William D. McCracken in Green Ideas on February 18, 2020
Amid the tumult and trepidation surrounding the passage of New York City’s Local Law 97, the Climate Mobilization Act, there is a surprising ray of good news for co-op and condo boards concerned about the cost of major capital improvements and retrofits: there are numerous affordable financing options.
Let’s start with interest rates. Traditionally, many co-ops and condos pay for capital improvements from their reserves or from assessments on their owners. The reason condominiums tend not to look to outside sources of financing is that the condos do not own all of the property and thus cannot offer as much security, and their governing documents often limit the amounts that can be borrowed. Still, for buildings willing and able to seek third-party financing, interest rates remain historically low. Conventional mortgages, condo loans or unsecured lines of credit should be within relatively easy reach of most co-op and condo boards. Buildings refinancing their existing loans should consider borrowing additional funds so they’ll have money set aside for upcoming efficiency upgrades.
When co-ops and condos have financing arrangements with low interest rates, energy-efficiency improvements become a no-brainer. Well-chosen upgrade projects will yield efficiencies that over time reduce energy costs by amounts greater than the amounts paid on the loan, and cost savings can continue to accrue even after the term of the loan, throughout the useful life of the upgrade. In the current lending climate, boards should be looking to develop a workable capital-improvement plan and lock in favorable financing now. Boards that take a “wait-and-see” approach today risk paying significantly higher costs if the market changes tomorrow.
Policymakers are using carrots and sticks to induce buildings to reduce their carbon emissions. The Climate Mobilization Act itself contains a lot of sticks – in the form of fines for buildings that fail to meet their emission-reduction targets. On the other hand, the cheap (or free) money on offer from local utilities and governmental and quasi-governmental organizations, in the form of grants, loans, and tax credits, are the carrots. Last month, New York State announced an additional $2 billion in energy-efficiency and building-electrification initiatives (for a reported total of $6.8 billion) to combat climate change. To give a sense of the scope of the programs out there, one database currently lists more than 120 separate financial incentive programs available for energy-efficiency upgrades statewide. The New York State Energy Research and Development Authority (NYSERDA) has been particularly aggressive in promoting its dozens of incentive programs, and it will almost certainly have money available for co-ops and condos that are eligible to participate.
There is also the PACE (Property-Assessed Clean Energy) program set up by Local Law 96 to provide non-accelerating loans for energy-efficiency and renewable-energy projects that are repaid through a building’s property tax bill. PACE loans may eventually become an attractive option for buildings, but the program is still incubating, and there are questions whether PACE loans will be a viable option for some co-ops, and for condos at all. Stay tuned.
How do co-op and condo boards sort through all of these options? Buildings can retain reputable energy consultants (emphasis on reputable – choose carefully), who will not only understand the financial landscape but will be able to help integrate decision-making so that funds are available for the right projects at the right time as part of a coherent capital-improvement plan. A well-informed lawyer can help, too.
The single most important thing co-op and condo boards can do when it comes to energy-efficiency projects is to identify board members with the capability and credibility to do the necessary due diligence, plus the enthusiasm to see projects through from beginning to end. If boards can find those dedicated individuals, with any luck, the financing will take care of itself.
William D. McCracken is a partner at the law firm Ganfer Shore Leeds & Zauderer.
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