In another political miscalculation, the Mayor of New York City, Michael Bloomberg, recently discovered that no matter how great an idea is on paper, for owners of commercial buildings greenhouse gas emission reduction has to be economically feasible. 

A package of related bills was sent to the New York City Council in December of 2009, one of which included a mandate that all buildings with 50,000 square feet or more undergo energy efficiency audits. 

Multi-family housing in New York City is estimated to account for 30% of total building carbon emissions.  As 80% of total city carbon emissions are produced by its buildings, commercial real estate energy efficiency is an important civic, security, quality of life and environmental priority by government officials.  

In Bloomberg’s initial vision, the energy efficiency audit results were to be used (1) to determine the renovations needed to make the buildings more energy efficient and (2) to require building owners to make many of them.  It all sounded so good that it drew praise from Vice President Al Gore and others concerned with climate change and involved in the green building movement.

However, there was one very large hitch.  Not only did the owners have to pay for the cost of the energy audits, but they would be required to make all renovations that reached a cost/energy savings breakeven point within five years.  It would have been a perfect plan – and incredibly good for the atmosphere and New York’s energy conservations efforts – but it lacked one vital element.  Credible financing. 

As banks and major lenders have lowered participation in lending to multi-family housing owners - and seemingly anyone else - the credit crunch has a suffocating impact on this sort of mandatory retrofit.  Fannie Mae expanded its multi-family housing lending last year, but their focus remains on purchases, and federal indications are that portfolios will be trimmed down over the next few years. 

Refinancing efforts have been complicated by appraisals that must consider lowered comparable sales, an income approach based on net operating income, high vacancy factors, suppressed rents and increased expenses.  With depressed values and little lender involvement or interest, these retrofits have few if any financing options. 

Expecting owners to use their building reserves and depleted working capital to finance mandatory renovations was short-sighted at the very least.  To his credit, Bloomberg quickly backed down when opposition escalated to bonfire status, but the energy audits will remain mandatory.    

New York City’s $16 million in remaining federal stimulus dollars (as of early December) would have left building owners scrambling to raise the additional $2.484 billion required to make those building improvements.   Even expenditures for energy audits  may present a hardship for owners hard hit by the recession. 

New York City is, of course, unique, but what happens in our major metropolitan areas often has a ripple effect on the rest of the country.  Had Bloomberg been able to enact these regulations, New York City would have led the country in greening strategies and earned a place in history.