grades are here
Local Law 95 has gone into effect. What does that mean for you?
In Spring 2019, New York passed the “Climate Mobilization Act,” the most ambitious legislation set by a city to reduce impact on climate change. One of these laws, Local Law 97 (LL97) intends to reduce building emissions by 80% by 2050 with carbon limits per square foot depending on building use. Experts within the real estate community have been focused on Local Law 97 (LL97) due to significant potential fines facing the lowest performing buildings.
The ambitious vision and high prospective fines have made Local Law 97 the focus of New York City’s real-estate owners, managers, lobbyists and consultants; however, the lesser known Local Law 95 is a more immediate concern for CRE in NYC.
Local Law 95 (LL95), an update to the previously issued Local Law 33, will require buildings over 25,000 square feet to post a letter grade visible to the public based on the building’s Energy Star score. Energy Star, a system administered by the US. Environmental Protection Agency (EPA), rates buildings between 1 and 100 based on that property’s percentile ranking on energy performance. Percentiles are derived from results of the Commercial Buildings Energy Consumption (CBEC) Survey, a US government building survey comprised of over 8,000 properties.
What does this mean for Commercial Real Estate?
The grades that are assigned by Local Law 95, set by NYC, are as follows;
- 100 – 85 is an “A”
- 85 – 70 is a “B”
- 70 – 55 is a “C”
- 55 – 0 is a “D”
Energy Star is a percentile, or a bell curve. By design, 50% of all buildings will be graded a “D.” Compounding the issue, the CBECs database was updated in 2018. The improvement in overall building efficiency across the country lowered all building energy star scores.
While professionals and lobbying organizations have drawn attention to this framework, most experts were more concerned with LL97 and the potential for large fines starting in 2025.
Why this is critical: the “COVID-19 Factor”
As written, 30 days from October 1st, 2020, energy letter grades will need to be posted publicly in all covered buildings. This timing aligns with the city’s plans to help officegoers reenter the workplace. The letter grade, which must be prominently displayed, will be front and center as many head back to the office.
Occupants are most likely to compare building energy letter grades to the only other letter grade system in NYC; restaurant grades. After all, the restaurant sanitation grades seem to be the inspiration for the law.
Restaurant sanitation grades, first implemented in 2011, are not a percentile of scores from all NYC dining establishments. They simply indicate “Is this a clean place to eat?” More than 90% of restaurants have a score of an “A.”
While these two rating systems are entirely unrelated, it is likely that the public will associate them with each other. Unfortunately for NYC commercial real estate, restaurant ratings have had nearly 10 years to embed what they represent into New Yorkers understanding.
How will occupants react this October when a “C” or “D” is perceived as a dollar slice restaurant down the street? Would you take your friends to a “C” restaurant for dinner? Similarly, will tenants want to rent space in a “C” building? Factoring in COVID, how will occupants react? The natural assumption might be that the building is unsanitary or unsafe.
What can Property Managers and CRE Professionals do?
Don’t Hide: Aside from the $1,250 fine for non-compliance, hiding your score will bring more attention to your performance. There are exemptions for certain high-intensity buildings.
Communicate: Proactively develop tenant and occupant communication strategies to differentiate between energy performance, sanitation, and COVID-risk.
Plan for Next Year: There is only one way to improve your letter grade, improve your Energy Star Score. JLL’s Energy and Sustainability team helps property managers confirm that they are properly scored and work to improve future performance.
For questions please reach out to JLL’s Energy and Sustainability Team:
Mat Chamish, Director of Energy and Sustainability
Crissy Haley, Vice President, Northeast Sustainable Projects Lead
Adam Fisher, Senior Project Manager, Energy and Sustainability