New York City’s Climate Mobilization Act

While cities around the globe have talked for years about the need to cut back on carbon emissions and their overall impact on the environment, New York City has taken bold and aggressive action in this regard. The Climate Mobilization Act (CMA) went into effect in May 2019 and amends the New York City charter, administrative and building codes. It addresses a wide range of issues, including a commitment from the city to a 40% reduction in citywide emissions by 2030 (with an 80% reduction in emissions by 2050), new laws around design, construction and maintenance of wind turbines, restrictions on single use plastic bags and the imposition of a paper carryout bag fee. However, there are several direct and significant impacts on the commercial real estate market in the city as well, and on large buildings in particular. Greenhouse gas emissions from large buildings make up almost 70% of the city’s emissions and were thus a natural target for the CMA to help the city achieve its 2030 and 2050 emissions goals.

Impact on Large Buildings. The CMA imposes obligations on buildings over five stories to maintain a contiguous area of a sustainable roofing zone equipped with solar panels or green roofing. It also increases the real property tax abatement for the installation of green roofs to incentivize the installation of green infrastructure in the city. Most critically, however, it establishes strict carbon emissions limits for buildings which exceed 25,000 square feet, as well as two or more buildings on the same tax lot that exceed 50,000 square feet in the aggregate, and two or more buildings held as a condominium governed by the same board of managers which collectively exceed 50,000 square feet. Compliance is required beginning in 2024, and building owners who do not comply will be hit with steep fines. Although this is years away, building owners must mobilize quickly in order to meet this compliance deadline – projects will have to be planned, existing building systems may have to be retrofit, budgets will need to be reallocated and financing may need to be secured. Fines for non-compliance increase over time, with even stricter emissions caps beginning in 2030. Additional penalties will be imposed for any false or inaccurate reporting. Large buildings will also be required to take additional steps toward energy conservation, such as repairing heating system leaks, upgrading certain lighting, insulating pipes, weatherizing and air sealing no later than the end of 2024.

Exemptions and Concerns. Certain buildings will be exempt from the CMA’s emission limitations, such as city-owned buildings, houses of worship and power and steam facilities. Properties containing rent controlled units will be subject to different requirements under the CMA. The Department of Housing Preservation and Development will also be studying the impact that the CMA’s requirements have on the affordability of units in multifamily buildings. There are concerns that the exclusions intended to ease the strain on exempt property types will unduly burden the large buildings that are left to comply with the law. There are also concerns that certain tenants with high energy demands, such as tech-heavy operations and media companies, will be looked at with greater scrutiny by landlords if they will negatively impact the building’s overall emissions report card. There is also a fear that landlords of densely populated buildings will be penalized unfairly, even if they are run efficiently.

PACE Financing. The CMA also creates a new loan program enacting Property Assessed Clean Energy (PACE) financing which will allow owners to obtain funding for the installation of renewable energy systems, energy efficiency improvements, related energy audits and renewable energy system feasibility studies. Loans made under the program will be repaid through charges on the property levied and collected together with taxes on the property, and would be senior to any mortgages encumbering the property. Extended loan terms, competitive interest rates and the ability to borrow up to 100% of the cost of qualified improvements are all highlights of the program that may drive property owners to consider financing under the program over traditional construction loan financing.

What to Watch For. Many of the details around how the CMA will effectively function are still developing. There is speculation that large building owners may be entitled to purchase carbon offsets or renewable energy credits to deduct from their annual reportable emissions, or that a cap and trade system among building owners could go into effect. Appeal requests, variances, adjustments, and eligibility for the loan program will all be key considerations going forward. New York City property owners will have to act quickly and watch carefully for further details and developments, but there is no doubt that the CMA will have a massive impact on the market for years to come.

We will continue to monitor developments on this important new legislation and will provide periodic updates.