Are you a quitter or a retrofitter?

Local Law 97, the most ambitious climate legislation for buildings enacted by any city in the world, is redefining the retrofit market.

Published June 26, 2019

Introduction: A growing market

Urban Green CEO John Mandyck opened the conference noting that “LL97 is the largest disruption to NYC‘s real estate market that we’ll see in our lives.” The law sets limits on carbon emissions for buildings greater than 25,000 square feet, with compliance deadlines in 2024 and 2030. Anticipating the tidal wave of retrofits on the horizon, Urban Green crunched the numbers to get a sense of the landscape. The findings value the current retrofit market at $235 million per year and project it will grow 13-fold by 2030. All told, this means $20 billion in new investments and 141,000 new jobs. How we get there, though, is arguably more important, said Mandyck. A steady curve reflects a rational, well prepared and well executed market expansion. But if building owners delay, we’ll see higher costs, a labor shortage, and a full-blown permitting nightmare with the Department of Buildings. With all eyes on New York City, we’ve only got one shot to do it right and set precedents that can be scaled globally.

Upgrade and educate

Picture this: a morning text from your boss saying, “no suits today” or “work from home.”. Your boss makes the call based on data from your office building, the power grid, and the weather forecast compiled on a simple dashboard that’s accessible from a cell phone. The dashboard poses recommendations and incentives for beneficial tenant behavior that can be tracked and rewarded. In this scenario, systems work together to forecast demand and empower individual behavior change. The panelists agreed that we need to be striving for this kind of holistic approach in multifamily and commercial buildings. Nicole Ceci (Steven Winter Associates) underscored how this unprecedented focus on carbon emissions must result in an equally unprecedented hunger for technology integration. Chris Cayten (CodeGreen Solutions) echoed this sentiment, describing three siloed worlds of operations: the energy grid, building systems and occupants. For maximum energy efficiency and carbon reduction, these three systems need to work together.

Multifamily buildings make up the lion’s share of NYC’s building stock, but commercial buildings contribute a disproportionate amount of emissions. Ceci and Cayten stressed the need for more granular metering in both types of buildings to discover energy hogs and educate tenants around their energy usage. Before ripping out entire equipment systems, Cayten said we should first focus on establishing a reliable feedback loop to monitor behavior and performance simultaneously.

From StuyTown to Chi-Town: Case studies of scale

With the first compliance deadline fast approaching, where can we look for innovation and best practices? In the Midwest, Anne Evens of Elevate Energy (a Chicago based nonprofit) described how over 48,000 affordable residential units were voluntarily retrofitted in the windy city. Even though every building is a ‘snowflake’ with its specific inefficiencies, Elevate Energy found success by segmenting the building stock into common types and focusing efforts on the most replicable, scalable strategies. As owners saw increased ROIs and contractors saw new jobs, they were more motivated to work on efficiency projects and bring these strategies to other buildings. Evens advised leaning in to these long-term relationships with owners and contractors, as their trust and buy-in makes the process easier.

NYC has its own success story of scale: the 110 buildings of Peter Cooper Village Stuyvesant Town in Manhattan. Tom Feeney, who oversees operations, crafted an ambitious energy efficiency plan and set it in motion almost immediately: upgrading the building management system to reduce steam power by 15 percent, installing LED lights in common areas (reaping a four-year payback), and developing the largest private multifamily solar array in the country—with nearly 10,000 rooftop panels. Their latest project is a 2.3 megawatt Combined Heat & Power (CHP) plant, producing thermal heat to use on site and electricity to pump back into the grid. Impressed by the array of initiatives, moderator Clay Nesler (Johnson Controls) jokingly asked, “how many more Toms do we need in NYC?”

Finally, Loic Chappoz (NYSERDA) described six RetrofitNY projects and the unique challenges they face. Unlike cars or cellphones, the bones of many of our buildings have not seen recent innovation. In the U.S. the economy has gotten more productive overall, but the productivity of the construction industry has fallen since 1995. This means there is much to be gained through prefabricated materials that can be installed on site with just a few people, thereby lowering the high labor costs in NYC. With a nod to the cost-effectiveness of construction processes in Europe, Chappoz advised that we “shamelessly steal… or… rather work together with” European methods that seem to get it right.

The tension with tenants

A running question through the conference was how to deal with tenants. Tenants need to be adequately informed and engaged to encourage behavior change, but what if “encouragement” isn’t enough? Kelly Dougherty (FirstService Energy) reflected on her company’s frustration with a large pharmacy-that-won’t-be-named operating out of the ground floor of many multifamily buildings. This particular tenant is a huge emitter with a 15-year lease and no mandated responsibility to reduce energy use. In situations like this, what is the building owner to do? Panelists felt that a more nuanced model for high energy tenants was needed from LL97—not to penalize tenants but to create some level of accountability. Evens stressed the importance of outreach and data-driven communication with tenants; the more real-time and individualized updates they receive, the greater the likelihood of behavioral change.

A checklist for scaling up

The final discussion dissected key components for creating fast, cost-effective, high-quality retrofits. Kicking things off, Sabrina Kanner (Brookfield Properties) made the argument that renovations can be commercially driven without sacrificing energy efficiency. Case in point: after acquiring “arguably the ugliest property in NYC,” Brookfield transformed the solid façade of 5 Manhattan West into a striking, highly efficient glass curtain wall that reduced energy consumption by 40 percent. While the bottom line drove the renovation, Kanner felt the opportunity to be creative informed their process and is an important approach for LL97 compliance.

In terms of financing, Dan Friend (NORESCO) explained the potential of Energy Saving Performance Contracts (ESPCs)—a financing mechanism that allows improvements to be funded by the future utility savings, avoiding the barrier of an up-front capital cost. At the end of a 10- to 20-year ESPC contract, the customer owns all of the upgrades and the continued savings. Confronted with the challenge of a diverse building sector, Friend reiterated that contract standardization would help investors know what to expect up front and make ESPC financing a more viable option, especially in multifamily buildings. Friend also expressed an optimistic view on renewables, noting that “before, you really had to want to incorporate renewables into a project,” but with decreasing costs they’re now easier to finance. Ultimately, when financing seems impossible, it’s important to remember that there’s now an added cost in the equation: the annual fine for LL97 noncompliance. Even if a retrofit is more expensive upfront than a fine, it’s only a matter of time before the payback catches up.

Another critical ingredient to scale retrofits is workforce development. Smart buildings are the future, and therefore digitally driven equipment is too; jobs that were once purely mechanical now have an IT component that workers need to understand. Rich Benkowski (United Association) pushed for more classroom education, on-the-job training, and incentives like free college credits to build out a well-trained workforce. Benkowski further explained how learning to work sustainably is a behavior modification just like learning to work safely. And like safety training, we need extensive green building training so that workers can speak the language of sustainability and confidently recognize best practices or shoddy work. Panelist Kelly Dougherty agreed, pointing out the gap between the people managing buildings and the contractors coming in to do retrofit work. Both need to understand the long-term goals and strategies of each retrofit.  

Pacing and embracing the opportunity

A poignant moment of the conference was when Robert Johnson (Hannon Armstrong) asked “Why are we all here?” He paused for only a nanosecond on his slide with the familiar J curve of rising carbon. He was right: everyone in the room was already well versed in the realities of climate change and the dire need to reduce carbon emissions. But the crux of the conference was, how do we mobilize people to take action? How do we build a movement—because that’s the rational response to LL97.

NYU Chief Sustainability Officer Cecil Scheib summed it up best in his introductory remarks: in the environmental movement, big numbers usually mean depressing numbers (acres of clear-cut forests, ppm of carbon in the atmosphere, species going extinct, etc.). But 50,000 buildings, 140,000 jobs, and 20 billion dollars – those are big numbers too! It’s time to turn that negative connotation on its head through bold, intentional, well-paced, scaled retrofits. With any luck, LL97 will be the largest disruption to the NYC real estate market, because the alternative of runaway climate change isn’t really an option.  

Further Reading