Douglas Durst: NYC's CRE Emissions Cap 'Punishes' Sustainability-Focused Owners

New York City enacted strict emissions standards in a controversial rule, known as Local Law 97, in 2019, including penalizing landlords who don't reduce their buildings' carbon footprint starting in 2024.

The law is deeply unpopular with many in the city's commercial real estate industry, who say the requirements outpace what the technology available to landlords can do to improve their buildings' environmental impact. 

“The ability to use the new methods … solar energy and wind energy is going to be very important, but it's not here yet,” The Durst Organization Chairman Douglas Durst said during Bisnow's Healthy Buildings digital summit last week. “So we need to figure out how we get there in a way that's least harmful to the city.”

Local Law 97 requires landlords to bring their carbon footprint down 40% from 2005 levels by 2030 and 80% by 2050, with benchmark requirements each year from 2025 until then.

“Renewable energy is obviously the key to combating climate change, but we’re very far away from it,” Durst said. “The 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."

The law would fine developers $268 per ton of emission beyond what has been laid out for each building, an estimated total cost of between $16.6B and $24.3B by 2029, a 2019 report from the Urban Green Council shows.  

"The idea that somehow those of us who have made our buildings efficient can make them even more efficient is beyond me," he told CBRE New York Tri-State Region CEO Mary Ann Tighe during the event. 

Durst pointed to One Bryant Park as an example of what he finds unreasonable about the law. The building was built with sustainability in mind and was the first-ever high-rise to obtain LEED Platinum certification, but it would still not reach metrics that were set for it in the law. 

“One Bryant Park has three trading floors, which are extremely dense … and therefore, we use more energy than other buildings,” he said, while adding that the city may grant an exception for the building. 

There is an emphasis on drastically reducing emissions in buildings because the sector makes up 40% of all emissions worldwide. On Earth Day, while Bisnow’s event was occurring, President Joe Biden pledged that the United States would shrink its carbon footprint to half of what it was in 2005. During his campaign, Biden said that a key part of his infrastructure plan would include upgrading 4 million buildings across the country to make them greener, which he said would create a million jobs.

Most of the carbon neutral goals couldn't be met with the technology that is available today, said Fifth Wall partner Greg Smithies, who co-leads the climate technology investment team at the venture capital firm.

“If you were to take your example building and retrofit it with every single piece of the best equipment that you can buy today, and on top of that change all of the electricity going into that into clean energy, it would only get you about 46% of the way to being appropriately carbon neutral,” he said. “It doesn’t even get you halfway there.” 

There is a flurry of new investment to fund startups that can close this technology gap. Earlier this month, Smithies told Bisnow that it could take up to $5 trillion in venture capital investment each year to meet carbon neutral goals over the next 30 years. 

Some of the most cost-effective ways of minimizing emissions now are installing LED lightbulbs and high-efficiency HVAC motors in buildings, Smithies said. With interest rates low, the capital expenditure payback period for implementing things like this can be little as 18 months to three years, he said. 

“If you’re not doing that today, that’s willful ignorance,” Smithies said. 

Carbon Lighthouse CEO Raphael Rosen, who advises landlords on how to meet these metrics and reduce their carbon footprints, said many of his clients are already adding up what they think they will be paying in fines. But addressing a couple of issues at a time is key to eventually meeting those goals. 

“One of the great challenges for climate change is … there’s no silver bullet for any of this,” Rosen said. "It’s just doing a lot of different things well, which can be overwhelming, but you have to take it one step at a time." 

Engaging with tenants from the onset is one way to work toward meeting these metrics, sustainability experts said. 

“You really got to know where and when your energy is being used and by whom to really be able to create a long-term plan before you go out ripping out systems and other invasive solutions,” CodeGreen Solutions partner and Senior Director of Strategic Growth Christopher Cayten said. “I don’t think it’s about passing these fines on, it’s about working together so that you don’t get a fine at all." 

This could mean making sustainability part of the lease itself, said Empire State Realty Trust Senior Vice President and Director of Energy, Sustainability & ESG Dana Robbins Schneider. 

ESRT has implemented “green leases,” she said, where tenants are submetered. The landlord then partners with tenants to bring down their carbon footprint, which then brings down the footprint of the building overall. 

“We realized really early on … that so much of much of the energy usage was driven by tenant equipment and tenant behavior and tenant controls,” she said  “And with that understanding comes the recognition of what can we do as a landlord to partner with our tenants." 

Tenant behavior is top of mind for all New York City building owners: Manhattan offices are still hovering around 10% daily tenant occupancy, with increases expected starting in the summer with a more robust return after Labor Day.

Durst said he is seeing indicators of the office market coming back to life and is hoping the next mayor focuses on getting people back into the city, increasing tourism and getting buildings running at full speed ahead. 

“The battle now is to get construction underway and get people coming back to the city, because we're losing population. We have to stop that,” he said. “They have to get Broadway back, because that's the key to having our city come back.”