How Will Local Law 97 Affect New York City Real Estate?
In May of 2019, New York City lawmakers passed Local Law 97, otherwise known as the 2019 Climate Mobilization Act, limiting the effect of greenhouse emissions on new and existing real estate projects within the City. It was passed in conjunction with New York State Laws Climate Leadership and Protection Act. The goal of this legislation is to reduce greenhouse gas emissions from New York City skyscrapers, multi-floor co-op and condominium residential, and commercial buildings by 40% by 2030 and 80% by 2050. Let’s explore who is affected by the law and some of the provisions it provides.
What individuals would be directly affected by the Climate Mobilization Act?
The CMA would directly affect New York City real estate participants such as real estate investors, owners, condominium and coop owners and all other stakeholders who make a significant financial investment in NYC residential and commercial high end luxury buildings.
Who would be covered under the law?
Local Law 97 would cover real estate buildings and projects in NYC that exceed twenty five thousand square feet, or two or more real estate buildings in the same lot that exceed fifty thousand square feet. The law would also apply to two or more buildings that collectively exceed fifty thousand square feet.
What would Local Law 97 effectively do to enforce environmental standards?
It would set up annual emissions standards based on each building's square footage, requiring the building owners to make energy efficient improvements to lower energy usage in the building. This would then reduce greenhouse gas emissions to a safer environmental level.
How would annual emission limits for each building be calculated?
The law provides a formula through which a building’s annual emissions limit is calculated using emissions intensity factors. These factors depend on how the building obtains its energy, including electricity delivered through a grid, natural gas combusted on the premises, or fuel oil conducted on the premises. In using these factors, the building’s intensity factor is multiplied by its square footage to calculate its emissions limit, otherwise measured in metric tons of carbon dioxide equivalents per year.
What would a typical emission limit evaluation look like in real life?
As referenced in an illustrative New York Law Journal article, it can get complicated. Using their example, let’s assume that a building has forty thousand square feet of business space and ten thousand square feet of mercantile stores. The tons of carbon dioxide equivalent per square foot for the business occupancy group is 8.46 and the tons of carbon dioxide equivalent for the mercantile group is 11.81.
This measurement would be abbreviated in code as TC02E/SF for both the office store and mercantile store calculations. In using an 8.46 carbon dioxide equivalent multiplied by 40,000 square feet, we would compute a gross total carbon dioxide equivalent figure of 338,400 TCO2E for the office building space and using an 11.81 carbon dioxide equivalent for the mercantile stores multiplied by their total square footage of 10,000 square feet, we would come up with a total carbon dioxide equivalent figure of 11,810,000 TCO2E.
Who would conduct the emission limit inspections?
These inspections will likely be done by certified energy auditors or inspectors in conjunction with other engineers and licensed contractors.
What does this new law mean in practical terms for building owners and their investors by requiring them to retrofit their units?
It means that, in order to comply with Local law 97, building owners will have to engage in green retrofitting of their luxury buildings. The owners will have to make major renovations to their buildings’ ceilings, glass structures, boiler room and energy equipment systems to make the buildings more energy compliant. This could translate into significant additional construction costs totaling in excess of over a million dollars in costs for multi-million dollar commercial buildings, including the owners securing indoor air quality sensors, HVAC air cooling systems, installing dual fuel and natural gas and renewable energy conversion systems, low flow water fixtures, high efficiency boilers and heat controls and automated building and energy management systems and software.
Additionally, high rise buildings may be required to acquire roof solar panels and incur the cost of landscaping in planting trees and a vegetable garden on rooftops to further reduce the potential for extra carbon emissions. In addition to procuring higher building insurance and incurring higher construction costs, this could prove to be a costly venture.
What Environmental, Health and Wellness Certifications are Building Owners required to comply with under the new CMA law?
Building owners are required to adhere to different rating systems to show compliance with retrofitting operation and maintenance certifications. These include obtaining state or local certifications from LEED EBOM agencies and Green Business Certification Inc. rating systems.
What happens if the owners fail to meet their greenhouse compliance requirements under the act?
The results could be costly, as the owners could not only be hit with millions of dollars in fines, but would still need to shell out millions of dollars in construction costs to remedy their problems. In addition to the potential legal fees to remedy the problem, the owners would have to get an energy auditor to prepare an energy audit report and then hire a commercial attorney to prepare an Energy Consulting Agreement to cover their building owners from future liability. In sum, the resulting exposure could result in the need for continuing litigation to property owners fighting to comply with Local Law 97 including the potential for astronomical civil fines and even criminal exposure for false reporting of construction and environmental reports.
What contractual protections are generally available to building owners?
Building Owners and Real Estate Investors would be wise to draft Energy Consulting Agreements to address the Green Retrofitting requirements with which they have complied. The Consulting Agreements are directed to address the projected cost savings or shared revenue to be derived by the building owners. The agreement should also address the retrofitting measures that the owners have utilized and refer to the remedies that the owner could use to protect their interests from a software breach in the unauthorized use of computer utility data and software systems used to ensure CMA compliance. The agreement should be prepared to afford the building owner the opportunity to maximize the effect of environmental tax credits, investment opportunities, and to obtain the benefit of tax depreciation or accounting amortization benefits from the use of certified retrofitting equipment used for greenhouse emission compliance purposes under the act.
What are some common projects where LL 97 is being applied?
Several real estate projects started luxury development of green energy systems after CMA was passed into law. These projects included a 20-story, 67-unit apartment complex in Gramercy at 200 East 21st street started by developer Alpha Developers, with Michael Namer. The building contains high-performance glass to reduce heat transfer, landscaped green roof areas, a rainwater collection system, and LED lighting with motor sensors, double paned windows, and an electrical system based on an off-site wind farm.
Another recent project by Mr. Namer features a 42-story building at 77 Greenwich in New York’s financial district. This green site development also contains less glass and more of an opaque structure, with traditional windows in a stone façade and refrigerants for a heating and cooling system. In 2019, the complex charged $1.78 million for a one-bedroom apartment overlooking the Hudson.
Another complex in Hudson Yards from developer Related Company features storm water collection systems, computer programs to provide proper air access, on-site power generating plants, and high-performance glass.
These projects may be contrasted with Affordable Housing Projects such as the Beach Green Dunes Project in Rockaway Queens by Blue Stone Developers, which features a passive house indoor-outdoor air system supported by German engineer design with sealed envelope tight insulation, more opaque surfaces and less glass. Unlike the rents in 77 Greenwich, tenants of this complex were obligated to pay monthly rent of $653 for a one bedroom apartment or $1,597 for a three bedroom apartment, which was quite a steal in late 2019 and early 2020.
How does the future look for co-op and condo owners and other real estate developers under NYC’s Climate Mobilization Act?
It remains unclear how many buildings will be able to effectively operate under the new carbon emission standards set forth in this law. Covered building owners still have two years to prepare, as the law takes effect in the spring of 2024. However, the anticipated engineering, environmental and other associated costs associated with compliance may result in a lot of abandoned luxury buildings in affluent parts of NYC. However, only time will tell.
Wondering if your property falls under the requirements of the Act, and what you should do for your building? Contact your lawyer today to make sure you’re set up for success under New York City Local Law 97.