NYC Building Owners Are Still Waiting To Act On New Emissions Restrictions

As the details of New York City’s ambitious carbon emissions reduction plan fall into place, the commercial real estate industry is still gunning to make its mark on the laws and policies.

Landlords and developers play a large part in the city’s goal of drastically reducing carbon output by 2050. In April, the city council passed the Climate Mobilization Act, a package of bills that will fundamentally change the way buildings will be built and operated in the city.

At its heart are new rules that set emissions limits on large and midsize buildings starting in 2024 — and will impose fines on owners who exceed them. The worst-performing buildings have five years to bring their emissions down, and the caps will become increasingly stringent through 2030.

Members of the real estate industry have previously bristled at the new requirement, known as Local Law 97, which officially came into effect last week. With some regulatory decisions still yet to be made, and the office to monitor owners and the advisory board to oversee the rollout now being established, industry players are hoping some of their concerns about the laws can still be addressed.

“We're not trying to kill the whole thing, but at the same time, how do you make it more appropriate to do what you're trying to do?,” said Philip Skalaski, the vice president of engineering and energy services at the Durst Organization. "We've made a lot of suggestions on how to change it, how to make it better."

Skalaski will be speaking at Bisnow’s New York 2020 Forecast next month on a panel that examines the legislative outlook for the city.

“It has fallen a little bit on deaf ears," he said of the industry's lobbying efforts. "But we'll see — we'll see if things change. I think it's still a little early [and] there's a lot of work to be done on the back end.”

The laws set emissions caps on buildings that are 25K SF or larger. Rent-regulated housing, as well as houses of worship, won't be subject to the emissions cap. Building owners who do fall under the laws will be fined $268 for every ton of emission beyond an individual building’s limit. Some 60% of the city’s building stock is affected by the law, according to the Urban Green Council.

Skalaski said he has a list of some 15 concerns about Local Law 97, but its fundamental flaw comes down to the fact that it imposes a cap on buildings regardless of how densely populated they are; meaning, he said, even efficient buildings will be fined if they have lots of people in them.

“Just saying carbon value per square foot, per year as the limit doesn't work — because every building is somewhat different,” he said.

Durst has not made any modifications to its buildings as a result of the law and will be waiting for more clarity before it does, Skalaski said. 

“There's nothing in the bill that considers density, there's nothing in the bill that considers hours of operation," he said. "The only thing that's considered in the bill is the occupancy classification, [and] every business building or every commercial office is building looked at the same way.”

He said the real estate industry should continue to voice its opinions on the bill, and while sustainability upgrades should be a matter of course, landlords should avoid making “drastic changes” to buildings based on the bill until there are clear rules in place.

Thornton Tomasetti Sustainability Project Director Casey Cullen-Woods said the new legislation has caused an uptick in industry members seeking advice, leading her company to run workshops at least once a week.

“We're getting a bit of panic because they need to understand what is happening,” she said. “Every building type has a different footprint, and then every energy type has a different emissions factor associated with it. So it's not easy for building owners and developers to grasp.”

David Unger, the CEO of Sentient Buildings, a New York City building automation company, said it has been a mixed bag in terms of how aggressive real estate firms are being as the city goes through its rulemaking process.

"We're seeing companies that are more proactive ... [and] there are companies that are still taking a wait-and-see approach, that aren't as proactive, but are waiting by the sidelines," Unger said. 

The Real Estate Board of New York said it joined with groups like 32BJ building services workers and the Natural Resources Defense Council to push the city to impose a model where buildings would be required to make percentage reductions in their energy consumption over time, rather than enforce a cap.

But with this law now in place, the organization said it will keep working to push its members’ interests forward as the detail is figured out.

“The idea is right, the goal is right, and reducing emissions is right," REBNY Vice President of Policy and Planning Zachary Steinberg said. “The approach ultimately taken to achieve our collective and shared goals doesn’t get to the right place.”

For some building owners, early investigations into making modifications to their buildings has not brought good news. Marx Realty CEO Craig Deitelzweig said his company has been meeting with consultants, and found that while his buildings will be able to meet the first set of caps in 2024, the 2030 requirements are unattainable. He expects to have to pay the fines that will be imposed.

“That’s really the problem with the bill, because there's no way you can meet it — even if you're at the environmental forefront,” he said. “Then what's the point of it? You might as well just call it what it is, which is a tax. The only hope is that people begin to realize that things just don't make sense and that [the established] advisory board hopefully can provide some guidance in a way these standards could be met.”

A spokesperson for the bill’s sponsor, Councilmember Costa Constantinides, said the new law followed two years of consultation, including with members of the industry. Now, as the details are worked out “rather than go back and fix the bill,” the spokesperson said, the city is “working to ensure landlords hit these aggressive but attainable targets."

He pointed to a new PACE financing program that will help secure low- or no-interest loans and noted that retrofits were not “mandated," but that landlords have been given “flexibility” to make changes to their buildings.

There is serious money riding on the changes. Environmental advocacy group the Urban Green Council ran an analysis this year that pegged the cost to owners at between $16.6B and $24.3B over the next 10 years. The group also expects 141,000 jobs — in industries like architecture and engineering — will be created as owners are forced to spend to make their buildings more efficient.

The council’s CEO, John Mandyck, told Bisnow that costs will skyrocket if owners don’t start moving on these kinds of retrofits sooner rather than later. He noted while the law made provisions to allow for building owners to buy renewable energy credits to meet their requirements, those are not yet available. The law also potentially allows for carbon trading between buildings, but that scheme is yet to be defined.

“New York City is a coastal city … The real estate community has a lot at stake. And so it is in our enlightened self-interest to find ways to reduce carbon emissions as a risk mitigation,” Mandyck said.

“It's still very much in the analysis, preparation and awareness phase,” he said of the new laws, adding that most building owners have at least 10 years to plan to reduce their emissions. “We went to the moon in 10 years, so I'm quite certain that there will be new technologies and new pathways and new business models that will allow us to make this more successful in a way that is practical for building owners.”