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.
Thank you, Ted Kennedy
Ted Kennedy was a vigorous defender of “people, profit and planet” before any of us ever used the phrase “triple bottom line”.
Treehugger has compiled a series of tributes to this “progessive green champion” that is a worthwhile read and great history lesson for those who are new to the green finance and investment world.
Green real estate professionals owe Ted Kennedy a great debt of gratitude.
Our entire business would not even be imaginable, if he had not so persistently pushed for social and environmental justice over the many decades of his political career — long before the idea of a green economy existed.
If you are reading this post on the website (as opposed to by email), you can check out what might possibly be Ted Kennedy’s last great act for the sustainability movement — his endorsement of Barack Obama for president.
Photo credit: Flickr - diggersf
Friday Video: City-scale Sustainability in Curitiba, Brazil
Happy Friday!
I’m happy to pass along this great video — from the fabulous EcoCity blog — about how the Brazilian city of Curitiba has garnered world acclaim for its successful implementation so many city-wide sustainability solutions.
The video is a trailer for the actual DVD of a longer documentary about the town.
The documentary is getting rave reviews and being heavily advertised in the “alternative” theaters in my neighborhood.
This week has been a blur of meetings with lots of folks about a variety of practical, district and city-wide sustainability and finance initiatives.
Whether its power transmission, existing home retrofits or a master-planned development, our partners are finding out that, in many cases, there can be lots of (stimulus) money and good will at the deal table, but there’s still a hairy problem to get the cooperation of the many financial players needed to make the whole deal work.
Seeing how the City of Curitiba managed to overcome barriers lets us go into the weekend knowing that practical solutions to scaling up and financing sustainable solutions are at hand.
Have a great weekend!
Photo credit: Flickr/Bruno Henrique Barruta Barreto
Citibank’s Destiny: Keep Funding Those Draw Requests
Audience question from my Eco Tuesday talk last night:
What are some of the challenges being faced by green project developers in today’s market?
Tough capital markets, along with soft economic and market fundamentals are creating adverse conditions for successful projects, green or not. And tough conditions can also make bank and borrower relations turn pretty ugly.
Check out this Wall Street Journal article, detailing a legal street-fight between Citibank and the owners of Destiny USA, a green retail development in Syracuse, NY, currently under construction (again). It lays out the worst nightmare that can happen to a development and is happening more often — when a lender stops funding construction loan draws, presumably due to some violation of the loan documents.
DestinyUSA got a judge to force Citibank to keep the draw payments coming. The judge noted that Citibank’s reasons for halting payment of loan draws were not based upon any violation of the loan documents. He also said that Citibank was probably trying to conserve capital, even though it received TARP funding. Of course, Citibank has a completely different view of the situation.
And what was on the line for green development overall?
DestinyUSA has has announced many so environmental and social initiatives for its 1,000,000 square foot development, that you can almost think of it as a test lab for retail sustainability practices.
Of course, the standard caveat for green development applies here – we’ll have to see if this all really comes into effect as announced when the project is fully opened.
Nonetheless, their potential existence within a retail project would be a great leap forward for the greening of retail, as well as show the way for new work models that improve worker well-being.
Examples:
- LEED-Platinum certification targeted.
- Tenants to be provided with LEED-CI buildout guidelines.
- “Green parking” — parking spaces reserved for hybrid vehicles.
- Policy of 95% construction waste diversion.
- Renewable energy: The project will be powered by a free-standing on-site renewable energy plant powered by municipal solid waste (MSW) generated by the facility and providing over 16 Megawatts of power.
- Workforce model: workers hired for construction will be kept on and retrained to work in the development once it is operational. This is an idea we like alot; it could be replicated by many other developers (assuming they successfully navigate their projects through the tough market environment).
Hopefully enough green developments currently under construction will avoid the problems experienced by DestinyUSA and other developers, and survive the current market in order to open successfully and move the industry forward.
Friday Photo - Green Finance Upgrades Opportunities
Property owners are very focused on getting stimulus (or any!) dollars to pay for energy efficiency retrofits and weatherization projects. And accompanying those applications are the green jobs expectations of many individuals.
This is the 23 July scene at a Los Angeles green jobs fair for energy efficiency and weatherization, in full swing, courtesy of Life.com.
Approximately $40 billion from American Recovery and Reinvestment Act funds were allocated to green collar jobs in energy efficiency, weatherization and renewable energy.
Many real estate professionals I know are not so sure how these funds will actually improve conditions in real estate finance and investment, due to the underlying weakness in market fundamentals, and the credit markets in particular. They point out that an upside down loan on an energy efficient property is still, well — upside down.
And will directing short term government funding towards retrofitting real estate improve life for those green collar job holders?
The green finance angle for energy efficiency retrofits appears to be one of ‘upgrading relative competitiveness’ for those concerned. That is, upgrading energy performance and job skills to create relatively more competitive properties and workers. A kick start as opposed to a final solution.
Nonetheless, given what we all know now about the financial meltdown and its effects on real estate, a green financial kick start on those two fronts — albeit experimental — provides at least an opportunity to improve the status quo beyond what we would otherwise be able to do.
The rest of the heavy lifting still remains on our shoulders.
