A Green Empire
How Anthony Malkin ’84 engineered the largest “green” retrofit ever
When it opened in 1931, the Empire State Building was not only the biggest building in the world, it was—with the tallest elevators ever created—an exemplar of the mechanical age. But recently, the landmark had begun to show its years. In 2006, the Malkin family, signficant owners who are responsible for the building's day-to-day operations, faced a decision: as Anthony Malkin ’84 put it to his father, Peter Malkin ’55, J.D. ’58, they could either sell the iconic structure or take on massive infrastructure upgrades likely to cost half a billion dollars or more. After securing the agreement of the Leona Helmsley estate (which shares control of the building's operating lease with the Malkins), they decided to take the riskier course and pursue a turnaround of the asset while simultaneously making the building an energy-efficient exemplar of the green age.
People tend to focus on vehicle emissions as a principal source of the heat-trapping carbon dioxide that propels global warming. But building operations actually account for a much greater share of carbon emissions—about 40 percent—and are therefore the single most important contributor to climate change. (In New York City, the number is closer to 80 percent.) And buildings, unlike vehicles, are also an enduring capital investment. Tony Malkin points out that three decades from now, approximately 80 percent of current structures in New York City will still be in use. “If you want to turn back carbon emissions,” he says, “you have to deal with existing buildings.”
Beyond an undertaking that he hoped would be both environmentally and economically sound for his own building, Malkin aspired to something much larger: creating a reproducible, scalable process for energy-efficiency retrofits that could be adopted worldwide in other big buildings, in hospitals, and on campuses. “If we could put all the best minds together on this particular task,” he reasoned, “it could fulfill all of my objectives in life, ranging from making money to making the world a better place.” It was a green synergy.
In 2007, meanwhile, New York City began discussing legislation designed to drive down energy costs by reducing waste. (Mayor Michael Bloomberg, M.B.A. ’66, ratified four such laws in December 2009.) One statute requires that every building of more than 50,000 square feet must make public how much energy it uses per square foot. In that context, Malkin calculated that his business objective—to replace the hundreds of small tenants in his 2.85 million-square-foot skyscraper with fewer, larger businesses that would occupy whole floors (new tenants now include Skanska, LinkedIn, and even the Federal Deposit Insurance Corporation)—would benefit from a green rebranding that would also appeal to brokers. “I am a capitalist,” he says forthrightly. “I wanted to make money. This is not charity; that’s separate.”
When a call came from the mayor's office asking if the Empire State Building could be lit in green in honor of an event co-sponsored by the Clinton Climate Initiative (CCI), Malkin said, “Sure—if I can attend the event.” There, by chance, he ran into Jamie Russell ’97 (the younger brother of his College roommate, Andrew ’84, now Duke of Bedford), then working for CCI, and CCI head Ira Magaziner. They eventually persuaded him to push beyond simple “green” rebranding and instead to undertake a potentially risky “deep energy retrofit” intended to result in energy savings exceeding 10 percent. This was a leap for Malkin: the structure was his largest single real-estate asset, representing almost a third of Malkin Holdings’ total square footage in the city. Initially, in fact, he offered to retrofit a property at 1333 Broadway, but Magaziner demurred: “If we succeed at 1333 Broadway,” Malkin recalls him saying, “no one’s going to give a damn. We want the Empire State Building.”
To make that work, Malkin brokered a nearly risk-free deal for himself: if the extra money he spent on the energy retrofits was not recouped in three years, the engineering firm that projected the savings would have to pay him the difference. With CCI’s help, he assembled a team for the project in 2008: the engineering firm Johnson Controls; property manager Jones Lang LaSalle, which wrote the guidelines for outfitting tenant spaces; and the nonprofit Rocky Mountain Institute (co-founded by Amory Lovins ’68), a “think and do tank” that promotes sustainable use of resources. Malkin persuaded each of them to work as partners—and in secret, in case the effort failed. The for-profit partners also agreed to forgo payment for the legwork involved in devising the integrated engineering approach, getting paid only for their other work. Most important, they agreed when Malkin told them they would have first-mover advantage in the marketplace, but “we don’t patent this process…we want everybody to copy this. If we succeed at the Empire State Building alone, we have failed.”
The team quickly got to work. In the course of 12 months, of the nearly 70 energy-saving measures considered, just eight were chosen. Among those, “the biggest energy-savings contribution is 9 percent, the smallest is 2 percent, and the other six are between 6 percent and 3 percent of the total benefit,” reports Malkin. But these small numbers add up to one big number: a total anticipated reduction in energy use of 38.4 percent—a remarkable benchmark that he says will make the project “the most energy-efficient building retrofit in the world.”
Perhaps even more surprising is how relatively little the added energy-efficiency measures cost—about $13 million. “But we spent $93 million differently than we had planned to spend it,” Malkin reports. “The point is, by building the measures in…you just spend that $93 million more intelligently.”
Take the decision to rebuild all 6,514 windows. When the project team priced the cost for upgrading, they found that the payback time for that $4-million expenditure was 10 years, double what was acceptable. But one of Malkin’s priorities was to secure full-floor tenants, and the removal of many small offices meant that previously unheated and unventilated hallway space near the elevators and staircases at the building’s core was recaptured. That meant the leasable square footage would increase—but the recovered space would add to the building’s cooling and heating load, requiring the purchase and installation of a new chiller to meet the building’s cooling needs, at a cost of $27 million. The engineers quickly realized that the extra load from the additional square footage was equivalent to the load reduction that would be realized if the windows were upgraded. The integrated payback was 3.3 years, not 10 years. (For more information on energy-saving techniques used, see “Green Engineering”.)
Malkin says the most important lesson learned is that “energy efficiency is not something you add, it’s something you build in.” The savings from all the measures adopted at the Empire State Building now total $4.4 million annually. The additional $13 million spent, in other words, will be recovered in just three years. Moreover, the retrofit has also led to “an improvement on the top line,” he reports. Where the average rent in 2006 was $26.50 a square foot, “We’re now signing new leases averaging from the high $40s to the low $60s with better-credit-quality tenants.”
He appreciates that the significance of the project extends beyond his own bottom line. (For years he and his wife, Rachelle Belfer Malkin, have been involved with environmental causes, including the Natural Resources Defense Council.) For one thing, he says, retrofits create local jobs. “If you install wind or solar energy,” he asserts, “60 percent to 70 percent of the money involved goes overseas” because such projects require expensive foreign components. He envisions massive investments in building retrofits that emphasize load reduction and energy efficiency and have the advantage of keeping American dollars and jobs at home. Beyond the cost savings of reduced energy consumption, he says, retrofits represent “capital-cost avoidance”—money otherwise expended to develop new sources of energy—“because a watt saved is so much less expensive through this process than a watt generated by solar or wind.” He has taken this message to Congress, addressing the joint Senate and House economic committee, as well as the staffs of the Senate’s energy and natural resources, finance, and ways and means committees. “We’re also doing a brainstorming session with the Environmental Protection Agency,” he reports.
Meanwhile, the Empire State process is being replicated in cities from Los Angeles to Melbourne, and Malkin is telling his story around the world, from Chicago to London to Beijing, as he hoped. (At home, the Port Authority of New York and New Jersey is redoing several buildings this way.) Businesses need economic incentives to be green, he says—and they need to answer a simple question: “What are the right things you can do that are going to make more money—and result in a more effective deployment of capital?” Creating bike parking “is nice,” but “‘energy efficiency’ is what’s going to change the world.”