CRE Could See New Funding From $4.2B Environmental Bonds Act
Earlier this month, roughly 68% of voters in New York voted to approve a ballot measure that will allocate billions of dollars for climate spending.
Proposition 1, or the Environmental Bonds Act, will see the state sell off $4.2B in government bonds to fund an array of projects designed to increase climate resiliency throughout the state. While the majority of that sum has already been allocated, experts told Bisnow that the EBA also holds huge potential for commercial real estate players.
“I believe that this is a really great opportunity for commercial real estate,” said Laurie Schoeman, director of climate and sustainability capital at Enterprise Community Partners. “Particularly commercial housing, because multifamily housing helps to hit many of the points that the bill — the bond — is trying to get at.”
New York’s climate risk is high. Every county in the state had at least two flooding disasters between 2011 and 2019, while 60% had five or more, according to data measured by Rebuild By Design, an organization that works with state governments to create climate disaster preparedness strategies and helped craft the EBA.
The EBA has been floating around New York’s state legislature for a few years, having been first introduced under the tenure of then-Gov. Andrew Cuomo. The state legislature passed three iterations of the law before the measure was printed on the back of voters’ ballots on Nov. 8.
The measure is recognition that climate change is already affecting New York state — and that it needs to put structures and financing mechanisms in place to deal with it, Jessica Bailey, CEO and co-founder of Nuveen Green Capital, told Bisnow.
“I read this as a kind of signal for policymakers that the state is going to need both public money and private money to chip in to help harden the assets that are vulnerable to flooding,” she said.
Roughly $1.5B of the funding will go toward climate change mitigation programs, like green building projects and cleaning up air and water pollution in disadvantaged communities, while $1.1B is due to go to flood risk reduction and shoreline restoration, Gothamist reported. Around $650M is destined for land conservation and roughly $650M is for improving water quality and infrastructure.
That leaves just $300M of the total $4.2B that hasn’t yet been allocated. But CRE firms could have an opportunity to see some of that funding if they can demonstrate the potential impact their projects might have, Schoeman said — especially with the requirement that 35% of total spending should benefit disadvantaged communities.
“Anytime you bring in a diversified income profile, you'll be able to achieve that 35%. The folks that will benefit are the folks that have the ability to generate the highest-impact outcome outcomes with this funding,” Schoeman said. “We have the disadvantaged community aspect when you talk about affordable housing, or if you talk about commercial with a mixed-income profile.”
Desmonde Monroe, president and CEO of development firm The Monroe Group LLC, hopes that the state uses the EBA as an opportunity to integrate more minority- and women-owned business enterprises in the CRE sector into government projects. If properly leveraged, Monroe hopes that the funding can also be used to help local government meet its racial equity goals.
“[Minorities] are 60% of the population but maybe 2% of the contracts, and that math just doesn't add up,” he said. “So maybe now with some teeth, we can get more MWBEs that are able to compete: one directly with private [companies], and also create more opportunities for subcontractors to bigger firms that are going after the bigger projects, and maybe some JV partnerships.”
But the bigger picture for the EBA is that it will help create community resiliency, rather than developers and owners who are solely thinking about how to protect their own projects, said Rebuild by Design’s managing director, Amy Chester.
After Hurricane Sandy, there was a lot of building-by-building adaptation in Lower Manhattan, Chester said, which was helpful for buildings, but does little to protect the overall community. The EBA offers a chance to add layers of protection for whole areas rather than just buildings.
“Most commercial real estate [investors] are kind of myopically paying attention to their own investment. However, what we try to do is design and create communitywide infrastructure that helps everybody,” she said. “If you do building-by-building, what you're essentially doing is protecting your building, but your building will not be usable, because you can't create an island of protection … so you'll still have to vacate.”
The state will likely fund projects that will offer maximum protection for vulnerable communities, Chester said. One example is a sea wall: If it is built as a single-purpose tool, the sea wall will only be helpful on days where there’s flooding, she said. But if a developer can propose a sea wall that can also be used as a public park, it increases the public payoff.
“I hope to see that the investments in the categories that were listed in the bill or the legislation are smartly chosen, and will have the greatest return on investment,” she said. “Trying to choose the projects that will have the biggest payoff for the most vulnerable people will be an essential test to how well our state adapts to climate change.”