While real estate developers and owners in California are busy trying to find solutions to combat the state's energy crisis, their counterparts in New York City are working to prevent similar problems.

“This [the New York energy crunch] is going to be a major concern over the next three or four years — it hasn't reached its greatest potential,” said Michael Colacino, executive managing director at New York-based Julien J. Studley Inc., a tenant representation firm.

New York is on the cusp of an energy crisis, according to Studley's recent report, National Outlook on Power: Supply, Demand & Economic Risk. At the medium-risk level, New York is just trailing behind the high-risk areas of Orange County, Calif., and San Francisco.

New York's advantage over California is that supply is adequate for now, according to the report. However, as Colacino explained, the margin of meeting demand is so slim that if one transmission line from the power plant into the city goes out, it could result in brownouts and other energy hassles.

Confronting price volatility

For the real estate industry, New York City's energy supply isn't the primary concern, according to Ashok Gupta, senior energy economist at the Natural Resources Defense Council, a non-profit environmental group. To Gupta, the bigger story for the real estate industry is that prices are going to spike during the summer months from now on. “The era of generally stable prices is over — expect much more price volatility,” he said.

Although Gupta doesn't expect rolling brownouts to hit New York City, he predicts even higher prices in the next two summers. “The market's going to stay tight and get tighter, and the risks will be especially serious the summer of 2003,” Gupta warned. By 2004, new plants will be ready to alleviate the supply issue, he added.

What should the real estate industry do to limit the impact of high prices during the summer months? Gupta said owners should balance supply needs with cost. “They can shape their demand curve — figure out when the prices are going to be high and reduce their demand accordingly,” he said.

Becoming energy aware

Gupta said new construction and major renovations provide owners an opportunity to make buildings more energy efficient with infrastructure changes such as energy-saving windows and lower-wattage lighting. Gupta said on-site generation technologies are another option, especially for companies that want to offer guaranteed energy supply.

For the New York-based developer The Durst Organization, building with the latest energy technologies is becoming a standard. When Durst recently constructed 4 Times Square to house the Conde Nast Publishing empire, the developer built an efficient building that features two fuel cells that generate 400 kilowatts of electricity, which is enough energy to provide power for the base load during the night and 4% of the building's total daily energy requirements.

With the NYCyberCenter, a mixed-use property that will take up an entire block between 57th and 58th, and 11th and 12th avenues in Manhattan, Durst has developed a building that is self-sustaining. The NYCyberCenter will feature an on-site, privately owned cogeneration facility that will produce 100 watts per sq. ft. of uninterrupted electric power with 99.9% availability at the tenant's premise. The heat from the power-generating process will be used to produce chilled water, which will cool the occupied space within the property.

Colacino believes that this type of facility will encourage other developers and owners to offer more on-site services to tenants such as micro-powered cogeneration and fuel-cell technology.

How real estate developers approach the energy crunch will affect more than their bottom lines. “If we don't do certain things right in the next couple of years, there could be a lot of problems in a lot of places.”