New York developers rush to cut emissions as hefty fines loom

Concerned about higher temperatures, more frequent and heavier rainfall, and rising sea levels nibbling at New York’s coastlines, the City Council enacted Local Law 97 in 2019 as part of a pioneering legislative package aimed at reducing greenhouse gas emissions that are causing climate change. change.

The law focuses on large buildings in New York and sets limits on their emissions. The city’s one million buildings generate nearly 70 percent of its carbon emissions because much of the energy for its heating, cooling and lighting comes from burning fossil fuels.

Now, with just 16 months until the deadline to meet the first thresholds, and with the threat of fines that could run into millions of dollars a year for buildings that don’t, owners are on high alert.

The good news is that nearly all of the 50,000 buildings subject to the law will meet the first deadline, Jan. 1, 2024, according to city estimates. But that leaves 2,700 buildings across the city where action is needed to avoid fines: tune up heating systems, replace leaky windows and install energy-efficient lighting.

And emissions thresholds drop significantly by the second deadline, in 2030, which likely means many more buildings will have to make major changes, not just fine-tune building systems but replace them, or pay hefty fines.

Real estate companies with large portfolios, and often staffs dedicated to sustainability initiatives, have generally been working together on their carbon, and many are well on their way to avoiding crushing penalties any time soon. But the family businesses that own old buildings that still have oil or gas furnaces in their basements, and the boards that run the city’s residential cooperatives and condominiums, are up against the wall. Some are still trying to figure out what they should do and how they will pay for capital projects they never anticipated.

“We really don’t know what our obligations are and what our penalties are going to be,” said Debbie Fechter, a partner at Digby Management, a family-owned real estate company that has four buildings in Manhattan subject to Local Law 97.

He added that his company had trouble getting the attention of consulting firms that conduct energy audits on buildings and help owners understand how to comply with the law.

Some owners have been backing down. In May, two Queens garden apartment complexes and the owner of a mixed-use building in Manhattan sued the city, claiming the law would hit them and others with “draconian” fines and calling for the app to be blocked.

City officials, who did not comment on the pending litigation, have said they sympathize with struggling homeowners and may waive or reduce fines for those who make “good faith” efforts — wiggle room that is enshrined in the Act. Local 97. The city is still drafting rules to enforce the law and has paused a funding program that would pay for the kind of renovation many buildings will need.

But Mayor Eric Adams’ administration has also promised to enforce the law and hold building owners accountable as part of a broader effort to tackle climate change. And a recent Supreme Court decision limiting the federal government’s ability to control emissions has made fighting climate change at the local level critical.

“Local Law 97 tells everyone in the real estate business: Climate change is your problem,” said Rohit T. Aggarwala, the city’s climate director. “An integral part of being in the real estate industry is moving toward a carbon-free future.”

Local Law 97 aims to reduce emissions from large buildings 40 percent below 2005 levels by 2030 and 80 percent by 2050. Applies to most structures over 25,000 feet square feet, which represent more than half of the built square feet in the city. The law aims to get them to use less energy overall and switch from fossil fuels to electric power for things like heating.

“The basic mission is to get buildings on a carbon diet,” said Paul Reale, director of building operations research at the City University of New York’s Building Performance Lab.

Real estate executives opposed Local Law 97 because of the costs it imposes and because it targets large buildings, leaving smaller ones and other categories of real estate free.

Members of the real estate industry have also questioned the rush to electrify, asking whether the grid can handle the surge in demand and warning of possible outages. They blame the law for holding buildings responsible for the carbon emissions generated in the power plants that provide their electricity and still rely on fossil fuels.

“That’s out of the building owner’s control,” said Zachary Steinberg, senior vice president for policy at the New York Real Estate Board, a lobbying group.

The New York law has inspired similar legislation in other cities, including Boston and Washington. The laws go hand in hand with the “electrify everything” movement that is spreading through municipalities across the country.

Newer buildings generally seem to have an easier time complying with the law than older ones. Many already rely on electricity for heat, and some may also pass the costs on to their tenants, who consume much of the energy used in a building. Being able to market their buildings as low carbon can benefit owners because many companies want to lease space in properties that align with their own sustainability goals.

“This is increasing asset value,” said Jimmy Carchietta, founder and CEO of the Cotocon Group, an engineering firm with a booming business that performs building energy audits.

Brookfield Properties, for example, recently announced that it would use hydroelectric power to run its One Manhattan West office building.

The Durst Organization, one of the city’s oldest real estate developers, says most of its buildings will meet the 2024 thresholds, but it expects to be fined $2.4 million a year for One Bryant Park, a skyscraper in downtown Manhattan and headquarters of Bank of America. and investment banking businesses.

When it was completed in 2010, One Bryant Park was heralded as a model of green building. But the 51-story building uses a lot of energy because it’s fully occupied, Bank of America has 24-hour business floors, and Durst circulates plenty of fresh air.

“The law, as written, penalizes density,” said the developer’s president, Douglas Durst, noting that sparsely populated buildings that use less energy might not be penalized, even if they were inefficient.

Drafting the rules of the law and then enforcing them falls to the Department of Buildings and its new Office of Building Energy Efficiency and Emissions. The office is working on appeals for 89 buildings that the city says exceed their emissions limits by 40 percent or more. In addition, 21 non-profit hospitals have appealed and nine cases have been processed.

The city offers free guidance to building owners and managers through a program called the NYC Accelerator. But a financing program offering low-cost loans has been put on hold for reviews after financing just two projects. It is not clear when the program will be operational again.

Mr. Aggarwala attributed the pause to the growing pains of a new program and noted that funds were available from other sources.

Real estate executives have sought alternative ways to comply with Local Law 97. City officials say carbon trading, a deal in which building owners buy credits from lower-emitting properties, is out of the question. . But homeowners can offset their carbon emissions by purchasing renewable energy certificates to finance projects that will provide clean energy to all five boroughs. However, only a limited number of RECs, as they are called, will be available anytime soon, city officials say.

“Local Law 97 has a lot of sticks, not a lot of carrots,” said Mr. Steinberg of the Real Estate Board. “We need to have a real conversation about a tax reduction program.”

Environmental activists and others are wary of loopholes that would allow owners to avoid reducing emissions from their buildings.

“We have to act urgently,” said John Mandyck, executive director of the Urban Green Council, which includes environmentalists and property developers. “The weather is not waiting.”

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