Kips Bay Co-op Finds Energy Nirvana

Lisa Denby knows about the high price of energy. The president of the board at 305 East 24th Street, a 388-unit co-op in Manhattan, Denby has had to deal with annual energy bills for the cooperative’s common areas that at one time topped $800,000.

“This is what every board is trying to address – reducing their fixed costs, like energy,” she says. The point was driven home a few years ago when Hurricane Sandy ravaged the property, cutting off the electricity and forcing the board to appreciate the importance of backup power.

“I’ve dealt with a lot of boards over the years, and they all want to do things that will save them money and be good for the building,” says A.J. Rexhepi, an account executive at Century Management, the co-op’s managing agent. “When they see the scope and cost of these projects, they sometimes back off. It takes a certain board to focus on a project like this.” In this case, he says, the real-life storm became a metaphorical “perfect storm” for implementing change at 305 East 24th Street.

It took about four years, but the co-op is in the process of a major overhaul that will provide power in emergencies and save energy costs overall. And it won’t deplete the reserves or cause a rise in maintenance fees. How did they do it?

Shortly before Hurricane Sandy hit in October 2012, the 20-story co-op’s board had switched to a dual-fuel boiler that burned No. 2 oil and natural gas. But Sandy’s impact – flooding, power loss, and other damage – convinced the board that more was needed. After research by Tony Fanelli and Rick Buckholz, two board members at the time, cogeneration became a very attractive solution.

Cogeneration works like this: a generator powered by natural gas creates electricity to power a portion (or all) of the building’s needs. As a byproduct of that process, it creates heat that is captured and used for the building’s heating and hot-water needs. If the electricity goes out in an emergency, the gas-powered generators continue to operate and provide backup power.

But cogen is expensive. So Fanelli and Buckholz started to look into potential incentives offered by the New York State Energy Research and Development Authority (NYSERDA), which led them to an incentive program run by the New York City Energy Efficiency Corporation (NYCEEC).

The city’s energy program offers incentives to install cogeneration systems, but in most cases the loan for an energy-efficient project is structured so that payments are based on what the building anticipates it will save in energy costs, says Jay Merves, NYCEEC’s director of business development. The corporation monitors construction, and after a project is finished, it also monitors the actual energy savings to see how it compares with what was projected.

NYCEEC has worked with 71 buildings since its inception in 2010. Buildings that are a good fit for financing are those with strong financials, an informed and willing-to-work board, and a project with enough potential for energy savings to make it economically feasible, Merves says. Terms of loans range from about 5 to 10 years, with interest rates from 6 to 8 percent.

For the East 24th Street co-op, the total project cost was $4.5 million. NYSERDA’s incentives amounted to $1.34 million and the NYCEEC loan was $2.95 million. The latter loan will be repaid over 9 ½ years. The co-op is projected to realize about $440,000 in annual energy savings. (The agency did not release the exact interest rate.)

The board fronted about $835,000 from its reserves to NYCEEC, a move that enabled the co-op to stave off loan payments for the year it would take to complete the project. Once the job is finished, NYCEEC will return $600,000, meaning the co-op will be out less than $250,000. The loan was closed in December 2015, and work began soon after. The board hopes that the installation will be done by early spring. Loan payments begin in June. The benefits will last for years.

Where there’s a will, as Lisa Denby found out, there’s a way.