New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

CLIMATE MOBILIZATION ACT: FIGURING OUT THE NEW ROI

Climate Mobilization Act: Figuring Out the New ROI

Michael Rogoff, President, AKAM

 

Meeting the goals of the Climate Mobilization Act will be a major undertaking for most buildings. Boards often make energy upgrades based on a reasonable return on their investment, or ROI. Can you tell us more about that?

ROI is the typical business term that many people might remember from their economics or business school classes. Return on investment really means the exact same thing when it comes to energy projects. It’s how long will it take to recoup the actual expense or investment on a certain project. As it gets longer, you start considering whether it’s really worth the investment. Anything with a shorter return on investment is going to be a great project, and it’s something you probably want to do right away.

 

What kinds of projects have buildings been doing in the past, and are they going to be looking at these projects differently because of the Climate Mobilization Act?

You hear the term low-hanging fruit a lot, and those used to be the most common projects that buildings would take on with regard to energy. Those could be things where it’s relatively inexpensive and state NYSERDA grants give it an even higher return on investment. It could be installing LED lighting or insulating plumbing lines and heating lines, which are pretty simple to do; making sure that older equipment is being maintained so it’s not using more energy than it needs to; not running heat and AC at the same time in certain areas of the building; even things like drafty doors and putting in a door sweep so the cold air doesn’t come in.

 

Because of the upcoming fines under the Climate Mobilization Act for buildings with a high carbon footprint, properties are going to be looking at projects that don’t have a great ROI and are not considered low-hanging fruit, no-brainer decisions. I think the intent was to kind of force buildings to go through greening and energy conservation initiatives without just looking at the ROI and the bottom line. 

 

It seems buildings are going to have to take into account the cost of a project, the ROI and the savings the project might afford them, and then weigh all that against what the annual fines might be.

It’s an analysis that we’re helping our clients with. People got upset over the energy letter grades, Local Law 33, because if they don’t have an A rating, they’re like, “Oh my God, we’re a horrible building, and no one’s going to want to live here.” It’s just not the case. Most buildings received a C or a D rating. It’s not to say that’s good, it’s just how the rating system was set up. For buildings that were built years or decades before anyone even thought of something like the Climate Mobilization Act, it’s very hard to retrofit to current energy standards. The energy grades were just a way to get a baseline and start a discussion.

 

So we helped our buildings go through an analysis of their energy and what fines they can expect to pay if they do nothing, assuming the Climate Mobilization Act does not change between now and 2025 or 2030. That gave them at least an idea of whether they’re in the clear for 2025, which most buildings are, but what their fine situation is going to be in 2030 if they don’t reduce their carbon footprint.

 

Do you think your clients have come to grips with how expensive meeting these goals might be?

Some yes, some no. Some buildings might still be in denial. Also, 2030 seems like a very long time away, but it will come very quickly, especially if the only projects you can undertake are huge, like replacing an entire heating plant or replacing all the windows in your building. If an assessment or borrowing from the reserves or taking out a loan is going to be required, and in many cases it’s going to be, buildings should start planning now for those types of projects. It’s definitely something to start focusing on.

 

You mentioned that the Climate Mobilization Act could change. How do you even fathom spending money now for something that might end up not being required later? 

Yes, the act could change. But a lot of these projects are still fiscally responsible and prudent things to do anyway. Buildings are always looking at replacing major capital components, and a lot of them tie into energy. Things like window replacements or replacing a heating plant are probably going to happen at some point in time anyway. I think whether or not the Climate Mobilization Act changes, there’s always going to be pressure for buildings to be energy efficient. Even if there aren’t pressures coming from the city, there is an expense associated with being inefficient. 

 

We’re fortunate enough to have a team of energy consultants and engineers, but there’s a lot of support out there to help buildings plan and do the projects. Generally these get sorted by a return on investment. There are the really good ones that make perfect sense because they’re inexpensive and they’re going to pay for themselves in a very short amount of time. Then you get to the ones that are on the borderline where you say: “Should we do them? They’re still a good thing to do energy-wise, but we’re not going to get the biggest return on investment.” Then there are the ones that don’t generate a great return, and it becomes a real discussion point for the board.

 

For boards that are still a little bit muddled by all of this, what’s your final advice to them?

The Climate Mobilization Act is happening. This is in the works, so this is the time to get educated. There are a lot of literature, webinars and articles online. Lay out a plan, whether some of it is done today or next year, know all the facts, and be prepared financially. I would encourage all boards to get educated and be prepared.

Ask the Experts

learn more

Learn all the basics of NYC co-op and condo management, with straight talk from heavy hitters in the field of co-op or condo apartments

Professionals in some of the key fields of co-op and condo board governance and building management answer common questions in their areas of expertise

Source Guide

see the guide

Looking for a vendor?