Mandatory NY green retrofits R.I.P, but does it really matter?
Blowback from NY building owners forces Bloomberg to drop mandatory retrofit proposals.
But, does this really matter for green building?
Mayor Bloomberg had to scale back his announced plans to require New York building owners to obtain energy audits and, based upon the results, require the owners to perform the upgrades suggested in those reports.
(Note: This particular item has been sent to me from several sources, so I’m compiling and can’t link back to any specific source).
Fact pattern:
- Mayor’s plan would have affected some 22,000 buildings in the city; reportedly creating 19,000 construction jobs
- Above statistic vigorously disputed –> “I’d be shocked if 5,000 of those jobs were created” from Louis Coletti, president and chief executive of the Building Trades Employers’ Association
- Funding the bills that would have created the program really stirred the pot –NY only has $16 million stimulus funding for loans to building owners for this type of work, but the estimated total investment required for the retrofits was calculated to be nearly $2.5 billion
So now the debate rages over what this all might mean for green building. Is the Bloomberg retreat damaging for the advancement of green building?
In general no, but it did highlight the plight of an often overlooked group of property owners.
New York’s pullback from requiring the retrofitting of existing buildings doesn’t mean much, in the sense that so much industry level data and momentum has been generated about the positive economics associated with the energy efficiency of buildings, that larger, quality landlords will retrofit it anyway (albeit according to their own schedules). They’ll do it because they fear devaluation of their assets within the global investor circles they travel.
More importantly, they are more likely to be capitalized in a way that allows them to implement retrofits along a decent timeline. I’m saying here that real estate cycles will force them to pony up the cash just to “keep up with the Jones” and maintain property values as real estate markets recover and investors expect rents and values to grow.
Mid-sized landlords have a different reality. Many cities are just now waking up to this. Their smaller property sizes and smaller portfolio’s make them more cash constrained. The industry owes it to these landlords to come up with existing building retrofit solutions that fit their wallets. Many mid-sized landlords own buildings larger than Bloomberg’s suggested 50,000 square foot threshold, but the costs and fees associated with implementing the retrofit are still expensive for them. They would have been very hurt by this legislation.
The lesson I see in this is about how much of successful green building and energy efficiency retrofits (and their finance!) is about growing partnerships within markets over time. Exuberant public officials who only propose requirements, but haven’t created the deep, lasting partnerships with the real estate community necessary to support these kinds of efforts find themselves in Bloomberg’s situation — announcing pullbacks even as experts have clearly demonstrated the excellent economics that building owners can enjoy if they retrofitted their assets.
More clearly for me, is that other cities should take a closer look at making sure that their engagement of real estate owners is differentiated between larger and smaller property owners. Larger owners often deal with different kinds of shareholders and the size of their assets gives them more cash flow on hand to consider retrofits. Plus they are getting pressured by even larger shareholders.
Smaller property owners need special attention, and services tailored to their specific needs. They are much more cash constrained. Yes, in California and some parts of the Northeast, PACE loans are helpful for these types of building owners, but PACE is still a new phenomenon and not available everywhere.
In the meantime, let’s hope that officials in other towns are involved in more relationship building within their own markets, so that they are able to come up with green building plans that make better sense and therefore, might be more palatable to the local real estate community.
