Buildings Are Empty, Now They Have to Go Green

Their buildings echo with empty offices, their borrowing costs have soared, and now owners of buildings in cities across the U.S. are facing a new tax on their carbon emissions.

Cities are toughening their climate standards and are beginning to tax buildings that don’t meet the new requirements. Landlords are left with a difficult choice between paying for expensive upgrades to reduce emissions or paying the tax.

In New York City, which has one of the first and most expensive carbon taxes, landlords of large buildings (including owners of residential buildings) beginning next year will face a $268 fine for every ton of carbon dioxide emitted beyond certain limits.

“If you’re under cash flow pressure due to lack of tenancy, adding a tax on top of that isn’t a good sign,” said Bank of America CMBS Strategist Alan Todd. “It would be potentially pretty painful.”

The Wall Street Journal tallied the potential impact of the taxes on buildings that borrowed funds from Wall Street investors by issuing mortgage-backed bonds. The Journal also looked at properties owned by three of the country’s largest publicly traded landlords. The tax bill for 128 properties analysed could add up to more than $50 million during the first five-year enforcement period, which begins in 2024, according to the Journal’s analysis of Department of Building data and financial disclosures.

Fines for the same buildings could jump to $214 million if their landlords don’t meet the city’s emissions standards during the period between 2030 and 2034, the Journal’s analysis shows. The Real Estate Board of New York, an industry group, and engineering consulting firm Level Infrastructure said that more than 13,000 properties could face fines totalling about $900 million annually.

Buildings are by far New York City’s largest source of carbon emissions, which come from the fossil fuels used to heat and to provide air conditioning for them.

More than a dozen local laws regulating buildings’ carbon footprints from Chula Vista, Calif., to Boston have gone into effect since 2021 or will come online by 2030, according to carbon accounting firm nZero. Compliance also begins next year for buildings in Denver, while St. Louis properties face penalties beginning in 2025. Four other laws from Cambridge, Mass., to Reno, Nev., will go into effect in 2026.

The impact of the emissions laws initially will be small but will come on top of other, more costly problems faced by landlords. The law, based on New York’s current projections, would cost the 51-story skyscraper at 277 Park Ave. in Manhattan just $1.3 million in fines in 2024. The revenue of the building, owned by private landlord The Stahl Organization, was $129 million last year.

The building’s vacancy rate has jumped from about 2% in 2014 to 25% currently, according to commercial property data provider Trepp. JP Morgan Chase accounts for about half of the building’s space, but its lease expires in 2026. The bank is constructing a nearby tower that aims to produce net-zero carbon emissions and is scheduled to be completed in 2025. It wouldn’t comment on its leasing plans.

Stahl’s $750 million mortgage on the building is scheduled to mature next August. Stahl is now faced with potentially higher rates if it takes out a new loan, the loss of its biggest tenant and fines for carbon emissions.

Stahl declined to comment.

Shares of the three big landlords whose properties were analyzed by the Journal are trading at near historic lows. Shares of Vornado Realty Trust and SL Green, each of which has about 30 New York City office buildings, are down by roughly two-thirds since before the pandemic. Boston Properties Inc., one of the country’s largest office building owners, shares are down more than 50% from before the pandemic.

SL Green faces a potential carbon-tax liability of up to $6.6 million by 2030, according to the Journal’s analysis. The company declined to comment. More than 80 other properties financed using mortgage-backed bonds reviewed by the Journal could have a nearly $27 million carbon-tax bill by 2030.

The costly upgrades needed to comply with the law will hit some properties when they are on the block or when they are trying to attract tenants, who know they will effectively be paying for any improvements. “Tenants are looking to be in a building that is greener,” said Brendan Schmitt, partner in law firm Herrick’s Real Estate Department.

The library at the Manhattan office of Vornado Realty Trust, one of the landlords expected to be on the hook for a significant amount of New York City carbon taxes. PHOTO: VICTOR LLORENTE FOR THE WALL STREET JOURNAL

The new laws coincide with big government spending on climate. Landlords can get generous subsidies for projects that reduce emissions.

Ironically, landlords are also benefiting from emptier buildings, which burn less fossil fuel. New York City says about 11% of buildings covered under the law are projected to face penalties using the latest energy data, down from 20% using earlier data.

The city’s law was passed in 2019 and included a $268 fine for every ton of CO emitted by buildings over 25,000 square feet exceeding limits. Landlords will be required to report emissions to city officials starting in 2025 with penalties based on 2024 energy use.

Some big landlords are facing fines in multiple jurisdictions including Boston Properties, which will likely get hit on properties it owns in Boston, New York and Washington, D.C. The company’s eight New York City offices could face a $2.3 million dollar tax bill by 2030, according to city data.

Ben Myers, senior vice president of sustainability at Boston Properties, said complying with local building standards is important. “We have made energy efficiency a priority,” he said.

Greenwich, Connecticut, is in New England (just barely), but that doesn’t mean it’s a quaint, sleepy small town with covered bridges and white churches on the green.

It’s leafy, certainly, but it’s also a luxury-minded power centre close to New York City, with many celebrity residents (director Ron Howard, singer Diana Ross, actor Meryl Streep and, at one time, Australia’s own Mel Gibson).

The main shopping street, Greenwich Avenue, is home to brand stores such as Hermès, Kate Spade, Saks Fifth Avenue, and Tiffany & Co.

And Greenwich, particularly in the “back country” north of the Merritt Parkway, is host to some of the most exclusive real estate in the world.

The average price for a single-family home in the second quarter of 2025 was USD $3.25 million (AUD $4.9 million). But that’s merely an entry point, buying a smaller home in one of the town’s less desirable neighbourhoods.

What does USD $43 million (AUD $66 million) buy in Greenwich?

Last autumn’s most expensive listing offered a 1,068-square-metre waterfront home with eight bedrooms and 11 bathrooms, plus “Gatsby-like lawns”, a gym, games room, party room, wine cellar, fruit orchard, pool and spa. The front and side porches have heated floors.

Prefer something more traditional and secluded? For USD $33 million (AUD $50 million), buyers could close on an 11,760-square-metre Georgian manor on 3.2 hectares, featuring eight fireplaces, an elevator, and a dumbwaiter.

The first floor features a three-storey cascading chandelier. For bibliophiles, there’s a two-storey mahogany library. If bocce is more your pace, a similar USD $25 million compound on 7.5 hectares, built for a liquor magnate in 2009, may appeal. Fourteen bathrooms should suffice.

The Greenwich market is strong, but not without challenges.

“The big problem is that there’s no inventory,” said Evangela Brock, an agent with Douglas Elliman. “It’s extremely low at all price points.”

In November, just 15 properties under USD $1 million (AUD $1.52 million) were listed without contracts, compared with 23 above USD $10 million (AUD $15.2 million). Of those, six had contracts pending. Greenwich has more than 17,000 single-family homes.

Kanebridge Quarterly toured two mid-priced houses in Greenwich. “You don’t lose money in Greenwich real estate,” said Beth MacGillivray, a realtor with the Higgins Group. “This is the hot spot.”

MacGillivray opened the door to a 733.9-square-metre Georgian colonial in the Sherwood Farms Association development her family built in 2005. The house was expected to sell for about USD $5 million (AUD $7,743,535).

The six-bedroom, four-level house is move-in ready, with staged furniture showing its potential and many of the amenities that buyers in this range expect.

Visitors enter through a two-storey foyer with a marble floor. A circular staircase leads to an airy living room with double-height ceilings.

There’s a main bedroom with his-and-hers bathrooms, a cherry-panelled library with cigar-smoke venting, five fireplaces, and a state-of-the-art kitchen with a breakfast nook by Greenwich-based designer Christopher Peacock.

Most rooms have huge walk-in wardrobes. Even the laundry room has granite countertops. Custom millwork, cabinetry and fixtures are evident throughout.

The drawbacks? A smaller yard and no pool. Still, refugees from the city would marvel at the abundant interior space.

Not far away, an entirely different house was on the market for USD $2.66 million.

The imposing 696.7-square-metre, nine-bedroom, seven-bath Georgian/Federal home on Shady Lane in the Glenville neighbourhood was built in 1900. Its good bones and inherent grandeur were apparent, as was a clear need for updating.

“It’s a good project for someone,” said realtor Kaori Higgins. “It needs the right buyer, someone who is looking to return it to its stately original condition.”

Given the hot market, some buyers may be tempted to tear it down and build anew.

But the house is filled with charming period details, including hand-built stone fireplaces, reading nooks, pocket doors, leaded windows and beautiful original millwork.

The second floor offers a vast veranda with views of Long Island Sound and a built-in swimming pool.

The drawbacks? Bathrooms that were awkwardly redesigned in the 1970s, unsightly flooring on the upper levels, and crumbling exterior elements.

Higgins noted that a nearby sister property, fully renovated, sold for USD $11 million (AUD $17 million). Any buyer of Shady Lane’s faded elegance would need both imagination and deep pockets.

For contrast, Kanebridge Quarterly left Greenwich for nearby Fairfield’s upscale Greenfield Hill neighbourhood to visit Lion’s Gate, a 595 square metre Tudor Revival home built as a modest dwelling in the 1920s but extensively expanded and remodelled in 2000.

With three acres of land, a guest cottage, an artist’s studio and a pool house, the asking price is USD $3.3 million (AUD $5 million). Like the Sherwood home, Lion’s Gate is flawlessly move-in ready, with designer touches throughout.

The entire second floor was added during the renovation and features parquet flooring, a massive main suite, arched doorways and 2.74-metre ceilings.

Many rooms include walk-in wardrobes, extensive carved millwork and built-ins. The wood-panelled library (on the site of the former stable) is warm and inviting.

The expansive kitchen includes a window seat with a hand-painted ceiling, a wine cooler and a butler’s pantry.

Realtor Lorelei Atwood said Fairfield faces the same inventory shortage as Greenwich.

“Demand is growing as more New York-based executives are being told they have to report to the office,” she said. “Fairfield has always been a commuter town.”

Why is this home USD $3.3 million (AUD $5 million), and the Sherwood property around USD $5 million (AUD $7,743,535)?

Location. Greenfield Hill is lovely, but Greenwich real estate occupies a rarefied class of its own.

Note: Thanks to realtor Sherri Steeneck for chaperoning.

This story appeared in the Autumn issue of Kanebridge Quarterly, which you can buy here.

Buildings Are Empty, Now They Have to Go Green

Rising rates, falling occupancy and new carbon taxes hit building owners

A haven for hedge-fund titans and Hollywood grandees, Greenwich is one of the world’s most expensive residential enclaves, where eye-watering prices meet unapologetic grandeur.