Chicago’s green building initiative a tough sell in a post-COVID downtown

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But the effort is now set against a complicated backdrop for owners of commercial properties, which have more immediate issues to sort through as people and companies rethink how they use buildings in the wake of COVID-19. Tasked with issuing a recommendation by the end of the year, the working group over the next several months will lay the groundwork that could force commercial landlords and tenants to take on significant new costs over the next decade to green up their properties.

It’s making some real estate investors that are already grappling with the post-COVID recovery nervous about what an environmental push will mean for their bottom line and has others wondering how to ensure the financial burden of reaching the city’s goal will be equitable.

“Right now the biggest concern is the economics of it,” says Ron Tabaczynski, director of government affairs for the Building Owners & Managers Association of Chicago and a member of the city’s new working group. “We want to make sure the approach is going to be realistic.”

Much like the broader push to slow the effects of climate change, Chicago’s effort has widespread support but little agreement on who foots the bill to attack the problem, or how those who do can recoup their investment.

Getting commercial property owners to replace energy inefficient lightbulbs or install smart heating and cooling systems in their buildings, for example, wasn’t always an easy sell when downtown was booming before COVID. Now convincing an office landlord or hotel owner to spend hundreds of thousands or even millions of dollars replacing all of a property’s windows or reducing its reliance on natural gas is even less likely when those owners are scrambling to simply make loan payments.

“There might have been a time where that was less problematic, but right now everybody is still holding their breath about what the recovery is going to look like,” Tabaczynski says.

Environmental advocates point to some Loop landlords that have proven the financial perks of going green as evidence that renovations to make buildings more energy efficient make business sense.

In the roughly nine years since the city launched its Retrofit Chicago program, in which landlords voluntarily pledge to reduce energy use by 20 percent over a five-year period, roughly 100 buildings have participated and collectively saved over $19 million by cutting back on energy use, including a reduction of 250 million kilowatt-hours of electricity, according to Brian Imus, executive director of the Illinois Green Alliance, a nonprofit that promotes green buildings. The owner of the 65-story office tower at 311 S. Wacker Drive added smart thermostat technology to cut the building’s heating and cooling energy consumption by 30 percent and received a $360,000 rebate from utility provider Commonwealth Edison through its energy-efficiency rebate program, according to Imus.

“That’s free money,” he says. “It’s not rocket science, and it’s not inventing new technology. It’s (implementing) technology that we know works and is cost-effective over time.”

But many landlords don’t make such investments because they sell their buildings long before the decade or more it takes for some larger eco-friendly changes to pay for themselves in operational savings. Plowing money into building amenities and leasing efforts can immediately drive up a building’s market value, while investors normally don’t pay a premium for properties that are reducing their power bills.

Adding to the lift for downtown Chicago is that 70 percent of office properties were built before 1990, the third-highest share among major U.S. markets, according to Newport Beach, Calif.-based real estate research firm Green Street. Many older properties are energy guzzlers but command smaller rents, making it harder for their owners to justify putting capital into reducing their carbon footprint.

Lenders and major financial institutions also provide only limited incentives to building owners to take on energy efficiency projects, says Walker & Dunlop Senior Managing Director Dave Hendrickson, who secures financing for commercial property owners and developers. For office buildings and hotels, for example, loans aren’t doled out at lower interest rates for energy-efficient projects, and the payoff of big projects is hard to justify today, Hendrickson says.

“Lenders and investors care, and going 100 percent renewable is a noble goal, but the reality is the cost so far outweighs the benefit,” he says.

One more recent conundrum for building owners: Technologies meant to improve air quality for building users—a popular feature tenants are demanding coming out of the pandemic—consume more energy, pitting building users’ health against the environment.

Chicago Chief Sustainability Officer Angela Tovar, who took the job with the city in June 2020 after more than 15 years in public and private environmental advocacy roles, acknowledges it’s a tough time to call for pandemic-stung commercial property owners to help. She says a key part of the 55-member working group’s mission is to figure out how to make decarbonization investments “feasible” in property sectors with cloudy futures. “This is a moment for the city to take a step back and hear from folks,” she says.

Tovar stresses the importance of creating tools and resources for building owners such as an “innovation hub” where landlords can get city-sponsored technical assistance to identify incentives, grants and financing options for projects that reduce energy use. One idea she wants to direct more owners to is the city’s property assessed clean energy program, or PACE, which allows owners to obtain financing for certain green building upgrades and repay the money through assessments on their property tax bill that can be spread over time based on the useful life of the improvements.

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