Water-cooled HVAC systems use water to absorb heat from the air and transfer it to a cooling tower or other heat-dissipating device. The water is circulated through a closed loop system, passing through a condenser coil to absorb heat from the air, then to a cooling tower where the heat is dissipated into the atmosphere. The cooled water is then returned to the condenser coil to repeat the cycle. This type of system is more efficient than air-cooled systems, as it requires less energy to cool the air. Additionally, water-cooled systems are more compact and require less space than air-cooled systems.