Real Estate

New York Developers Rush to Reduce Emissions as Hefty Fines Loom

Worried about higher temperatures, more frequent and intense rainfall and rising seas that are nibbling away at New York’s coastal edges, the City Council enacted Local Law 97 in 2019 as part of a pioneering legislative package aimed at reducing the greenhouse gas emissions that are causing climate change.

The law zeros in on large buildings in New York, setting limits on their emissions. The city’s one million buildings generate nearly 70 percent of its carbon emissions because much of the energy for their 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 climb to millions of dollars a year for buildings that do not — landlords are on high alert.

The good news is that nearly all the 50,000 buildings subject to the law will be in compliance for 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 — heating systems tuned up, leaky windows replaced and energy-efficient lighting installed.

And the emissions thresholds fall significantly for the second deadline, in 2030, which is likely to mean that many more buildings will need to make major changes — not just tuning up building systems but replacing them — or pay hefty fines.

Real estate companies with large portfolios — and often staff devoted to sustainability initiatives — have generally been getting their carbon act together, and many are on track to avoid crushing penalties in the near term. But mom-and-pop companies that own older buildings that still have oil or gas furnaces in their basements, and the boards running the city’s residential co-ops and condos, have their backs against the wall. Some are still trying to figure out what they need to do and how they’ll pay for capital projects they never anticipated.

“We don’t really 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 business that has four buildings in Manhattan subject to Local Law 97.

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

Some owners have been pushing back. In May, two garden apartment complexes in Queens and the owner of a mixed-use building in Manhattan sued the city, alleging that the law would saddle them and others with “draconian” fines and asking that enforcement be blocked.

City officials, who would not comment on pending litigation, have said they are sympathetic to struggling owners and can waive or lower fines for those making “good faith” efforts — wiggle room that is enshrined in Local Law 97. The city is still drafting rules for applying the law and has hit pause on a financing program that would pay for the sorts of retrofitting that many buildings will need.

But the administration of Mayor Eric Adams has also vowed to enforce the law and hold building owners accountable as part of a broad effort to address climate change. And a recent Supreme Court decision curbing the federal government’s ability to control emissions has made combating climate change on the local level critical.

“Local Law 97 is telling everyone in the real estate business: Climate change is your problem,” said Rohit T. Aggarwala, the city’s chief climate officer. “Part and parcel of being in the real estate industry is moving to a carbon-free future.”

Local Law 97 aims to reduce emissions from big buildings 40 percent below 2005 levels by 2030 and 80 percent by 2050. It applies to most structures larger than 25,000 square feet, which account for more than half the built square footage in the city. The law aims to get them to use less energy overall and transition from fossil fuels to electric power for things like heating.

“The basic mission is to put buildings on a carbon diet,” said Paul Reale, director of building operations research at 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, letting smaller ones and other categories of real estate off the hook.

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

A public plaza at One Manhattan West, a Brookfield Properties building that will switch to hydropower to reduce emissions.Credit…Hiroko Masuike/The New York Times

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

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

Newer buildings generally seem to be having an easier time complying with the law than older ones. Many already rely on electricity for heating, and some may also be able to pass on costs to their tenants, who consume much of the power used in a building. Being able to promote 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 chief executive of the Cotocon Group, an engineering firm with a booming business doing building energy audits.

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

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

The Durst Organization expects to be fined $2.4 million a year for One Bryant Park, also known as the Bank of America Tower.Credit…John Taggart for The New York Times

When it was completed in 2010, One Bryant Park was heralded as a model of green construction. But the 51-story building uses a great deal of energy because it is fully occupied, Bank of America has trading floors that operate around the clock, and Durst cycles in lots of fresh air.

“The law as written punishes density,” said the developer’s chairman, Douglas Durst, who pointed out that sparsely populated buildings that used less energy might not be penalized, even if they were inefficient.

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

The city is offering free guidance to building owners and managers through a program called the NYC Accelerator. But a financing program offering low-cost loans was put on hold for revisions after funding only two projects. It is unclear when the program will be operational again.

Mr. Aggarwala attributed the pause to the growing pains of a new program, and he noted that funding was available from other sources.

Real estate executives have sought alternative ways to comply with Local Law 97. City officials say carbon trading, an arrangement in which building owners buy credits from properties with lower emissions, is off the table. But owners may be able to offset their carbon emissions by purchasing renewable-energy certificates to fund projects that will provide clean energy to the five boroughs. Only a limited number of RECs, as they are called, will be available in the near term, however, city officials say.

“Local Law 97 has a lot of sticks — it doesn’t have a lot of carrots,” said Mr. Steinberg of the Real Estate Board. “We need to have a real conversation about a tax abatement program.”

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

“We have to act urgently,” said John Mandyck, chief executive of the Urban Green Council, which includes environmentalists and real estate developers. “The climate is not waiting.”

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