Local Law 97 Is Officially In Effect. Most Landlords Are Ready — For Now

New York City’s landmark emissions reductions law took effect this past weekend, with owners of buildings larger than 25K SF now required to track and report their greenhouse gas emissions and subject to fines if they fail to reduce them below a certain level.

The moment came and went with little fanfare — the majority of properties are already in compliance with Local Law 97's first benchmark, while a handful of others are likely to qualify for relief under the city’s attempt to reward “good faith efforts” toward compliance.

But with more existential threats to the office market looming over owners’ heads, many aren't prioritizing reducing their property emissions, despite more severe penalties and stricter benchmarks coming in 2030.

“I think for most sophisticated property owners, it wasn't a big challenge to make 2024. 2030 is a challenge,” said Craig Deitelzweig, president and CEO of Marx Realty. “We're forecasting that we're going to get there, but it's going to be tight.”

Roughly 50,000 properties are now required to comply with Local Law 97, while smaller buildings and some affordable housing properties still have years before fines could kick in.

The carbon caps took effect on Jan. 20, and on May 1 next year, landlords are legally required to submit to the city emissions data or demonstration of their good faith efforts, with the first fines for noncompliance to follow.

The goal is that by 2025, these buildings will have seen a 40% reduction in their greenhouse gas emissions from 2006. Around 91% of properties are already compliant, Axios reported.

For the most part, landlords and owners don’t expect Local Law 97 to have a major impact on their bottom lines for the next few years. That could change by 2030 when both the fines and emissions reduction requirements get more severe. The city estimates that as many as 80% of commercial properties won't be compliant by 2030 if no action is taken.

“We're all in the same boat. I don't think any of us know how we get there,” Eli Weiss, principal at Joy Construction, told Bisnow regarding 2030 compliance. “I think we're all very nervous about the implications of this legislation. What's to stop, 10 years later, for there to be new legislation that makes Local Law 97 obsolete?”

Fines prior to 2030 could net as much as $900M each year for the city, according to a 2023 report from the Real Estate Board of New York, which estimated roughly 3,700 properties could already be out of compliance in 2024.

One property that will likely face difficulty is Joy Construction’s Four Points By Sheraton Manhattan Midtown West hotel at 444 10th Ave. The landlord will owe fines beginning this year, according to estimates from the NYC Accelerator Building Energy Snapshot tool: $4,800 annually from 2024 to 2029, then $5,600 per year thereafter.

The hotel was built to the highest levels of energy efficiency when it was completed in 2016, but the predicament facing 444 10th Ave. is one that dozens of owners across the city face, Weiss told Bisnow.

“Many of these buildings were built prior to this legislation,” he said. “There's no way that all of them can be brought up to perfect compliance without a tremendous amount of either money being spent or interference to the business that's operating in that building.”

Although owners would like to comply with the law, he said, that desire is unlikely to outweigh practical considerations such as how to fund upgrades in a high-interest-rate environment.

As a result, owners not currently in compliance will likely do their own cost-benefit analysis and choose to simply pay the fines. That approach is something that Jessica Bailey, president and CEO at Nuveen Green Capital, has heard repeatedly over the past few years.

“A lot of [owners] are just taking a wait-and-see approach and trying to figure out how seriously these rules are going to be enforced,” Bailey said. “Others have decided that the building, particularly when you're thinking about office space, is not worth the investment it would take.”

Weiss isn't the only owner with a recently built or renovated property that isn't in full compliance. 

Fisher Brothers spent $120M renovating the 50-story office tower at 1345 Sixth Ave., and the building has LEED Silver certification, signaling a level of commitment to energy efficiency.

But Fisher Brothers will owe $54,800 in fines every year from 2024 to 2029 and annual fines of over $1M starting in 2030 for noncompliance with Local Law 97, according to the data posted on the NYC Accelerator database. A spokesperson for Fisher Brothers declined to comment to Bisnow for this story.

Rudin Management's 345 Park Ave., home to Blackstone's global headquarters, is another property that was recently renovated but is still potentially on the hook for fines to the tune of $566,900 per year until 2029 and $1.7M per year from 2030 on, according to the city's database.

The landlord is assessing what mechanical and technological upgrades it can make to the building to meet sustainability goals, Rudin Head of Sustainability Hrisa Gatzoulis told Bisnow.

“At 345 Park Avenue, we are undertaking a chiller modernization, switching from steam to electric powered equipment, that will align our base building operations more closely with the caps set under Local Law 97,” she said in a statement.

Rudin's plans at the building, even if emissions don't come down to meet the city's benchmark, could allow it to evade fines. Owners are allowed to submit to the city a decarbonization plan with proof it is being implemented to earn exemption from penalties under the rule's good faith efforts clause.

If the city does levy fines, it could still be years before an owner might have to pay. 

Once May 2025 arrives and the city determines what fines owners owe, landlords can then contest fines in New York’s courts. That means that the earliest the city might see any fines paid is 2027, said Steven Schleider, a senior managing director who leads JLL’s CRE appraisal and advisory practices in the Tri-State region.

Either way, Local Law 97 fines still aren't the most pressing threat to owners of large, older office buildings, Schleider said. Low occupancy and stagnant rents pose a more existential threat. 

“Depending on the type of building, we have occupancy challenges, we have interest-rate-environment challenges. Local Law 97 is in the background,” he said. “The immediacy of that is not all that pressing in most owners' minds. They're looking to stabilize properties in terms of occupancy and in terms of refinancing risk.”

Residential buildings are among the property types that may be the most challenged. More than 60% of all buildings that are expected to be noncompliant this year are residential, according to REBNY. That percentage is expected to climb to almost 66% by the end of the decade. 

Some of these owners aren't full-time landlords, meaning they may not have paid as close attention to regulations as institutional landlords, Adler & Stachenfeld partner YuhTyng Patka said. 

“I’m still fielding questions like, ‘Can you tell me a little bit more about Local Law 97?’” she said. “There's a lot of owners out there, particularly more so in the outer boroughs, who they're not here — they're not in real estate day to day.”

Even among owners that have been proactive about meeting standards required by Local Law 97, many are still unsure how well-positioned they will be in 2030.

“We are looking OK at most of our buildings as far as 2024 reporting, but when it’s starting to get more stringent is obviously in 2030,” said Elena Lebensbaum, director of sustainability at Time Equities.

Some elements of compliance may not even be within landlords’ control, Lebensbaum said. The city's electrical grid is still largely powered by fossil fuels, making it difficult to eliminate fossil fuel emissions. 

“We don't know how quickly New York City is going to bring green power to the city,” she said.

The owner and developer has engaged engineers to figure out what it can do to reach longer-term compliance, and it is looking at where it will need to undertake large-scale retrofits. 

“The electrification of the buildings is something that just requires a more detailed assessment,” Lebensbaum said. “If you're going to completely switch a heating system to electric, what would it take? Do you have to rewire the whole building?”

CORRECTION, JAN. 25, 1:30 P.M. ET: This story has been updated to reflect that Steven Schleider wasn't referring to specific landlords when discussing threats to office owners' bottom line.