Going Green in NYC Don’t Come Cheap
Going green in NYC is turning into red ink for property owners. For those unfamiliar, Local Law 97 requires buildings larger than 25,000 square feet to meet emissions (with stricter limits in 2030). Failure to comply means a $268 fine for every metric ton of CO2 emitted, a jaw-dropping amount when considering all eligible buildings.
To illustrate, the Wall Street Journal analyzed 128 properties that would be subject to $50 million in tax liabilities (for failure to comply) for the first enforcement period (and $214 million for the following period). To appreciate the scale and scope of the law, some 50,000 properties fall under the purview of local law 97.
The law lands at a particularly challenging moment for office landlords who are already navigating a trifecta of woes, including stubbornly elevated vacancy rates, plummeting property values, and less optionality in the debt markets. As buildings represent 68% of CO2 emissions in NYC, a path towards a cleaner city inevitably must focus on the largest polluters but the timing couldn’t come at a less opportune moment for owners.
227 Park Avenue Epitomizes the Troubles Ahead
Perhaps the 51-story office skyscraper located at 277 Park Avenue best illustrates the challenges landlords currently face and how the law adds to their troubles. The property has a vacancy rate of 25% (up from 2% in 2014), according to Trepp. Worse still, the largest tenant occupies 50% of the building and plans to relocate to newly built 270 Park Avenue when their lease expires in 2026.
More troubling, the $750 million mortgage originated in 2014 matures in August 2024 when rates will be much higher than they were in 2014. Add the cost upgrades required under local law 97 and one wonders if the cost to carry for ownership is sustainable. This all spells trouble for The Stahl Organization, the owners of 277 Park Avenue, and other NYC landlords in a similar predicament. Local Law 97 could end up being the tipping point that pushes owners over the edge.
Website Source: Shifflett, S. (2023, September 2). Buildings are empty, now they have to go green. The Wall Street Journal. https://www.wsj.com/real-estate/commercial/buildings-are-empty-now-they-have-to-go-green-7739f6c5?mod=hp_major_pos1#cxrecs_s