED points can vary o Mainly front-end o Many factors: o Location o Weather o 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 cost o At $700M, green premium of $0-35M o 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 TypePresent Value Beneficiary Energy$25 mSilverstein Property Value$11.4 mSilverstein Aggregate Energy$19 mPublic Productivity$45 mSilverstein ‘Green’ Tax Credit$2.4 mSilverstein WTC Rent Credit$33 mSilverstein Total Benefits$135.8 m

Conclusion: Cost of green premium, Liberty Bond effects Cost TypePresent Value Source affected Green premium$0-35 mSilverstein Liberty Bond Effect Present Value Source affected Benefits$20-41 mSilverstein Costs$ mFed Gov’t