Owners Of Distressed Properties To Be Exempted From D.C.'s Energy Requirements
As many apartment and office owners face financial distress, D.C. lawmakers voted Tuesday to create more flexibility in the city's energy performance regulations for those unable to finance building upgrades.
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The D.C. Council passed amendments to the Building Energy Performance Standards program Tuesday afternoon, based on recommendations from a task force that included real estate industry representatives and energy-efficiency experts.
The BEPS program, which passed in 2018, laid out a path to creating energy-efficiency requirements for properties in the city. For the first cycle, the requirements apply to privately owned buildings larger than 50K SF and city-owned buildings larger than 10K SF. The program is planned across three six-year cycles, the first of which is underway and concludes at the end of 2026. Owners that don't meet the benchmarks are subject to fines.
The amendments the council passed Tuesday would excuse owners in “financial distress” from a full cycle, meaning they don't have to come into compliance within the six years if they meet certain criteria indicating they are in distress.
The bill, which now goes to Mayor Muriel Bowser's desk, adjusts the original legislation that only allowed for a three-year delay for those in distressed situations.
“A building in serious financial distress is highly unlikely to get on strong financial footing and undertake the improvements needed to meet BEPS, all within three years,” the task force wrote in a letter to D.C. Councilmember Charles Allen in January. “An exemption from the current cycle is a more appropriate solution.”
The letter says many D.C. buildings face financial distress as a result of the pandemic and that building owners have been asking for more exemptions.
“The Task Force negotiated this compromise to address the most urgent and dire situations without damaging the integrity of the program,” it says.
For the BEPS program, the D.C. Department of Energy and Environment defines financially distressed situations as those in which owners “cannot honor financial obligations, including payment of ordinary and necessary business and/or living expenses.”
“Getting an exemption for one cycle is like a pressure release valve while you’re benchmarking, seeing how far you are from compliance, identifying the work that you need to do based off your compliance pathway, getting all of that in order,” said Alex Rossello, director of policy communications for the Apartment and Office Building Association of Metropolitan Washington.
In the first BEPS cycle, buildings need to meet a certain Energy Star score for their building type or reduce their energy usage by 20%.
The cycle began at the beginning of 2021 and ends at the end of 2026, and owners will need to show that their buildings are within the performance standards or face penalties.
Tuesday’s passed legislation sets dates for the next two cycles to begin in 2028 and 2034, when DOEE will set new Energy Star benchmarks.
AOBA has measured buildings that as of November wouldn't be in compliance with the benchmark and thus would have to pay a fine. According to its data, there are 181 multifamily properties in the District that have compliance payment exposure that would owe an average of $1.09M and 78 office properties that would owe an average of $1.05M.
The properties that are the most likely to be unable to meet the benchmarks are older properties whose infrastructure is less efficient and reliant on older energy sources.
Older multifamily and office buildings have faced financial struggles over the past year. Many downtown office buildings have been foreclosed on or sold at steep discounts, while owners of apartment buildings, especially affordable properties, had to contend with the fallout of a pandemic-era eviction policy that led to increased rent delinquencies.
AOBA hasn’t heard from any members that have so far sought to take advantage of the distress delay. But some are also behind the ball.
“As more people become aware of those options and how to take advantage of those options, we may start to see some companies take advantage of that,” Rossello said.
The legislation passed Tuesday makes several other adjustments to the BEPS program, including changing the noncompliance “penalty” to a “payment,” allowing owners to pass off the cost of noncompliance to tenants, if leases allow.
“That would address misaligned incentives between tenants and office owners in terms of energy efficiency,” Rossello said.
The bill also adds language confirming that any adjustments property owners make to upgrade their properties to BEPS compliance are exempt from stormwater regulations.
Rossello said it was critical to AOBA that the Council pass the legislation before the end of the year to provide enough lead time ahead of the end of the first cycle in 2026.