You know Local Law 97 can move an LIC deal from strong to stressed if you miss the compliance math. You are juggling cash flow, capex, and tenant experience while the rules tighten over time. This guide gives you a clear, investor-ready workflow to model LL97 exposure in Long Island City, including baseline data, retrofit pathways, incentives, and conservative stress tests. Let’s dive in.
LL97 in LIC: underwriting reality
Local Law 97 sets greenhouse-gas emissions caps for most large NYC buildings and adds recurring penalties if a building exceeds its limit in a given year. For LIC assets, that penalty can flow straight through NOI if you do not plan a cost-effective retrofit path. You need to verify whether your property is covered, how occupancy mix sets the cap, and how multi-lot ownership might be aggregated. Build your model around the current compliance periods, including the 2030 step-down, and extend the planning horizon beyond that date.
Treat the per-ton penalty rate as an input you can stress. Your outputs should show when you pay penalties, when you invest, and how each decision changes risk and return.
Build your baseline: the data you need
Start with actual building data and benchmarking records. Pull 2 to 3 years of utility bills and the latest ENERGY STAR Portfolio Manager export. Gather GFA, occupancy mix, and the building classifications used for LL97.
Collect electricity, gas, fuel oil, and district steam usage. Note peak electric demand and how meters are configured. Inventory mechanicals by age, capacity, efficiency, and condition. Document envelope condition, usable roof area for PV, and any on-site generation or RECs.
Convert use to emissions and compare to limits
Use New York appropriate emissions factors for each energy source to convert consumption to metric tons of CO2e per year. Make the emissions factor a model input so you can run grid-decarbonization scenarios. Then pull the current LL97 emissions limit for each compliance period that applies to your building’s occupancy group.
Compute excess emissions as baseline minus the limit. If positive, calculate the annual penalty as excess tons multiplied by the current per-ton rate. Schedule that penalty as a recurring operating expense in each year you do not comply. Update the limit and recalc for later periods as the caps tighten.
Quantify risk: penalties vs capex
Model a penalty path and a retrofit path side by side. For each year, show the cost to comply that year and the penalty you avoid by doing the work. Identify the breakeven year where retrofit NPV beats paying penalties.
Your model should include avoided energy costs, O&M changes, demand charge impacts, and a realistic contingency. Electrification may lower emissions but increase electricity demand and service requirements. Capture that tradeoff in your cash flow.
Map retrofit pathways for LIC assets
Design a few realistic packages that reflect LIC building types.
- Envelope and low-cost efficiency. Window rehab, air sealing, insulation where feasible, LED lighting, and controls. Moderate cost, long life, quick wins on intensity.
- HVAC optimization and controls. High-efficiency boilers or chillers, heat recovery, upgraded BAS, and submetering. Right-size equipment and plan install windows to avoid peak-season disruption.
- Electrification. Heat pumps for space conditioning and domestic hot water. Expect higher upfront capex, electrical service upgrades, and longer lead times. Emissions benefits grow as the grid gets cleaner over time.
- On-site solar and storage. PV output is limited by roof area in tall LIC towers. Model realistic kW, generation per kW, shading, and structure. Storage can help with demand charges but adds capex.
- Hybrid and phased strategies. Start with common areas or partial electrification. Use operations and tenant engagement to capture short-term reductions while you plan heavier work.
For each measure, include capex, useful life, energy savings by fuel, timing, and interactions. Electrification reduces gas use but increases electricity. PV offsets electric consumption. Controls help everything work together.
Financing, incentives, and offsets
Your net cost depends on how you pay and what you capture:
- Financing options. On-balance capital, energy-efficiency loans, EPCs, or PACE where applicable. Each has different cash-flow and lien implications. Model debt service where relevant.
- Incentives. Con Edison programs, NYSERDA support, and federal incentives under recent legislation can reduce net capex. Model receipts conservatively and delay the timing.
- Tax benefits. Certain deductions or credits may apply to specific measures. Treat tax effects as separate line items and verify eligibility with advisors before counting them as cash inflows.
Default to conservative capture rates and timing lags. Do not underwrite the full published incentive until you have a written commitment.
Timing and local constraints in LIC
Plan around real-world constraints that affect schedule and cost in Long Island City.
- Utility service. Con Edison service upgrades or transformer work can be a critical path for electrification. Add a line item for potential service upgrades with a probability and cost range.
- Permitting and DOB. Mechanical and fuel-conversion work will need permits and reviews. Build in plan review and inspection timing.
- Space and tenant impacts. Tall towers have limited roof area for PV. Multifamily settings require careful phasing to minimize tenant disruption. Add relocation or abatement costs if you need access.
These local factors often drive contingency and can turn a single-year plan into a multi-year schedule.
Conservative assumptions and stress tests
Use defaults that protect your downside unless site data support better figures:
- Incentives. 60 percent realization with 6 to 24 months lag.
- Cost escalation. 3 to 6 percent annually on retrofit capex.
- Penalties. Assume the per-ton rate could rise. Run a scenario that doubles it.
- Emissions factors. Include a decarbonization path for the grid, but stress a slower path.
- Implementation contingency. Add 10 to 25 percent to cover unknowns.
- Utility upgrade risk. Model a separate probability-weighted cost for service upgrades.
Run critical stress tests: do-nothing until 2030, incentive loss, slower grid decarbonization, and fuel price shocks.
What to produce in your model
Your workbook and summary should make the compliance story obvious to investors and lenders.
- Inputs sheet. Physicals, historical utility use, emissions factors, per-ton penalty, compliance limits, unit costs, incentives, and financing terms.
- Baseline vs limits. A year-by-year table showing baseline emissions, applicable limit, excess tons, and penalties.
- Retrofit schedule and cash flow. Measure-by-measure phasing, capex, O&M changes, incentives, and financing.
- Compliance vs penalty analysis. For each year, quantify avoided penalties relative to capex and show the breakeven year.
- Scenarios and sensitivities. Base case, deferred action, and aggressive electrification with NPV, IRR, and DSCR. A tornado chart that ranks sensitivity to key inputs.
- Residual impact. Show how perceived LL97 exposure can affect exit pricing under noncompliance assumptions.
Example scenarios to compare
Structure at least three scenarios and keep the logic consistent.
- Base case. Stage low-cost efficiency and controls quickly, then tackle major systems in time to meet the 2030 limit. Conservative incentives, moderate escalation, full compliance before tighter caps hit.
- Deferred action. Pay penalties until 2030 while planning large upgrades. Escalate costs for compressed timelines and include higher risk of service upgrades.
- Full electrification. Larger upfront capex, deeper long-term reductions, and lower exposure to future penalties. Stress demand charges and slow grid decarbonization to test resilience.
Summarize each with NPV and IRR, plus a one-page chart that compares total present cost of capex plus penalties.
Next steps for LIC underwriters
- Pull the building’s Portfolio Manager export and three years of utility bills.
- Confirm whether the asset is covered and identify the emissions limits for each compliance period based on occupancy mix.
- Request an early utility assessment for electrification capacity and service upgrades.
- Build the base case, deferred case, and full electrification case. Include penalty vs retrofit breakeven for each.
- Prepare a lender-ready memo that explains limits, exposure, retrofit plan, and funding path.
If you want a second set of eyes on your assumptions or need help pressure-testing scenarios, we can help you translate LL97 risk into a clear underwriting narrative buyers and lenders trust. Work with Unknown Company to align capex, penalties, and incentives into a confident LIC acquisition or recapitalization plan.
FAQs
What is LL97 and why it matters for LIC underwriting?
- LL97 sets building-level emissions limits with financial penalties for exceedances. In LIC, this can create recurring operating expenses that reduce NOI and valuation if not planned for.
How do I know if my LIC building is covered by LL97?
- Verify the size threshold, occupancy groups, and any aggregation rules for multiple tax lots under common ownership. Use current City guidance to confirm covered status.
Which data should I collect first for LL97 modeling?
- Gather 2 to 3 years of utility bills, the Portfolio Manager export, GFA, occupancy mix, mechanical system details, meter configuration, and roof area for PV.
How do I estimate LL97 penalties in my model?
- Compute excess emissions over the applicable limit and multiply by the current per-ton penalty rate. Treat the rate as an input and run stress tests with higher values.
What retrofit measures typically pencil in LIC?
- Start with envelope, lighting, and controls for fast paybacks, then evaluate HVAC optimization and electrification. Include service upgrade costs and limited PV potential in tall towers.
How should I model incentives and financing?
- Include utility, state, and federal incentives as separate line items with conservative capture rates and timing lags. Model EPCs or PACE financing where applicable and show debt service impacts.
What LIC-specific risks affect schedule and cost?
- Con Edison service upgrades, DOB permitting timelines, limited roof area for solar, and tenant disruption in multifamily assets. Add contingency and phased schedules to reflect these constraints.
What are the most important stress tests for LL97 underwriting?
- Do-nothing until 2030, incentive loss, slower grid decarbonization, higher penalty rates, and fuel price shocks. Use these to test resilience and communicate risk to stakeholders.
