New York City Hotels Energy Related Legal and Tax Compliance


Operating in a very strong economic environment New York City (NYC) hotels are using the Cities new mandatory energy benchmarking performance requirements to evaluate their energy performance and then making the necessary facilities upgrades to meet new federal and city energy related mandates. The public disclosure of New York City hotel energy performance is critical to hotel managers since many leading companies and guests will not want to book rooms in hotels performing below the 50 percentile energy performance level. This article discusses the current NYC hotel economic and investment environment, new NYC hotel energy benchmarking requirements, Federal building product mandates impacting hotels, new NYC building energy code requirements applicable to hotels and the special federal tax incentives available to hotels.

NYC's Benchmarking Requirements

With the new local benchmarking law in effect, all buildings in NYC with an area over 50,000 square feet are obligated to submit an annual energy benchmark rating. Energy benchmarking requires data submissions reporting total energy and water use for a building for the previous year using US Environmental Protection Agency’s web-based Portfolio Manager. The NYC law include all buildings over 50,000 gross square feet and includes two or more buildings on the same lot that total 100,000 square feet or more. This new benchmarking law requires New York City building owners or operators to submit their energy data and have it compared to similar buildings within the City. We believe that hotels performing below the 50 percentile level for building energy and water use (performing lower than half of the comparable hotels) will be avoided by guests of leading companies committed to sustainability.

Hotels in Manhattan

New York City is the biggest city by population in the nation and with over 48.7 million visitors in the past year with an average of 80% those visitors occupying a hotel room. There are over 230 total hotels in Manhattan, the largest Manhattan hotels that have the largest energy savings opportunity are seen below.

The Energy Cost Opportunity

Energy cost represents the single fastest-growing operating cost in the lodging industry. Through a strategic approach to energy efficiency, a 10% reduction in energy consumption would have the same financial effect as increasing the average national daily room rate (ADR) by $1.35 in full-service hotels. Energy efficiency provides hotel owners cost savings that benefit the bottom line. In NYC a 10% energy cost reduction, with an average room rate of $230, any cost reduction is welcomed. Efficiency also improves the service of capital equipment, enhances guest comfort, and demonstrates a commitment to climate stewardship.

New York City Energy Conservation Code

As of December, 2009, New York City's Energy Conservation Code (ECC) is effective requiring the use of modern technical methods, devices and improvements that tend to minimize consumption of energy for newly constructed commercial and specified existing buildings. NYC's EEC is intended to comply with the requirements of the American Recover and Reinvestment Act of 2009 (ARRA).

ARRA specifies that states and localities should implement the ASHRAE 90.1-2007 standard. NYC's EEC is required for new construction or additions, alterations, renovations or repairs to an existing building as if they relate to new construction.

For lighting, the NYC's EEC requires that if 50% or more of the lighting in a space is being replaced than all the lighting has to be retrofitted. By requiring a complete lighting upgrade for 50% or more restoration the law facilitates a higher benchmarking rating and EPAct tax incentives discussed below.

Federal Lighting Bans

New York City hotels are impacted by three federal lighting bans related to:

  1. Metal Halides
  2. T-12 Fluorescent
  3. Incandescent lighting

As of January 1, 2009, there is a national manufacture ban on most probe start metal halides. As of July 1, 2010, T-12 florescent lights were similarly banned and limited to ten per pack for distribution.

Starting in 2012 manufactures are banned from manufacturing and importing the traditional 100-watt light bulbs. Bulbs will have to be more energy efficient using no more than 72 watts, even including halogen incandescent, compact fluorescent(CFL) and light-emitting diode(LED) light bulbs. This bulb change is part of the federal Energy Independence and Security Act signed in 2007. Beginning in 2012 new bulbs must use 25 to 30 percent less energy nationwide starting with the 100-watt light bulb. Other incandescent bulbs such as 75, 60 and 40 watt bulbs will be phased out by 2014.

A diagram presenting all three lighting bands in chronological order is presented below.

Simple High Economic Payback Energy Efficient Opportunities

For hotels one of the best energy related economic paybacks is with a simple energy efficient lighting retrofit. LED’s are becoming more popular in highly used lighting areas including guest rooms and hotel restaurants.

New lighting technology uses substantially less energy while providing better lighting with a much longer life, reducing lamp inventory storage and maintenance cost. Moreover hotels with prior generation lighting will increasingly find themselves in the bottom 50% benchmarking category.

New York Hotel Energy Rebates

NYSERDA is offering an incentive to commercial buildings up to $7,000 of assistance to complete their benchmarking and 50% of cost for additional assistance above $7,000. Lighting systems that would qualify for NYSERDA's assistance and increase a buildings benchmarking rating can be seen below.

Hotel Energy Efficient HVAC Upgrades

NYC hotels are air conditioned properties and HVAC (heating ventilation and air conditioning) is the biggest energy user in air conditioned buildings. Replacing an HVAC unit in a hotel with a high efficient one will have the greatest impact on the benchmarking rating. As seen below are some measures that show HVAC Systems with their minimum efficiency, these systems will help the benchmark rating for hotels.

Hotels Section 179D Energy Efficiency Tax Deductions

Under Code Sec. 179D, as enacted by the Energy Policy Act of 2005 (EPAct), hotels who make qualifying energy-reducing investments can obtain immediate tax deductions of up to $1.80 per square foot.

If the building project doesn’t qualify for the maximum of $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: Lighting, HVAC and the building envelope. The building envelope covers every part of the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation. Hotels with central HVAC systems are normally eligible for the HVAC EPAct tax deduction.

Below is an EPAct Tax Planning Example for a hypothetical hotel group composed of multiple leading hotel brands, illustrating lighting and central HVAC EPAct opportunities.

Lighting, heating and cooling are the most important factors in the energy benchmark rating system and improvements in those measures will improve the benchmarking results. The EPAct tax law requires specific achievements in the building’s lighting, heating and cooling system to qualify for tax savings. Buildings that achieve EPAct tax savings will also receive the highest benchmarking results.

Potential Tax Benefits for Energy Efficient Hotels

Of the over 230 hotels located in Manhattan, most of them are larger than the mandatory benchmarking 50,000 square feet compliance level. Assuming that the average sized hotel in Manhattan is about 120,000 square feet, the potential EPAct tax deduction with efficient lighting, heating and cooling could be substantial, as illustrated in the table below.

Current Energy Benchmarked Hotels and Potential Tax Benefits

Currently there are two NYC hotels publicly listed on the EPA's Energy Benchmarking Portfolio Manager, Hotel Penn and New York Marriott East Side, both being rated by Energy Star since 2008 and 2007 respectively. Because of their high energy benchmarking rating, these hotels could have potential EPAct tax deductions as follows.

The potential EPAct tax deduction for New York City's ten largest hotels is presented below.


The actual NYC benchmarking process is fairly straight forward but evaluating and acting on the benchmarking results can be a great business opportunity. Achieving high performance results can result in a more valuable hotel for owners and more importantly a more attractive property for certain guest and convention categories.

Hotel energy benchmarking results will be analyzed and interpreted differently by the various stakeholders. A sophisticated hotel owner will want to know how its building compares against it peers to determine performance, evaluate energy operating costs, impact building valuation and attract guests. Hotel owners and operators who produce great results will be in high demand and the bottom performers may find themselves with higher vacancies.

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