While the nation often focuses on federal emissions policies, local regulations quietly significantly impact commercial and industrial real estate landscapes. From building performance standards to ambitious local laws, these lesser-known policies are pivotal for businesses. Let’s delve into some key regulations and their implications for commercial estates across the United States.
And if you’d like to explore more on this topic, listen to our related podcast episode: Ep 62: The Under the Radar Regulations Impacting Building Owners
Building Performance Standards: What You Need to Know
Commercial real estate owners increasingly face challenges from building performance standards. These standards are becoming more common in cities and states, targeting the carbon impact of the built environment. Unlike other industries that might relocate to dodge local regulations, large commercial real estate properties are immovable, making understanding and compliance essential.
Building performance standards focus on outcomes rather than prescribed measures. They set a baseline year for emissions or energy intensity and chart a course for reductions across future years. Buildings that fail to meet these standards face hefty fines, which can be a significant financial burden. For example, fines for non-compliance can range from nominal to substantial, depending on the region and specific regulation.
Local authorities prioritize the largest buildings first. Typically, regulations target properties over 100,000 square feet, then gradually encompass smaller buildings over time. As a result, more and more buildings within a city or state come under these regulations, escalating the importance of compliance for all commercial real estate owners.
Washington D.C.’s BEPS Program
The Building Energy Performance Standards (BEPS) program in Washington D.C. is a prominent example of local regulations affecting commercial real estate. First targeting buildings over 50,000 square feet, the program will extend to those over 25,000 square feet by 2027. The fines for non-compliance can be significant, with penalties up to $10 per square foot of building area.
The BEPS program offers various compliance pathways, including the performance pathway, which requires a 20% reduction in energy use during a specified cycle. Failure to meet these benchmarks can result in millions of dollars in fines for large properties, making adherence to these standards critical. The BEPS program doesn’t just apply to privately owned buildings—government buildings in D.C. are also under its purview. This comprehensive approach emphasizes the importance for all stakeholders, public and private, to collaborate and innovate to meet these stringent standards.
New York’s Local Law 97
New York City has introduced Local Law 97, another groundbreaking regulation impacting the commercial real estate sector. This ambitious law targets greenhouse gas emissions from buildings, with an initial focus on large properties, but extending over time to encompass more buildings. Properties are measured against their baseline emissions, and non-compliant buildings face substantial fines.
Local Law 97 is part of the The Climate Mobilization Act, a pivotal piece of legislation aimed at tackling greenhouse gas emissions in New York City. Enacted in April 2019, this act brings multiple regulations under one umbrella, with Local Law 97 standing out as one of the most impactful and stringent standards for building performance.
Local Law 97 aims to reduce emissions by 40% by 2030 and 80% by 2050. This aggressive timeline underscores the necessity for property owners to invest in energy-efficient technologies and practices promptly. The penalties for non-compliance can reach millions of dollars, emphasizing the financial motivation to adhere to these regulations. Local Law 97’s broader impact also includes driving innovation and green technology adoption. As property owners seek to comply, they’ll likely contribute to the development and dissemination of sustainable building practices, which could serve as a model for other cities and states.
The regulations offer guidelines on various methods to achieve these reductions, including on-site renewable energy installations like solar panels, and critical updates to HVAC systems and lighting. Avoiding penalties under Local Law 97 isn’t just about compliance—it’s a robust financial strategy. Fines for non-compliant buildings can accumulate quickly, and incorporating energy-efficient practices can present a strong economic case for property owners. Investing in energy efficiency now can yield long-term savings by reducing operational costs and enhancing property values.
Recognizing the vast scale of New York City’s built environment, the Climate Mobilization Act, specifically Local Law 97, establishes a phased approach to compliance. Buildings must initially meet greenhouse gas emissions limits by 2024, with even stricter limits set for 2030. This incremental framework is designed to provide building owners and managers adequate time to integrate necessary projects, plan for capital expenditure, and align such upgrades with their replacement and refinancing cycles.
Denver’s Building Performance Standard (BPS)
Denver’s Building Performance Standard (BPS), enacted in 2021, aims to significantly reduce energy consumption and greenhouse gas emissions from buildings in the city. The law primarily targets commercial and multifamily buildings, establishing specific energy use intensity (EUI) targets that must be met by 2030. Buildings larger than 25,000 square feet are required to meet interim performance targets by 2024 and 2027, while those between 5,000 and 24,999 square feet must implement energy-saving measures such as installing LED lighting or solar panels by 2025-2027.
The BPS employs a “trajectory approach,” setting performance targets based on each building’s 2019 baseline energy use, ensuring that progress is tailored to individual circumstances. Compliance involves submitting annual benchmarking reports, with penalties for non-compliance including financial charges for exceeding energy use targets.
Ultimately, the BPS seeks to achieve net-zero energy in existing buildings by 2040, driving improvements in energy efficiency and promoting electrification of heating systems. This initiative reflects a growing commitment among cities to tackle climate change through innovative building policies.
California’s South Coast Air Quality District’s WAIRE Program
The WAIRE program, officially known as the Warehouse Actions and Investments to Reduce Emissions program, is a regulatory initiative introduced by the South Coast Air Quality Management District in Southern California. Implemented in 2022, it aims to reduce emissions from warehouse operations, particularly focusing on truck trips that contribute to pollution. The program targets all warehouses over 100,000 square feet, which affects over 3,400 facilities in California. Initially, the regulations applied to warehouses over 250,000 square feet, with the threshold set to lower further starting in 2025.
Under the program, warehouses are required to track truck trips entering and leaving their facilities, calculate the resulting emissions, and either offset or reduce these emissions. A point-based system is used, which calculates points based on warehouse size and truck trips, multiplied by a factor determined by the air quality district. To comply, operators can implement measures such as electrifying fleets, utilizing zero-emission forklifts, or installing solar batteries. If points are not mitigated through these strategies, they must be offset for $1,000 per point.
Failure to comply results in financial penalties, thus incentivizing businesses to invest in emission reduction efforts rather than paying fines. The program encourages long-term investments in sustainability to decrease emissions through proactive measures.
The Wider Impact: Driving Compliance and Innovation
These localized regulations across various U.S. cities signal a significant shift in commercial real estate management. They challenge property owners to innovate and adopt sustainable practices, pushing the broader industry toward a greener future. As more cities adopt similar standards, the cumulative impact on national carbon emissions becomes substantial.
These regulations often begin by targeting larger buildings first, typically those 250,000 square feet or 100,000 square feet and above. Over time, the scope of the regulations expands to include smaller buildings, incrementally lowering the floor area threshold. This phased approach allows authorities to gradually bring more and more of the built environment under compliance, eventually encompassing a wider range of property sizes and types in the areas where the regulations are enacted.
By prioritizing compliance, property owners not only avoid penalties but also contribute to broader environmental goals. The adoption of advanced energy-efficient technologies and practices can also offer a competitive edge, enhancing property values and attractiveness to increasingly eco-conscious tenants and investors.
Ultimately, local regulations like building performance standards are not just a compliance challenge—they represent an opportunity for the commercial real estate sector to lead in sustainability and innovation. Embracing these changes can transform challenges into strategic advantages, positioning properties and companies for long-term success in a rapidly evolving landscape.
Smaller Cities and Emerging Regulations
While major cities like New York, Washington D.C., and Southern California are at the forefront, smaller cities are also beginning to adopt similar measures. These emerging regulations align with a growing national trend toward sustainable building practices and environmental responsibility.
- Columbus, Ohio: Recently introduced building performance standards focusing on new constructions and major renovations, encouraging the adoption of green technologies.
- Madison, Wisconsin: Has initiated a program to incentivize retrofitting older buildings with modern, energy-efficient systems, mirroring larger city efforts.
- Chula Vista: In Chula Vista near San Diego, a program was enacted in 2023 and focuses on incentivizing property owners through a mix of regulations and financial incentives. It includes measures like building performance standards and energy efficiency requirements. These standards ensure that property owners not only comply with regulations but also benefit from incentives designed to offset the costs of implementation. A balanced approach helps encourage compliance while supporting the financial viability of property owners.
Conclusion
The overarching theme across these regulations is a future where sustainable practices are integral to commercial real estate operations. By embracing the requirements set forth by Local Law 97 and similar regulations elsewhere, property owners can turn compliance into an opportunity for innovation and growth, positioning themselves favorably in an increasingly environmentally conscious market.
