Specialist
Former VP at Vornado Realty Trust
Agenda
- Review of pertinent energy conservation legislation targeting large CBD (central business district) structures
- The extent to which energy conservation laws such as NYC LL97 and LL47, among others, impact the NOI of older office buildings in CBDs
- Comparative insight on how office owners and REITs are managing elevated CAPEX to meet city-enforced energy conservation standards, with commentary on which players might be more at risk
- H2 2023 outlook, considering persistent office vacancy levels
Questions
1.
Could you provide some historical context for the start of major US cities implementing more aggressive ESG regulations on the commercial real estate sector?
2.
What started the trend of ESG awareness and requisite initiatives? Was this encouraged via financial incentives or was it intrinsically a value-based approach to wanting to begin labelling buildings as ESG-friendly, providing reports and getting certifications?
3.
What’s your view on the health of the US office sector today? We know it’s been under a lot of pressure. What’s the current state of occupancy and lease rates for the industry, given recent office REIT earnings?
4.
We hear that banks have no interest in owning a lot of these assets themselves, which highlights the core theme of how the declining health of the office sector measures up against nascent ESG regulations, ultimately driving up CAPEX significantly for REITs already burning through cash and prompting different strategies. Which cities have the most stringent ESG regulations on office properties?
5.
Is the US and its office real estate industry viewing New York as somewhat of a case study and monitoring how it adopts and reacts to new legislation?
6.
New York seems to have the most developed lexicon on ESG regulation for office real estate. What is the most relevant such regulation in New York affecting landlords today? Which is most critical?
7.
Who does Local Law 97 target or impact the most? Does it address all buildings or just a specific size or zone in New York City?
8.
How effective or efficient has the governance or compliance of Local Law 97 been, in terms its measuring, reporting and fine calculations?
9.
What mitigation approaches might landlords or other sustainability personnel propose to reduce a facility’s greenhouse gas emissions to stay under the legislated level? What are the most common approaches?
10.
In the relationship between the tenant and the landlord, who bears the financial burden more? Is the landlord baking in elevated costs for the tenant to meet ESG standards, or are landlords absorbing it themselves?
11.
To better understand the real cost implications, are there any situations where landlords might conclude that it’s more efficient for them to swallow a penalty fee vs splurging to upgrade facilities, which has a high CAPEX ticket?
12.
As you mentioned with the Empire State Building, considerations are taken on an asset-by-asset basis in terms of what’s worth upgrading or not. How significant is the associated CAPEX required for each lower building grade or age to be ESG compliant? What CAPEX is required for a low A, B or C asset?
13.
Setting aside the rapidly declining financial performance and outlook of many office assets, how big of a role is the ESG factor in the disposition question, relative to the negative performance of such buildings?
14.
Which local laws, beyond Local Law 97, are most critical in enforcing ESG regulations, from a financial perspective?
15.
Which office REITs have the oldest portfolios, who would likely be deemed as most in need of significant portfolio upgrades to meet energy efficiency standards? Who is put most at risk by local laws?
16.
Do you have any concern for players such as Office Properties Income Trust or NYC REIT, which recently rebranded? Is there anyone else of note in the competitive landscape?
17.
Would you consider SL Green as most likely to be disposing or shutting its portfolio relative to peers, given the risk it has?
18.
New York City eyes a 40% reduction in emissions produced by its largest buildings by 2030 and an 80% reduction by 2050. Is that achievable, given how seriously REITs and landlords are taking these mandates?
19.
What’s your outlook for future ESG-related legislation, targeting the office sector across secondary tertiary markets in the US? Are there any national trends you anticipate influencing things at the local level?
