Hannon Armstrong Sustainable Real Estate managing partner, Eric Alini and CREFC (Commercial Real Estate Finance Council) executive director, Lisa Pendergast, joined New York City Council Member, Costa Constantinides as he discussed the impact of the Climate Mobilization Act with members of the commercial real estate and finance industries at a CREFC after work seminar just days after the legislation passed.
Lisa Pendergast, Council Member Costa Constantinides, and Eric Alini at CREFC’s After Work Seminar on the Climate Mobilization Act hosted at Duval & Stachenfeld LLP on May 1, 2019
As Chairman of the New York Council’s Environmental Committee, Constantinides championed the bill which prescribes a variety of aggressive measures aimed at significantly curbing NYC’s greenhouse gas emissions. The most notable component of the act is that it requires buildings 25,000 square feet or larger to reduce their greenhouse gas emissions by 40% by 2030, and by 80% by 2050. Such reductions will be achieved by retrofitting buildings with new energy efficient technology and building materials.
While there is significant enthusiasm about the bill’s potential to meaningfully address New York City’s contribution to climate change, there is also concern about the financial burden that it will impose on property owners.
“Our goal tonight is to bring the commercial real estate and finance communities together to understand the core elements of the policy so they can begin to chart a course toward success,” stated Lisa Pendergast, executive director of CREFC. “This policy certainly will accelerate the shift toward efficiency and sustainable practices that we’ve seen in recent years. It provides clear targets, but also the resources to help get there, including the companion legislation that passed to create a commercial PACE program.”
During an open question and answer period Council Member Constantinides explained that the goal of the legislation was to serve as a catalyst for meaningful and measurable change. He revealed that a particularly sticky point of the policy’s development centered on a hard carbon cap versus a percentage reduction in energy use.
“The carbon cap was the way to go because it didn’t adversely affect good actors,” explained Constantinides. “If a property has already invested in efficient infrastructure, it would be difficult for them to make additional gains.”
The concept of ‘good actors’ was addressed several times as seminar attendees probed for exceptions and inquired about fines.
“I’m not after revenue from fines and fees, I’m after the carbon,” explained the Council Member in response to a question about compliance. “The penalties [effective in 2025] are set just high enough that a building owner would want to do the actual retrofit rather than paying the fine.”
Regarding exceptions, Constantinides explained that the 50,000 buildings regulated by the legislation were targeted because they represent 30% of the city’s carbon emissions. Exceptions were not the goal.
“I don’t want to look back and see that only one building on Staten Island has reduced its carbon footprint,” he quipped. “The policy has been developed to make efficiency and retrofits work; that’s where audit and advisory services, as well as PACE financing, will come into play.”
Eric Alini of Hannon Armstrong Sustainable Real Estate spoke to the opportunity of PACE financing to lessen the burden on commercial real estate owners.
“The companion legislation, 1252, establishes a commercial PACE program that improves the economics of commercial retrofits and new construction projects in New York City,” explained Alini. “Building owners can now work with private capital providers such as Hannon Armstrong Sustainable Real Estate to finance the full cost of these energy-saving projects through a special tax assessment. With low fixed rates and terms that match the useful life of the equipment, the barrier to entry is reduced and value engineering decisions that might eliminate the most efficient equipment are mitigated” he continued.
Council Member Constantinides explained the passage of the companion legislation as critical to the success of the climate legislation.
“We had to pass them together because one wouldn’t work without the other,” stated Constantinides. “We had to make sure this was achievable and people could pay for it. To not have a PACE program available, not only for these large scale retrofits but for the rest of New York City, didn’t make sense.”
Audience questions concluded with the treatment of co-ops and condos as well as public housing and cultural institutions. Council Member Constantinides pointed out that the city properties were being held to the same standards as private properties, with the exception of NYCHA, and that cultural institutions are included. Condos and Co-ops, which make up a large percentage of the housing stock in the Council Member’s home district of Queens, are also affected by the policy when they are of scale.
- For more information on the Property Assessed Clean Energy (PACE) financing program approved by the council, please read the linked bill.
- For more information on the Climate Mobilization Act, Urban Green has developed the linked summary.