Beat the Clock on Local Law 97 Without Breaking the Bank

With the 2030 carbon emissions deadline approaching fast and major retrofits looming by 2035, New York City board members need to listen up. Mark Balsam, president of ReDocs, an energy and compliance consultancy, reveals why so many buildings are still scrambling despite years of advance notice — and more importantly, what smart boards are doing about it. Learn how analyzing your building's square footage differently could slash your carbon targets, why paying penalties might hurt your financing and insurance options, and which compliance strategies actually deliver ROI. Habitat's Carol Ott conducts the interview.

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Transcript

Carol Ott: Welcome to Problem Solved, a conversation about challenges facing New York co-op and condo board directors. I'm Carol Ott with Habitat Magazine and I'm joined today by Mark Balsam, president of Redocs, a consultancy on energy, compliance, reduction, and efficiency. Mark, thanks so much for being here. 

Mark Balsam: Yeah, thanks for having me. 

Carol Ott: At the time of this podcast, New York City buildings are approaching the first compliance period for Local Law 97, which sets carbon emission limits for buildings larger than 25,000 square feet.

Each building is given a carbon allowance, and if it exceeds that, it will have to pay a penalty. Mark, many buildings will meet their carbon target for this first compliance period, which goes from 2024 through 2029. That said, there is a lot of confusion in the market. Given that this law has been on the books for a while, why are buildings still confused?

Mark Balsam: It's a great question. I think one of the reasons they're confused is because there are actually different pathways for complying with Local Law 97 depending on what type of building you are. So for example, primarily rent stabilized apartment buildings have a pathway called prescriptive path, which has a whole different set of things that need to be done towards compliance versus what most people know as Local Law 97, which is actually, these are called Article 320 buildings.

That's the majority of New York City buildings and they will have to report each year their emissions. And then ultimately if they exceed the ceilings, they'll have to do something to reduce them to avoid fines. 

Carol Ott: So what are some compliance strategies that co-ops and condos are taking or should be considering?

Mark Balsam: One of the things we offer that I really suggest is doing a deep analysis of the building square footage, but not just the building square footage the individual spaces within the building. So for example, even if there's a gym, and even if that gym is technically an amenity of an apartment building, there are still some considerations which can happen around that.

And there may be a way in which you're classifying it as a different type of space than the apartment building. All of these things could actually be to your benefit. Same thing if you have a supermarket on the ground floor. It's recognized that supermarkets are energy hogs. It's important to report that it's there in the first place and report it's accurate square footage.

Carol Ott: So you're suggesting if you can adjust the square footage of your building, that's going to impact your carbon target. 

Mark Balsam: It can. We've seen a lot of cases where the building is potentially bigger than what the city's records show it as. We've seen a lot of cases where perhaps in the benchmarking reports that buildings do year over year already, perhaps certain space types have been left out.

As I said for example, maybe something was reported as an apartment building, which it is, but there was ground floor retail that was not addressed. All of these things, if they're added to the report can be to the benefit of the building. 

Carol Ott: If the board determines that the cost of compliance is too high, or some boards are deciding they would rather pay penalties. How do you see this affecting a building's relationship with lenders and insurers? 

Mark Balsam: Look, we're in the early stages. We're starting to see though that lenders are beginning to care about a building's energy usage, about its emissions.

And it may just be more from the point of view of their compliance exposure, their compliance risk exposure. Because we're seeing it not just in energy, but we're seeing it with all sorts of banks are and insurers are less okay with open violations, less okay with laws that haven't been complied with.

And perhaps there's even a possibility down the road, especially considering that Fannie Mae plays a big role in the individual mortgages that one can get when purchasing a unit. There could come a time where they begin to have an issue with the building not being in compliance.

Carol Ott: So potentially there would be significant risk to a co-op or condo if the board chose to pay penalties instead of to do some kind of retrofits for their buildings. 

Mark Balsam: Yeah, I think that as I said, it's early days, so I wouldn't go out and say it's entirely a problem for the banks or the insurers, but we're starting to see glimmers of that, anecdotally buildings saying, my insurer has a problem with this, my lender has a problem with this, et cetera. 

Carol Ott: So given that getting your building in compliance requires investment, how do you determine or what sort of common sense ways of determining what strategy makes sense, not only in terms of emissions, but in terms of ROI and financing?

Mark Balsam: I think, right now fortunately in this first cycle, most buildings are under the caps the emissions limits. That's going to pretty much flip in 2030, and then I think by 2035, buildings are going to have to do major retrofits. We've already calculated out what it's really going to take to get below the 2035 limits, for example.

And, the most prevalent, there are different applications of it, but a lot of people think that buildings are going to have to electrify, that they're gonna have to move to heat pumps. Remains to be seen, again, I'm not gonna take a strong stand one way or the other, but that seems to be the prevailing idea of what's going to need to be done. There are some other interesting technologies that we're looking at as well. It'll definitely be interesting over the next five or 10 years. 

Carol Ott: What kind of risk is there? You talk about over the next five or 10 years, that's pretty fast if you have to raise funds and find contractors, find professionals and actually do the work.

Mark Balsam: Yeah. 

Carol Ott: What kinds of risks are boards taking if they don't start something today? 

Mark Balsam: Yeah, look, these projects always take longer than you think. Even dealing with the retro commissioning which is small stuff that people have to do for Local Law 87 energy audits. It always takes longer than you think.

I think the risk is that, some people think that there are not gonna be enough contractors available when everyone comes rushing in at the same time. Us personally, I think Redocs is a little different in that, , in general we're offering similar advice, but we're on the end of the spectrum where we're advising a little bit more caution, a little take your time, because there's a lot that's not fleshed out yet about the law still. Renewable energy credits, carbon offsets, distributed generation. There are a lot of unknowns and there's a lot of pushback politically, legally that hasn't entirely played out. So we're counseling somewhere in between.

You have to be aware of the timeline, but also recognize that this is still in motion. 

Carol Ott: I'm not sure as a board member what I would do with that advice, except to inform myself, perhaps. 

Mark Balsam: I would say if I were giving that advice to you as a board member I, would say that maybe you don't have to rush out tomorrow and figure out how you're going to retrofit the whole building with heat pumps.

And I would hope that maybe you would take my advice to spend another six months a year to really look at it and look how the law evolves. 

Carol Ott: Okay. Good insights, Mark. Thank you so much for being with us today. Mark Balsam, president of Redocs. 

Mark Balsam: Thank you very much. Great to be here.