In our June 16 CMA Update, we discussed how the New York City Climate Mobilization Act (CMA) will affect building owners and the market for CMBS mortgage loans (loans pooled and resold as commercial mortgage-backed securities). (For more information on C-PACE financing, see Sustainable Buildings and Development: Carbon Emissions and the Recent Climate Mobilization Act of New York City.) In this update, we will outline some of the funding solutions that are available to New York City building owners looking to retrofit their buildings in order to comply with the CMA’s requirements.
Funding Solutions for Covered Building Owners
The cost of retrofitting buildings to incorporate energy efficient features and to achieve compliance with the CMA can be daunting.
As noted and described in our prior alerts regarding the CMA, Local Law 96 of the CMA authorized C-PACE financing in New York City for the first time. C-PACE loans are typically long-term loans, sized to fund the total costs of the energy-efficient improvements, and designed to be repaid over the useful life of the improvements made to the building (in the range of 20-30 years). Because they are billed and collected in the same manner as real property taxes, C-PACE assessments are prior in lien to the lien of mortgage loans (and C-PACE loans require mortgage lender consent). Although the addition of a C-PACE loan in a debt stack can present unique issues and concerns, we can expect to see an increasing number of such loans (and an increasing number of requests to accommodate such loans).
NYSERDA’s Empire Building Challenge also presents another opportunity for New York City building owners. This program creates blueprints from participating building owners’ initial retrofitting projects and facilitates their exchange—so that the building owners that are part of the program can exchange information and more easily determine which renovations or improvements are worth pursuing. In addition, the program provides $50 million in funding to participating building owners. One particularly well-known building and participant in the Empire Building Challenge is the Empire State Building which is being further retrofitted (as part of the program) to significantly increase its energy efficiency and meet its owner’s sustainability goals. When the new round of retrofits is completed, the Empire State Building’s owners will make the methods available to other Empire Building Challenge members. (For a history of the Empire State Building’s retrofits and its current plans, see The Empire State Building’s Green Retrofit Was a Success. Will Other Buildings Follow Suit?)
Affordable Housing: NYSERDA Funding and Current Projects
As noted in our prior alerts, affordable-housing providers—many of whom own and operate aging and “energy inefficient” buildings—are exempt from CMA emissions requirements. NYSERDA’s RetrofitNY initiative, which provides funding, can help mitigate some of the costs associated with energy retrofits, however.
We understand that NYSERDA (or the New York State Energy Research and Development Authority, which was established to promote energy efficiency and the use of renewable energy sources in New York State) drew its inspiration for RetrofitNY from Energiesprong, a 2013 program that originated in the Netherlands, spread across Europe, and brought over 2,000 units of affordable housing to net-zero energy. Launched in February 2018, the RetrofitNY initiative is a $30 million program funded over 10 years and made available through NY State’s Clean Energy Fund. Its goal is to bring a substantial portion of affordable housing in New York City to or near net-zero energy over the next ten years. (For information on the RetrofitNY program, go here or here.)
In order to qualify for the RetrofitNY program, a building must be an affordable-housing multifamily building no taller than seven stories. It must also have substantial rehabilitation work planned within the next one to two years; buildings with retrofit designs already completed may also be eligible.
As described in Patrick Sisson’s New York Times piece referenced above, RetrofitNY’s first pilot project, Casa Pasiva, is a $20 million, nine-building project in Bushwick which has received $1.8 million in funding from RetrofitNY. Once completed, the buildings are expected to conform to “passive house” standards, with airtight exteriors (which we understand are created by thickening exterior walls and installing HVAC in such new walls) that will reduce heating and cooling costs by up to 80 percent. The buildings will also have all-electric heating and cooling systems.
Casa Pasiva is just one example of affordable-housing buildings that have benefited from RetrofitNY’s support. But affordable housing retrofits are gaining in popularity. And while the Casa Pasiva project did receive $1.8 million in financing from RetrofitNY, a NYSERDA program, other similar projects could turn to the C-PACE program (and ultimately traditional lenders) to finance such improvements.
Special thanks to Nika Bederman for contributing to the piece.