New Local Law 97 Details Generating 'A Lot Of Anxiety' Among Real Estate Groups

New York City Mayor Eric Adams' administration has released highly anticipated details on how it plans to implement New York City's controversial building emissions reduction rules known as Local Law 97 — providing clarity for some in real estate and failing to soothe angst for others.

“It's come as a relief, because ever since the law was passed over three years ago, there [have] been several questions that are open and left unanswered,” said YuhTyng Patka, a partner at Duval & Stachenfeld who co-chairs the firm's Climate Mobilization Act Task Force. “The release of the long-awaited rules answers a lot of those questions and helps to clarify and guide New York City owners and their consultants on how to proceed with their Local Law 97 strategy.”

Last week, the city’s Department of Buildings released proposed regulations for Local Law 97 — passed as part of the 2019 Climate Mobilization Act that aims to bring the city's carbon output down 80% by 2050. The laws set emissions limits on large and midsized buildings starting in 2024 — and will impose fines on owners that exceed them.

The worst-performing buildings have five years to bring their emissions down, and the caps will become increasingly stringent through 2030. Property owners could face fines of $268 for every ton of emissions above the limit.

The DOB’s draft rules set out the formulas for calculating both a building’s annual greenhouse gas emissions and the limit it should comply with. It also lays out how to determine a building’s gross floor area for the purpose of reporting to the department.

It establishes that owners can comply by offsetting emissions from electricity by buying renewable energy credits from solar and wind projects. Offsetting electricity could be a boon for commercial owners, but less so for residential landlords, many of which run directly on fossil fuels for heating and hot water, per The City.

“The city has assigned coefficients to specific property uses and specific heating sources which all contribute to the formula … [So it has] drilled down on the numbers and figured out what the caps are going to look like for buildings,” Patka said. “The rules provide a lot of technical guidance for consultants who can now more accurately advise building owners on what they need to be doing.”

The DOB will be holding a public meeting next month to solicit feedback on the new benchmarks.

The emission cap law has raised the ire of many in the real estate community, some of whom suggested it may be easier and cheaper to pay the fines because some of the caps are unachievable. Others have complained that the law is too broadly written, and doesn't account for buildings that are already highly efficient.

“Local Law 97 punishes people like us who have spent years making our buildings efficient by insisting we pay fines if we don't make them more efficient, and every year we spend money to make them as efficient as possible,” Durst Chairman Douglas Durst said in April last year. "The idea that somehow those of us who have made our buildings efficient can make them even more efficient is beyond me.”

Because the mandates for emission reduction apply to a vast majority of the city's built environment, the Urban Green Council expects the retrofit economy that emerges from LL97 compliance will be worth $20B over the next decade.

“It's more of a landlord problem, but tenants could be on the hook — there's a little bit of ambiguity because the building has to be compliant,” Savills Executive Managing Director Gabe Marans said. “If there are penalties being levied and a tenant is already in the space, even if the cost is agreed to be filtered by the landlord, it's still a matter of disruption.”

He said as the years go on, and the penalties and costs in becoming compliant go up, there is an expectation that some landlords may try and shift the cost and responsibility to the tenants.

“We're not quite seeing that just yet because we help tenants sign long-term leases, to make sure that they're well-protected,” he said.

He added that, as a tenant broker, he attempts to essentially get the landlord to indemnify the tenant for any required costs associated with implementing the law. However, landlords push back and say they can’t possibly cover all the costs for things that are not yet fully announced.

“As we get closer to 2030 and the fines get higher, and the number of buildings goes from 20% of the building stock to higher, then that is going to become even more relevant to all the parties involved," Marans said. "There is a lot of anxiety in the real estate community.”

Even with this detail in the public realm, real estate groups and climate activists say there are questions that need answering.

“This law is single-handedly changing how buildings have been running for at least 100 years,” Jay Martin, executive director of the Community Housing Improvement Program, an organization that represents owners and managers of more than 400,000 rent-stabilized properties, told Crain’s New York. “We're willing to participate, but I think we’re closer to the beginning of this process than the end.”

Meanwhile, the industry’s top lobby group, the Real Estate Board of New York, said it is still reviewing the proposed rules, a representative told Bisnow.

“REBNY members share the City’s goals for decarbonizing our built environment and we’re pleased to see the release of proposed rules that give clarity to building owners on how to comply with Local Law 97,” the group said in a statement.

Others have raised concerns about the lack of information about how enforcement will take place — and some say they can’t take any true definitive action until the rules are set.

“Until all the variables are fixed, it is difficult to make any decisions,” Durst Organization spokesperson Jordan Borowitz told The City. 

The company’s One Bryant Park was described as the “greenest” building in the city when it opened in 2010 and has LEED Platinum certification. But Durst has estimated the building could go over its cap by 50% in 2024, resulting in a fine of $2.4M, Bloomberg reported in March. That is because the building is occupied by Bank of America's trading floor, which consumes vast amounts of electricity.

Regardless of its opinions of the draft rules, Urban Green Council CEO John Mandyck said it will still help the real estate community plan for the future.

“I do think real estate is being proactive in the sense that they're asking the right questions. There are certainly some that need to be more active than others to understand what's coming,” he said in an interview. "This is an opportunity to improve building stock and to do our part to mitigate the worst of climate change. We don't need any further reminders that the horrific effects of climate change are now upon us.”