Local Law 97 Looming Over The Bronx

Electric Industrial Boiler

Owners of commercial buildings larger than 25,000 sf are learning how much the 2019 NYC Green New Deal will impact their investments. The legislation’s hallmark Local Law 97 has become a pressing issue for property owners to tackle this year. Registered Design Professionals will need to draw up plans to comply with the greenhouse gas reductions mandated to take effect in 2024 and beyond. Energy efficiencies will have to be deployed in successive stages to meet increasingly strict emissions reductions. Most legacy building utilities will ultimately need to be replaced.

Accounting for two-thirds of New York City’s total emissions, the commercial building stock is the law’s primary target. The goal is a citywide 40% emissions reduction by 2030 and 80% by 2050, relative to 2005 levels. The final guidelines issued last December call for net zero emissions for commercial properties by 2050.

How to Comply

Owners of covered buildings are required to file an annual Greenhouse Gas Emission Report certified by a Registered Design Professional. The first report reflecting 2024 usage is due on May 1, 2025. Now is the time to begin the improvements so they can appear in the first report.

Local Law 97 affects everyone except government, municipal operations, charities and houses of worship. Con Ed’s power plants are exempted but are subject to other Green New Deal emission reductions. Apartments with regulated rents face an alternative schedule for compliance.

Local Law 97 compliance flow chart

The graphic above issued by the NYC Sustainable Buildings Department outlines compliance guidelines for buildings with affordable housing. It is complex enough to encourage owners to hire professionals to help them navigate how the law applies to them.

Emission levels have been set by the federal EPA’s Energy Star Portfolio Manager according to how the building is being used. Sixty use groups are each assigned building emissions intensity limits and factors that define how much CO2 they are permitted to emit.

Certified professionals hired by owners will determine the actual energy use and carbon emissions at a building, in comparison to the EPA limits. Not filing results in monthly fines of $0.50/sf. Exceeding emission limits will incur fines based on the overage, and fraudulent submissions risk serious criminal liability.

Helping You Comply

Following the law may require hiring a range of qualified professionals. Consulting and technology companies will deploy measurement systems. Engineers will devise plans to upgrade and retrofit building utilities. Licensed contractors will complete the upgrades and onsite staff will need to be trained in managing the new systems.

If you provide any of those services, please post in our comments section and we will make sure our readers can find you.

NYC Accelerator provides resources, training, and one-on-one expert guidance to help building owners and industry professionals comply with Local Law 97. They have a web app derived from building records and energy source information. You can enter an address and see an estimate of expected fines under the current building configuration. 

Property owners can consult NYC Accelerator experts with any questions or for help finding qualified consultants and contractors. They can discuss long-term, fixed-rate financing programs, covering up to 100% of project costs with no up-front cash from the owner.

Owners should be able to meet early year regulations with relatively minor projects like upgrading windows, lighting and insulation. Solar panels and heat pumps, where possible, can satisfy the higher standards in later years. Ultimately, the big old oil burning boilers will have to give way to new electric technologies.

The law incentivizes electric mechanics by emphasizing emissions generated onsite. Providing heat and hot water on a unit basis also places incentives to conserve by those directly consuming energy. The result will be a commercial property sector that operates more efficiently with much less greenhouse gas emissions. 

Buy and Comply

We have noticed an erosion in older multifamily buildings where many transaction values are coming in well below our benchmarks. Enough deals are also occurring above our benchmarks to suggest the lower valuations are property specific. We don’t see much correlation with the NYC Accelerator data, so issues beyond the heating source could be hindering compliance with the new law.

Our Fourth Quarter review of the top Bronx deals highlights some older buildings selling at a discount and newer construction earning a healthy premium. Similar trends persist in the current market. Our recent post on Wakefield featured a listing on Carpenter Ave. The well maintained building built in 1927, with a number of efficiencies already in place, is offered at a discount to our benchmark. Maybe because its boiler runs on #4 oil. The fact that it can be switched to gas will get through the early limits, but it will probably need to be replaced after 2029.

1232 Metcalf Ave completed in 2021 to Passive House standards
1232 Metcalf Ave completed in 2021 to Passive House energy efficiency standards

An example of the new prototype was completed in 2021 to “Passive House” standards requiring minimal energy usage. 1232 Metcalf Ave pictured above near the 6 train and The Bronx River Parkway has bright colors that evoke Old San Juan. The super‐insulated, virtually air‐tight building envelope gives tenants state of the art comfort while lowering heating and cooling costs. Rooftop solar panels generate onsite renewable energy. ENERGY STAR appliances, LED lighting with control sensors, and Energy Recovery Ventilation all keep operating expenses low.

That one’s not for sale, but we see current offerings designed to energy efficient specifications earning a premium. A newly constructed off-market elevator apartment building in the east Bronx is asking almost double our benchmark values. It’s comprised of 32 mostly one bedroom apartments and 2 large commercial units with 15 parking spaces, near subways, busses and highways. Every room with a window has its own through-the-wall unit providing heat, air conditioning and hot water. Having tenants pay their own utilities keeps efficiencies high and operating expenses low. Although the asking price may discourage investment, it’s lower operating expenses translate to a premium cap rate of almost 10%.

The primary energy source is natural gas so there may be some emissions liability in 2029. That’s a lot of time for new electric technologies to emerge to replace the gas power. Please use our Contact function if you are interested in learning more about it.

It won’t be cheap to upgrade the Bronx commercial building stock, but plenty of government aid is available. Savvy owners can take advantage of subsidized financing and get much lower operating expenses. Tenants will also enjoy better comfort with control over their own energy consumption.

The Bronx commercial real estate market has never sustained anything like Local Law 97, and we will keep a close watch over how it develops across various asset classes. Please let us know what you think and share your comments below or Contact us with any questions.

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Featured image: industrial electric boilers (source: https://www.mdmmechanical.ca/commercial-boiler-problems-how-to-fix/)

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