Some cities expect commercial buildings to reduce emissions or pay a tax, but both options create extra stress on pandemic-harmed structures, such as office buildings.
NEW YORK – Cities are toughening their climate standards and beginning to tax buildings that don’t meet the new requirements. That forces landlords to make a difficult choice: Pay for expensive upgrades to reduce emissions or pay the tax.
“If you’re under cash flow pressure due to lack of tenancy, adding a tax on top of that isn’t a good sign,” says Bank of America CMBS Strategist Alan Todd. “It would be potentially pretty painful.”
More than a dozen local laws regulating buildings’ carbon footprints have gone into effect since 2021 or will come online by 2030, according to carbon accounting firm nZero. The impact of the emissions laws initially will be small but will come on top of other, more costly problems faced by landlords.
The costly upgrades needed to comply with the law will hit some properties when they are on the block or when they are trying to attract tenants, who know they will effectively be paying for any improvements.
“Tenants are looking to be in a building that is greener,” says Brendan Schmitt, partner in law firm Herrick’s Real Estate Department.
The new laws coincide with big government spending on climate, and landlords can get generous subsidies for projects that reduce emissions. Ironically, landlords are also benefiting from emptier buildings, which burn less fossil fuel.
Ben Myers, senior vice president of sustainability at Boston Properties, says complying with local building standards is important: “We have made energy efficiency a priority.”
Source: Wall Street Journal (09/02/23) Shifflett, Shane
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