NYC Starts Grading Larger Buildings on Energy Efficiency as Some Owners Cry Foul

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Expect to see plenty of “C” and “D” grades in New York City office buildings from now on.

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The law requiring residential and commercial buildings of more than 25,000 square feet to post a letter grade — ranging from A to F — near a public entrance went into effect Oct. 1, meaning about 40,000 properties have until the end of October to put up the signs, according to the New York City Department of Buildings (DOB).

“We must take action to meet the challenge of climate change,” DOB Commissioner Melanie La Rocca said in a statement. “Our new energy efficiency letter grade signs are out today, and will provide a new level of transparency for building energy emissions. The public has a right to know which large buildings are taking their commitment to sustainability seriously.” 

Building owners were required to submit their annual energy usage to the city by May 1 and the grades are based on the United States Department of Energy’s Energy Star score, which gets generated through several measures that include how much energy is used per square foot each year. 

Properties that score an 85 or higher get awarded an A rating, 70 or higher a B, 55 or higher a C, less than 55 a D, and an F if an owner doesn’t submit the information, according to the city. If it’s not feasible to obtain a score for a building, it will get an N rating and the city plans to audit the information submitted for those properties. Aside from the letter grade, the posting also has the building’s specific Energy Star number, which can all be pulled up online at the DOB’s website.

The numerical Energy Star number compares a building to the median building in other cities with similar climates, meaning about half of the properties in the city will carry a D rating since anything below the median falls in that grade.

Low grades don’t carry any fines — though failing to post the score will leave an owner in danger of a $1,250 penalty — but the city’s large Climate Mobilization Act passed last year could cause owners to face hefty fees if they don’t comply with new energy efficiency and emissions standards starting in 2024.

Proponents of the bill argue it will help push the city’s building owners to cut down on energy usage and carbon emissions to avoid the shame of posting a failing grade in their lobby.

“Nobody wants to put a ‘D’ on their building,” said David Klatt, vice president of operations and finance for energy management software platform Logical Buildings. “It’s definitely going to drive a lot of questions from lenders, from condo boards and from tenants. I think there’s going to be an education process on what does the energy letter grade actually mean.”

However, some in the industry argued that the grades and benchmarks don’t adequately capture how green a building actually is.

“The real estate industry supports effective efforts to make buildings more efficient as well as the rapid development of needed clean energy options and programs that help building owners reduce their carbon footprint,” Zach Steinberg, vice president of policy at the Real Estate Board of New York, said in a statement. “Unfortunately, the city’s energy grade program should receive a failing grade. It underperforms in its stated goal by oversimplifying reporting on building energy performance and is at odds with the City’s stated goal to track and reduce carbon emissions in buildings because it grades energy consumption, which is a fundamentally different metric.”

The iconic Empire State Building, whose owner the Empire State Realty Trust (ESRT) spent more than a decade retrofitting to reduce its carbon emissions by 40 percent, only qualified for a B rating despite it carrying an Energy Star certification.

“They really need to reset the scores,” said Dana Robbins Schneider, senior vice president of energy and sustainability for ESRT. “In this case, you’re giving a building with an Energy Star label, one of the highest-performing in the country, a B.

“I hate to put a B in my buildings that have scores of 75 and above,” she added. “It just doesn’t seem to reflect the work of the people who run our buildings.”

ESRT has been pushing other owners to adopt sustainability in their business models for years — publishing the steps it took at the Empire State Building publicly to help —  and Schneider agreed with the tactic to post the scores, just not the grade ranges chosen by the city.

The original law passed made it even harder to get the high grades — a 90 or above for an A — but the city lowered the numbers in an amendment as part of the Climate Mobilization Act.

But part of the issue Schneider said is that once you get to such a high Energy Star ranking it becomes harder and harder to get better grades, with some buildings in ESRT’s portfolio needing a 34 percent reduction in usage to jump from a B to an A.

“It’s a massive reduction to make a jump at five points at that level,” she said.

Logical Building’s Klatt said another issue is the numbers are based mainly on annual energy usage per square foot and doesn’t account for things like high ceilings, tenant make-up, high ceilings and when power is being used (energy tends to be cleaner at night).

“A smaller building that has restaurants on the ground floor, they’re going to have worse grades,” he said. “A lot of newer buildings that have amenity spaces, they’re going to have worse energy grades because the amenity spaces are being cooled as opposed to a lot of older, pre-war buildings … A lot of modern buildings are going to have low grades.”

Related Companies and Oxford Properties’ massive Hudson Yards development became the first in the city to nab a LEED Neighborhood Gold certification last year, but some buildings in the project like 50 Hudson Yards will have to post a C grade. (Related did not respond to a request for comment.)

Despite some of its criticisms, the bill has gotten owners to start looking at their portfolios’ energy consumption. Last year, sustainability was a “massively increasing focus for all real estate owners” with some citing an impending failing grade as one of the reasons, Klatt said. Plus, they’re starting to bring up the energy usage with tenants to help increase their scores.

“Owners and managers are incentivized to engage their residential and commercial tenants with energy efficiency,” Klatt said. “If somebody was thinking about upgrading an apartment unit to a smart thermostat, this might push them over the edge to improve their letter grade and carbon emissions.”