Should I buy shares of the Empire State Building? An energy look
After decades of deliberation, the owners of the historic Empire State Building in New York City have decided to IPO, allowing the public to purchase shares of the Manhattan icon. This means that ownership in the famous structure are available to you and me, regardless of whether we are real estate moguls. Because I am an energy nerd, this analysis focuses on the impact of recent green projects on the building's value.
So you may be wondering: should I buy shares of the Empire State Building? Let's dig into the analysis to determine whether this is a good investment opportunity. And we'll do it in plain English, without resorting to real estate industry vernacular like "NOI and Cap Rate."
The critical piece of information I want when assessing any investment is whether I will make money or lose money. In the case of the Empire State Building (ESB), this is no different. There are two basic approaches for determining the value of a commercial building like the Empire State Building. In both approaches, energy and sustainability factors into the calculation.
On the one hand, a commercial building's market value depends on companies wanting to rent space inside. So a famous highrise in the heart of midtown will always be more valuable than a half-empty strip mall in the suburbs. But this information should already be accounted for - the Empire State Building has been prominent on 34th St for nearly a century. What would drive the value of the ESB to increase over time, making my purchase of a share of the building a good investment?
For the building to hold and increase value over time, it has to stand out relative to the other buildings. And the "greenness" of the building is an increasingly important factor in the minds of top tenants. This is especially significant in New York City, where local legislation requires many buildings to publically disclose their Energy Star score, making it easy for tenants to find sustainable space.
Just like in other businesses, commercial real estate executives are watching the bottom line. Ensuring the building is fully leased to high quality tenants is part of the profit equation. The other part is the cost to run the building. And here again, the recent energy retrofit project at the Empire State Building will help.
Energy is one of the largest components of cost for a commercial building, and often referred to as the biggest "controllable expense." The Empire State Building cut energy bills by $2.4M per year, exceeding the already aggressive savings target of 38%.
Energy-related projects often come with operational savings, sometimes doubling the benefit and sending more cash to the bottom line.
So is it a good idea to buy stock in the most famous building in America? Maybe. Of course, if I knew the answer to that question I would make a fortune day trading and be writing this from a beach in the Caribbean.
But should I look at energy and sustainability as a factor in my investment decision? Absolutely! Energy is as important in commercial real estate as it has ever been. Sustainability has become table stakes for commercial real estate, and energy efficiency is tried and true as a way to improve the bottom line. Green buildings are a good investment, and the financial world is taking notice.