In the grand scheme of the New York City skyline, there's perhaps no more iconic a building than the Empire State Building. And now, it's about to become one of the cleanest well-known buildings on the planet.
On Feb. 3, Empire State Realty Trust (NYSE: ESRT), which owns the Empire State Building, announced it had secured a deal to fully switch over to wind power. The three-year power purchase agreement also covers 13 additional high-rises and office buildings in its portfolio. All told, moving over to wind power will prevent 450 million pounds of carbon dioxide emissions. That's the equivalent emission rate for New York's entire taxi fleet for a year.
A growing trend
This isn't the first step the Empire State Building had made toward eco-friendliness. Last year, it made a number of changes, from updating its windows to installing LED lights. Those changes alone reduced its carbon footprint by 40%.
What's just as significant, however, is that the Empire State Building going green could really spur a movement among other commercial property owners, both in New York City and beyond. While it's one thing to outfit new buildings with energy-efficient features, retrofitting older buildings is a more difficult (albeit necessary) task. The fact that Empire State Building made that effort could at least kick-start a trend among smaller buildings, where the work at hand isn't as expensive or daunting.
That said, pretty soon, New York City buildings may not have a choice but to become more energy-efficient. In October 2020, the city implemented a rule requiring all buildings encompassing 25,000 square feet or more to undergo an energy assessment and post their letter grades publicly. So far, many are failing.
Right now, there's no penalty to be had other than shame. But beginning in 2024, buildings that don't pass their assessment will be subject to fines that could fall into the hundreds of thousands of dollars range. This move comes as part of a New York City initiative to reduce emissions by at least 80% by 2050. Right now, the city's buildings are responsible for more than 70% of its carbon emissions, and a large part of that boils down to them being outfitted with inefficient heating and cooling systems and outdated lighting.
The fact the Empire State Building has gotten ahead of the problem and gone green is a good thing for Empire State Realty Trust and its investors, who won't have to deal with that hassle once more stringent requirements are put into place.
The Millionacres bottom line
At the same time, this move may inspire more local buildings to get ahead of that 2024 deadline and start taking the idea of eco-friendliness more seriously. And that's good news for socially conscious real estate investors, who may soon have more options for loading up their portfolios. There's already a big push in real estate toward ESG investing, and in the coming years, we're likely to see even more buy-in from the real estate investment trusts (REITs) that own and operate our nation's largest buildings.