Backup generators at top of agendas:
Landlords look to upgrade; some buildings already have a power edge

Crain’s New York Business
by Tommy Fernandez and Miriam Kreinin Souccar

August 18, 2003

At the New York Marriott Marquis last Thursday night, nearly 2,000 guests were forced to evacuate the hotel during the blackout and sleep outside.

A couple of blocks down Broadway at the W Hotel in Times Square, elevators were operating, hotel staffers were able to leave guests voice-mail updates in their rooms, and lights were on just about everywhere.

The difference? The Marriott Marquis’ generator broke early in the crisis; the W Hotel, the first to open after the terrorist attack of 2001, had installed a high-powered generator and an extra fuel tank.

While the lessons of Sept. 11, such as the importance of evacuation drills, helped many commercial properties deal with the blackout, the presence and performance of backup generators separated the businesses that rode out the crisis from those that were mired in it.

As the new workweek began, real estate executives-many of whom believe more blackouts are a near certainty-were spending their days drawing up plans to upgrade their power systems.

Preparing for next one

“One thing we now know is that the grid system in North America isn’t going to be fixed soon enough for us not to prepare for the next blackout,” observes Richard Cotter, vice president of operations for the mid-Atlantic area of Starwood Hotels, which operates 12 buildings in New York City. “We need to have an emergency plan in place in the event that one of our generators fails.”

Starwood plans to install generators in its two smaller hotels, W New York-The Court and W New York-The Tuscany, and is looking into upgrading some of its other properties’ generators to increase their power. At the Sheraton New York Hotel and Towers, for example, the generator lasted only eight hours.

Many landlords have devoted time during the two years since the terrorist attack to improving safety and security, and they benefited from those efforts. CB Richard Ellis, which is responsible for 115 properties in the tristate area, including the MetLife and Equitable buildings, set up a major emergency preparedness plan after Sept. 11.

Periodic drills in emergency procedures led to orderly evacuations, according to Gregg Popkin, senior managing director for CB Richard Ellis. Building sweeps helped management keep track of tenants who decided to stay in their offices.

Yet only about 35 of CB Richard Ellis’ 115 buildings had generators. The rest had no emergency lighting and no power at the security desk.

Worthwhile expense?

“The majority of our multi-tenant office buildings did not have backup generators,” Mr. Popkin says. “But for those that were backed up with generators, the blackout had very little effect.”

According to New York City-based investment firm Braemar Energy Ventures, a typical backup power system costs $300 per kilowatt to $800 per kilowatt. Since a building’s needs may range from 100 kilowatts to several megawatts, a system’s price tag could run from $30,000 to several million dollars. Buildings with special requirements, such as those that house high-tech tenants, might have to spend much more.

Nonetheless, the expense may be worth it. For example, 111 Eighth Ave., owned by Taconic Investment Partners, has 37 backup generators, which allowed almost all of the tenants to operate without any disruptions when the primary electrical power failed.

“They were cool, in business and still connected when the blackout hit,” says Paul Pariser, co-founder and principal of Taconic.

Properties that house financial and high-tech tenants are the likeliest customers for powerful backup generators. Mr. Pariser says that his firm installed them during the six years it has owned 111 Eighth Ave. to provide backups for the numerous high-tech companies that rent space in the building. These companies, which pay a fee to be connected to the backup generators, need the extra power to protect their equipment.

Open bar

Mr. Pariser says that the ability to protect tenants during the blackout has instantly given him a powerful marketing advantage over other buildings. “You are going to see more tenants asking for this backup power,” he says. “It is going to be a big way to differentiate among office buildings.”

Some commercial properties with generators that performed basked in their success. The W set up an open bar in the lobby, and staffers went door to door shouting, “Trick or treat” and passing out water and snacks.

“The Times Square property is better equipped for this than any hotel in the city, largely because of what we learned from 9/11,” says Brad Wilson, area managing director of W hotels in New York City. “The building engineer informed me that they could even run air conditioning if we wanted.”