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The Impact of Energy Star’s Portfolio Manager August 2018 Updates on NYC’s Local Law 33 Grades

Image of Letter Grades from SmartBuildings.NYC site

Letter grades are coming!

NYC’s building owners and real estate management firms now have one more thing on their plate to consider: Local Law 33 of 2018. LL33 compliance will assign letter grades to buildings required to benchmark energy and water consumption. The energy efficiency score will relate to the Energy Star Rating earned using the U.S. EPA Energy Star Portfolio Manager (PM).

The law will come into effect on January 1, 2020, and will utilize the previous year energy data to set the energy efficiency score and letter grade as follows:

Picture of Buildings, with quote "Your energy letter grade will be posted in your lobby in 2020. Are you ready?"A – score is equal to or greater than 85;

B – score is equal to or greater than 70 but less than 85;

C – score is equal to or greater than 55 but less than 70;

D – score is less than 55;

F – for buildings that fail to submit required benchmarking information;

N – for buildings exempted from benchmarking or not covered by the Energy Star program.

Why is my letter grade lower than expected?

Property owners should be made aware that if their property earned an energy efficiency score of 75 for the 2018 Benchmarking filing, the new score for the 2019 benchmarking filing may have fallen as much as 20 points. In LL33 terms, what could have been a letter grade “B” could now be “C” or “D” based on PM updates implemented in August 2018. Property owners will want to learn how the Energy Star PM update will affect their LL33 letter grade.

To understand the correlation and impact that the August 26, 2018 Energy Star PM update will have, it is important to look back at what took place as part of that update.

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Is It Too Late to Start On My Local Law 87 Compliance for 2019?

Before there was a Green New Deal in New York City, there was Local Law 87, which requires an energy audit and retro-commissioning report to be conducted and filed every 10 years. Yes, it still applies, and yes it will help you to understand the most cost-effective retrofits and upgrades to target for compliance with the city’s new energy efficiency requirements. Thanks for asking!

The question we get most this time of year from owners in NYC is, “My building is due for LL87 compliance this year, is it too late to start?!”

Image of Commercial BuildingsAs spring arrives, building owners often realize that time is quickly running out and this is the year that they must submit their building. Compliance with NYC’s LL87 (Local Law 87) can be overwhelming and hard to navigate but we are here to help.

Not sure if you have to file?  Check here.

LL87 requires that a building undergo an energy audit and retro-commissioning of major mechanical equipment. Keep in mind that it takes time to perform the inspections and testing. In fact, your best bet is to start in the year before your deadline, leaving yourself plenty of time for planning, budgeting, and implementing any corrections that may be required.

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What Does NYC’s Climate Mobilization Act Mean for Building Owners?

Image of Existing Buildings in NYC

On April 18th, Introduction 1253-2018 was approved by the New York City Council along with several other major pieces of legislation as part of a Climate Mobilization Act. The Urban Green Council describes it as “arguably the most disruptive in our lifetime of the NYC real estate industry.” We agree. While it will take some time to more precisely gauge impact across the industry, here is an initial primer.

Update: On May 18th Intro 1253 was passed into law as Local Law 97 of 2019.

Context

Previous building energy legislation in NYC has focused primarily on providing the market with access to information in the form of benchmarking and audits. In response to increasing demands for more urgent climate action, this new local law will actually require energy performance levels – and significant retrofits in some cases – in most existing buildings over 25,000 square feet between now and 2030 and deeper reductions beyond 2030.

How Does Local Law 97 Work?

The law establishes targets for carbon-emissions intensity per square foot for buildings based on occupancy class. For instance, multifamily buildings, office buildings, schools, and storage facilities will have different intensity targets. Mixed-use buildings will have their targets set based on a weighted average of their different spaces. Across all segments, these targets will get ratcheted down over time. Building on the type of data submitted as part of annual benchmarking, all tenant and owner energy used at a particular building will be converted to carbon intensity per square foot.

Starting in 2024, buildings will be fined on an annual basis for carbon footprint that exceeds their targets. Based on their performance today, approximately 20% of buildings exceed the 2024 – 2029 targets while approximately 75% of buildings exceed the 2030 – 2034 targets, according to the City Council’s press release. As an alternative to this performance-based framework, rent regulated multifamily buildings with at least one rent stabilized apartment will be required to implement a prescriptive list of upgrades by 2024. These upgrades include indoor temperature sensors providing feedback to boilers and apartment thermostatic controls.

What Will It Mean to the Market?

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Local Law 87 – What’s Happening and What’s Ahead

 

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Calendar year 2015 marks the start of the third year of mandatory Local Law 87 compliance in NYC. The Law—which requires buildings over 50,000 sq ft to conduct an energy audit and retro-commissioning study once a decade—has, to date, been characterized by market uncertainty and a somewhat hesitant response from the real estate community. These conditions stem largely from an unclear expectation as to what the future will hold, and what, if any, blow back there might be for being the owner of a poor-performing building.

This lack of clarity has created a wide diversity in the approach that owners opt to take in complying with Local Law 87. A notable pool of building owners, for example, have viewed the law as a burden enacted by NYC, and have opted to take the cheapest available, low-bidder approach to compliance. A large number of newly formed energy consulting firms have popped up to provide “cheapest-in-class” services, this despite the fact that many of these startup firms lack the qualifications and experience necessary to actually perform a compliant Local Law 87 project. As is almost always the case, you get what you pay for. On the other hand, a different set of building owners have viewed the law as an opportunity to improve the performance of their buildings by engaging the service of discerning engineering service providers. These owners see the value in having a 3rd party vet the operation of their buildings, as they realize that operational cost savings drop straight to the bottom line, driving improved NOI, increased asset value, while guarding against the risk of future volatility in the commodity markets.

The real estate community has, by and large, accepted Local Law 87 as a fact of life, but the lack of a clearly demonstrated vision of future goals has created a deeply fragmented understanding of how the Local Law 87 process can and will impact a building’s operation. Signs, though, are pointing toward a clarification of what this process will require into the future, and there is reason to believe that the lay of the land will be quite different in years to come. For starters, the DeBlasio administration, in the fall of 2014, issued their One City Built to Last plan. This ambitious plan provides a policy framework for achieving 80% emissions reductions in NYC by 2050—no small task, to be sure. The aggressive nature of the plan requires that the city dig deep into the performance of the built environment in order to achieve these reduction targets, as buildings account for about 70% of NYC emissions. The DeBlasio administration has taken a “carrots and sticks” approach toward compelling change and ensuring adherence to their agenda: state and local incentives have been dangled in front of the real estate community to encourage proactive adoption of energy conservation practices by building owners, while the not-so-thinly-veiled threat of future mandates loom on the horizon for those actors that fail to take appropriate action. As DeBlasio was quoted in a September Real Estate Weekly article, “For private buildings, we’ll set ambitious targets for voluntary reductions, but if steady progress is not made, we will issue clear mandates,ˮ said deBlasio, adding, “Our long-term goal is bolder still — charting a path to a full transition from fossil fuels.” Again…not so thinly veiled.

Notable carrots include limited time incentive programs, such as the Demand Management Program offered jointly by NYSERDA and ConEd, and the forthcoming establishment of a retrofit accelerator program, which will scrub Local Law 84 (benchmarking) and 87 data to facilitate engagement between key stakeholders as the City attempts to play matchmaker in a Love Connection style game of emission reduction through market transformation. Many in the real estate and sustainability arenas see great promise and opportunity in these models.

Love it or hate it, the real estate community and others need to acknowledge that the landscape is changing, and the vision of the future—at least as how Mayor DeBlasio sees it—is taking shape.
Early adopters of emissions reduction practices—e.g., buildings that participate in voluntary programs such as the Mayor’s Carbon Challenge and those that take a more rigorous approach to the Local Law 87 process—stand a better chance of avoiding the “heavy hand of government” that DeBlasio so publicly campaigned on. And they might even get to munch on a few carrots along the way.

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