When operating a commercial building, whether offices, apartments or something else, a sudden, massive capital expense is the last thing anyone needs. 

Whether you’re holding a building for only a few years before planning to sell or a long-term owner, the unplanned replacement of a major building system can completely upend the careful balancing of rents, operating expenses and loan terms that keeps the places where most of us live or work running. Where do you find the money to replace a roof or a building HVAC unit while still making mortgage payments and keeping your promises to investors?  

That’s the situation many class B and C building owners in Boston will find themselves in as the city tightens the screws on carbon emissions within its borders under its new BERDO 2.0 rules. Owners of buildings over 20,000 square feet – think: a moderately-proportioned, 2- or 3-story property – will have to start replacing systems like natural gas- and heating oil-powered boilers and HVAC systems with electrically-powered ones, renovating to add insulation and purchasing carbon offsets this decade to hit emissions targets that start to ramp downward in 2025.  

Because of their quality and lack of amenities, or even just their age, operators of most of these buildings can’t charge terribly high rents. Like a homeowner whose boiler has just conked out, these building owners don’t have the limitless resources available to meet this new government mandate in a timely fashion, as some progressive legislators seem to believe. And in the office market in particular, which is likely to continue to weaken as the decade wears on, these property owners will face increasing pressures. Taken together, these forces could drive down the value of these buildings, hurting the city’s vital property tax base.  

Some of these office building owners may choose to sell their properties for conversion into lab space or housing, but it is surprising how few purpose-built office structures make good conversion candidates. A not-insignificant number of class B and C buildings will, without a source of cheap to free financing for energy upgrades, be in an extremely tight financial spot in the coming years. 

This is where the city can come in – or the state, if legislators take a shine to state Rep. Maria Robinson’s and Sen. Becca Rausch’s proposal for a BERDO 2.0-like system for all commercial buildings in Massachusetts (H.3366/S.2232). A fraction of the state’s massive budget surplus this year or its $5 billion once-in-a-lifetime haul from federal COVID relief measures could be used to finance a fund for homeowners and commercial building operators that need to make big investments in energy efficiency. The financial soundness of our cities and towns depend on it. 

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Landlords Need Help on Green Conversions

by Banker & Tradesman time to read: 2 min