Buildings Are Empty, Now They Have to Go Green
Rising rates, falling occupancy and new carbon taxes hit building owners
By SHANE SHIFFLETT
Mon, Sep 4, 2023 10:42am
4 min
4 min
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 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.
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What a quarter-million dollars gets you in the western capital.
Alexandre de Betak and his wife are focusing on their most personal project yet.
Unmarried home buyers say they are giving priority to a financial foundation over a legal one
By DALVIN BROWN
Mon, Nov 25, 2024 4 min
4 min
The big wedding can wait. Couples are deciding they would rather take the plunge into homeownership.
In reshuffling the traditional order of adult milestones, some couples may decide not to marry at all, while others say they are willing to delay a wedding. Buying a home is as much, if not more of a commitment, they reason. It helps them build financial stability when the housing market is historically unaffordable.
In 2023, about 555,000 unmarried couples said that they had bought their home in the previous year, according to a Wall Street Journal analysis of Census Bureau data. That is up 46% from 10 years earlier, when just under 381,000 couples did the same.
Unmarried couples amounted to more than 11% of all U.S. home sales. The percentage has climbed steadily over the past two decades—a period in which marriage rates have fallen. These couples make up triple the share of the housing market that they did in the mid-1980s, according to the National Association of Realtors.
To make it work, couples must look past the significant risk that the relationship could blow up, or something could happen to one partner. Without a marriage certificate, living situations and finances are more likely to fall into limbo, attorneys say.
Mark White, 59 years old, and Sheila Davidson, 62, bought a lakeside townhouse together in Newport News, Va., in 2021. But only her name is on the deed. He sometimes worries about what would happen to the house if something happened to her. They have told their children that he should inherit the property, but don’t have formal documentation.
“We need to get him on the deed at some point,” Davidson said.
White and Davidson both had previous marriages, and decided they don’t want to do it again. They also believe tying the knot would affect their retirement benefits and tax brackets.
Financial foundation
Couples that forgo or postpone marriage say they are giving priority to a financial foundation over a legal one. The median homeowner had nearly $400,000 in wealth in 2022, compared with roughly $10,000 for renters, according to the Federal Reserve’s Survey of Consumer Finances.
Even couples that get married first are often focused on the house. Many engaged couples ask for down-payment help in lieu of traditional wedding gifts.
“A mortgage feels like a more concrete step toward their future together than a wedding,” said Emily Luk, co-founder of Plenty, a financial website for couples.
Elise Dixon and Nick Blue, both 29, watched last year as the Fed lifted rates, ostensibly pushing up the monthly costs on a mortgage. The couple, together for four years, decided to use $80,000 of their combined savings, including an unexpected inheritance she received from her grandfather, to buy a split-level condo in Washington, D.C.
“Buying a house is actually a bigger commitment than an engagement,” Dixon said.
They did that, too, getting engaged eight months after their April 2023 closing date. They are planning a small ceremony on the Maryland waterfront next year with around 75 guests, which they expect to cost less than they spent on the home’s down payment and closing costs.
The ages at which people buy homes and enter marriages have both been trending upward. The median age of first marriage for men is 30.2, and for women, 28.6, according to the Census Bureau. That is up from 29.3 and 27.0 a decade earlier. The National Association of Realtors reported this year that the median age of first-time buyers was 38, up from 31 in 2014.
Legal protections
Family lawyers—and parents—sometimes suggest protections in case the unmarried couple breaks up. A prenup-like cohabitation agreement spells out who keeps the house, and how to divide the financial obligations. Without the divorce process, a split can be even messier, legal advisers say.
Family law attorneys say more unmarried people are calling for legal advice, but often balk at planning for a potential split, along with the cost of drawing up such agreements, which can range from $1,000 to $3,000, according to attorney-matching service Legal Match.
Dixon, the Washington condo buyer, said she brushed off her mother’s suggestion that she draft an agreement with Blue detailing how much she invested, figuring that their mutual trust and equal contributions made it unnecessary. (They are planning to get a prenup when they wed, she said.)
There are a lot of questions couples don’t often think about, such as whether one owner has the option to buy the other out, and how quickly they need to identify a real-estate agent if they decide to sell, said Ryan Malet, a real-estate lawyer in the D.C. region.
The legal risks often don’t deter young home buyers.
Peyton Kolb, 26, and her fiancé figured that a 150-person wedding would cost $200,000 or more. Instead, they bought a three-bedroom near Tampa with a down payment of less than $50,000.
“We could spend it all on one day, or we could invest in something that would build equity and give us space to grow,” said Kolb, who works in new-home sales.
Owning a place where guests could sleep in an extra bedroom, instead of on the couch in their old rental, “really solidified us starting our lives together,” Kolb said. Their wedding is set for next May.
Homes and weddings have both gotten more expensive, but there are signs that home prices are rising faster. From 2019 to 2023, the median sales price for existing single-family homes rose by 44%, according to the National Association of Realtors. The average cost of a wedding increased 25% over that time, according to annual survey data from The Knot.
Rent versus buy
Roughly three quarters of couples move in together before marriage, and may already be considering the trade-offs between buying and renting. The cost of both has risen sharply over the past few years, but rent rises regularly while buying with a fixed-rate mortgage caps at least some of the costs.
An $800 rent hike prompted Sonali Prabhu and Ryan Willis, both 27, to look at buying. They were already paying $3,200 in monthly rent on their two-bedroom Austin, Texas, apartment, and felt they had outgrown it while working from home.
In October, they closed on a $425,000 three-bed, three-bath house. Their mortgage payment is $200 more than their rent would have been, but they have more space. They split the down payment and she paid about $50,000 for some renovations.
Her dad’s one request was that the house face east for good fortune, she said. Both parents are eagerly awaiting an engagement.
“We’re very solid right now,” said Prabhu, who plans to get married in 2026. “The marriage will come when it comes.”
