Con Ed plant potential development site.

An ugly duckling overlooking Manhattan's East River could turn into luxurious condominiums if a Con Edison steam plan is carried out by developers.

The plan, filed with the state's Public Service Commission in April, would allow Con Edison to sell its Waterside electric and steam plant at 39th Street, together with the north portion of a similar East River plant located at 14th Street.

The new ownership, which could take the form of a joint venture between a developer and an energy company, for instance, could then replicate Waterside's power with new, more efficient machinery that could be located in unused portions of the East River facility.

This event could then lead to the demolition of the smokestacks and the rise of residences along nearly three full First Avenue blocks, just south of the United Nations complex, running from about 41 st Street to 38th Street.

"If I was a developer, I would want to do that," said Woody Heller, a senior director of the investment division at Jones Lang Wootton.

"It's a tremendous development site, with a lot of potential," agreed Peter DiCapua, president of the Owners Committee on Electric Rates (OCER) and a senior vice president of Atco Properties & Management, who worked on the Con Ed divestiture plan.

This Con Ed steam plan, filed on April 15th, was formulated over the last year or so with the help of about 15 of the city's largest owners and property management companies, all of whom have buildings that use steam for heating and/or cooling. These companies, including the OCER, Rockefeller Center, Tishman Speyer, Mendik, Insignia/ESG, Trinity Church and ATCO, wanted to assure the future of steam generation in New York City.

DiCapua said the owners needed Con Edison to make a commitment to generate and market steam for at least the next 20 years, a commitment which would also include upkeep and maintenance, and provide a way to attenuate costs for the approximately 1,930 accounts that serve over 100,000 people in residential, commercial, university, hospital and hotel settings.

Currently, the Con Ed steam rates are frozen, explained DiCapua, and will stay that way under a rate agreement negotiated at the insistence of the OCER for the next two years ending September 30, 2000, before rising by about 3.5 percent in each of the following two years. Then there will be three years of an approximately 1.5 percent increase per year.

Any purchaser of the plants would have to agree on re-powering the East River plant, and sign a contract to sell Con Edison the steam at a set price.

"We'll put these plants up for bid and the new owner will have to honor the steam contract," said William Harkins, vice president of energy management for Con Edison, who worked with the OCER group on the plan. "We haven't finalized the cost or terms of the steam contract - it might be 10 years or longer - so the new owners will consider the cost of the steam in the price of the plant. If they find that contract undesirable, they will bid lower. We have a very valuable piece of property which could be developed or sold. and it would [also] be reflected in the bid."

Along with steam, the new equipment is expected to generate twice the electrical output currently produced at Waterside, and while Con Ed would not contract for that electricity, it could be sold in the deregulated marketplace.

"The re-power would have to allow a return to be made at the same number, and maintain stability of the [steam] rates," said DiCapua of the contract for steam and the installation of new equipment at the East River so Waterside could be redeveloped. "Was that pie-in-the-sky and can a developer really do it? The numbers are tight, but it is accomplishable, and a return can be realized."

The sale of the plants would also help mitigate the $110 million in "stranded" capital costs currently associated with the Waterside plant that are now subsidized by electricity buyers. Once electrical competition is in full-swing, those costs could no longer be subsidized by electricity and would have forced a dramatic increase in steam rates.

While the power plants are supposed to be sold separately, the northern portion of the Waterside site at 708 Fifth Avenue is improved with a 10-story 487,000 square-foot office building housing certain Con Ed employees. Cushman & Wakefield is studying the disposition of the non-power producing real estate, which includes that site, the headquarters building at 14th Street and Third Avenue, and others.

"I think they have very valuable real estate in their portfolio," said August DiRenzo, vice chairman of Cushman & Wakefield, who has a team vetting the properties.

The retired Kips Bay steam generating station and its stacks over on the east side of First Avenue at 35th Street have already been demolished, and the site is now used for parking and fuel storage for Waterside. That, and a huge parking lot and substation at 40th Street on the west side of First Avenue, are two other sites are of considerable interest to the real estate community. About 80 percent of the sale price of the Kips Bay site would also go towards mitigating steam operations.

Although a Con Ed spokesperson said there have been many inquiries, the two latter sites are not on the market, nor are any of the other sites - just yet.

Three other power plants - Astoria, Ravenswood and Arthur Kill - are expected to be put on the block in the next few months and be sold to foster electric competition, but none of those plants will be taken off line.

If the April 15th steam plan is accepted by the PSC, Con Ed will file a supplemental divestiture plan for Waterside and the East River plants, which also has to be accepted by the PSC before these two steam and electric plants could be auctioned sometime in 1999.

Among the companies that might be interested is TriGen, headquartered in White Plains, which operates 30 plants in 22 locations including Nassau County, Kansas City, Philadelphia, Boston. Baltimore and Chicago.

Susan Odiseos, a spokesperson for TriGen, said the sale of the plants sounded like something They would be interested in.

There is no timetable yet for the sale of the parking lots, and a Con Ed spokesperson said it is unlikely the substation at the 40th Street parking lots that supplies 20 feeder cables to the Grand Central area would be sold.

Any developer will also have to jump through the zoning hoop before deciding to ??? the tallest building in the world. Currently, the Waterside plant and the Kips Bay parking area are zoned for manufacturing.

Harkins said Cushman & Wakefield is studying whether to have Con Ed re-zone Kips Bay before selling it.

"There's going to be tremendous interest [in Waterside], but developers are going to have to get very comfortable with what the community wants there in terms of the zoning issues," advised Ronald Solarz, a director at the sales brokerage Eastern Consolidated Properties.

Development attorney Georgia J. Malone, of counsel to Stadtmauer Baikin, said it was likely the community and planning officials would oppose any buildings taller than 20 stories, but this height would not be comparable to other residential buildings along First Avenue in the immediate area.

According to Gabriel's Apartment Rental Guide, the Zucker Organization's Rivergate rental, just to the south of the Kips Bay lot, has 35 stories; the Jeffrey Glick-developed Horizon condominium at 37th Street, just south of Waterside, has 44 stories and is attached to a smaller building fronting on First Avenue; just to its south, between 35th and 36th streets, is the diagonally set Manhattan Place. Bernard Spitzer's massive Corinthian, catercorner from Waterside to the south on the west side of First Avenue, has 57 stories.

Neil Binder, principal of the Bellmarc Companies, which manages and sells many apartments in the area, said an average eighth floor one-bedroom of 750 square feet would sell for $250,000 to $300,000, and a two-bedroom would sell for $450,000 to $500,000.

"If the units are above the 20th floor, you are dealing with another $50,000," said Binder, explaining this is a strong, middle class location in what is known as Kips Bay. Rentals at the Corinthian, for example, are garnering from $1,500 for studios to $4,000 for two-bedrooms.

"That's what is generating the new construction, because they couldn't get these rents before this market, and now you can get the cash-flow. People really realize the rent laws are going south,' said Binder. "There are a lot of guys out there that would like to build in a solid neighborhood."

While Binder expects any new construction would fetch a 15 to 25 percent premium for the area, ira project can be tied into the tony Beekman Place, United Nations and international community to the north, it could fetch much more.

The complicated deal to buy the plants will need to be analyzed from many angles, including re-zoning issues, construction costs for re-powering the new plant at the East River, demolition costs for the stacks and equipment currently at Waterside, income from the electricity and steam sales, and residential construction costs and expected sales prices, before coming up with a bid.

If it was a simple, straight-forward development site, it would sell for anywhere from $60 to $100 a FAR foot, a half dozen brokers advised. With total apartment construction costs running over $300 a foot, the final price will depend on the developer, the finishes, the view and the economic climate when brought to market.

As for having to push the steam farther along the pipe system to arrive at buildings in Midtown, Harkins explained that will be more a function of keeping up the pressure, and should not make a difference to the properties.

"It will be our job, or the new owner of the plant's job, who puts steam generation further south, to reinforce the steam generation system to make sure it can get distributed uptown to where it used to be. The steam customers will be unaffected," he said.

It's the electricity that is impacted by how close you are to the source, the Con Ed man teased. "Didn't you ever notice how the building lights shine brighter as you go farther Downtown? It's because they are closer to the Battery."