Colorado-Real-Estate-Journal_360881

Page 28 - September 6-19, 2023 www.crej.com O n Aug. 17, the Air Qual- ity Control Commission sided with agency staff and spe- cial interest advocacy groups to impose an unprecedented legal mandate setting building perfor- mance standards for “covered buildings” (commercial, multi- family and public buildings 50,000 square feet and larger). The com- mission voted to adopt the regula- tion despite two days of undisput- ed testimony from over a dozen local and county government offi- cials and owners of multifamily and commercial buildings across Colorado that the building perfor- mance standards were too strin- gent to be realistically achievable and would have severe adverse impacts on commercial real estate and the rental market. Regulation 28, entitled “Build- ing Benchmarking and Perfor- mance Standards,” will take effect in October and quickly require “covered building” owners to either: (1) retrofit existing buildings to convert natural gas equipment to electric space and water heating – effectively eliminating their use of natural gas equipment; (2) meet energy-efficiency tar- gets by reducing the energy con- sumption of the building through non-space and water heating effi- ciency retrofits (insulation, ener- gy-efficienct timed lights, etc.); or (3) use some combination of efficiency and natural gas conver- sion measures. Regulation 28 has two timed c o m p l i a n c e deadlines of 2026 and 2030, by which time “covered building” owners must meet arbitrary build- ing “energy-use intensity” build- ing performance standards. Testimony from the broad array of soon-to-be regulated parties made clear that the three “compli- ance pathways” in Regulation 28 provide no real “flexibility” – and will instead force building owners to abandon existing natural gas heating and cooling equipment in favor of fully electric equipment. Much of this existing equipment is new and well-maintained, pro- viding heating and cooling at a lower cost than fully electrified equipment. Representatives from the Colo- rado Apartment Association and Apartment Association of Metro Denver testified that the “com- pliance pathways” in Regulation 28 were set so stringently that the only fea- sible method of achieving the “energy- use intensity” performance standards is to scrap exist- ing HVAC e q u i p m e n t with signifi- cant remain- ing useful life. Senior officials with large multifamily housing property owner and manage- ment groups testified they had completed engineering analyses for existing buildings subject to Regulation 28, and that even with improvements to building enve- lopes and upgrading lighting sys- tems, such buildings would still be required to electrify existing natu- ral gas HVAC systems to meet the 2030 “energy-use intensity” performance standards. In addi- tion, these representatives testified that Regulation 28 will challenge builders’ ability to secure loans for new multifamily housing devel- opments, straining the availability in Colorado’s multifamily housing rental market. Further testimony made clear that the costs of forced electrification would also be pri- marily shouldered by Colorado’s renters, making apartment hous- ing increasingly unaffordable in Colorado. Regulation 28 will also adverse- ly impact Colorado’s mountain communities. Representatives from Mountain Capital Part- ners, which owns the Purgatory Lodge in Durango, testified that the “energy-use intensity” perfor- mance standards in Regulation 28 had no allowances for the extreme mountain climates and unique challenges those buildings face for heating. Purgatory Lodge’s professional consultants testified that the only feasible method for the Purgatory Lodge to meet the 2030 “energy-use intensity” per- formance standards was to elec- trify existing HVAC equipment. A managing partner of Mountain Capital Partners testified that con- verting the building’s existing fos- sil fuel-fired HVAC equipment would implicate serious life and safety concerns as the electric grid in Durango is frequently inter- rupted in the winter months, mak- ing electric heating much more problematic. Regulation 28 was also opposed by several local governments, including the Pikes Peak Regional BuildingDepartmentanditsmem- ber jurisdictions including El Paso County. Remarkably, the Pikes Peak Regional Building Depart- ment’s LEED Silver certified build- ing, built in 2005, cannot meet the stringent 2030 “energy-use intensi- ty” performance standards absent converting the building’s existing natural gas HVAC equipment. The commission ignored the local government’s concerns about the serious budgetary problems for local governments that will have to choose between footing the bill for expensive electrifica- tion upgrades or providing criti- cal governmental services. El Paso County representatives explained that the “energy-use intensity” building performance standards would likely require electrification of its county administration cam- pus. El Paso County representa- tives testified that the county can- not simply “shut down” critical government buildings such as the Citizens Service Center, the Crimi- nal Justice Center and the Central Utility Plant, which provide 24/7 governmental services, to accom- modate time-intensive retrofits. Representatives from the Inter- national Facilities Management Association testified that Regula- tion 28 would drastically impair officebuildingsinColorado,which are already facing low occupancy rates and strains from increased interest rates, threatening the health of Colorado’s existing office Paul M. Seby Shareholder, Greenberg Traurig LLP spencerfane.com © 2020 Spencer Fane LLP | The choice of a lawyer is an important decision and should not be based solely on advertisements. Spencer Fane LLP 1700 Lincoln Street, Suite 2000 | Denver, CO 80203 Phone: 303.839.3800 | Fax: 303.839.3838 Where your business leaders work with our business leaders The Real Estate attorneys at Spencer Fane are experienced in helping real estate owners and developers purchase, sell, exchange, develop, build and nance properties through both private and public funds. Jamie Cotter Nicole Detweiler Russ Dykstra Wendy Harring Jacob Hollars James Jacobson Ken Kramer Jim Kurtz-Phelan Charlie Leder Larry Martinez Lisa Mayers Gil McNeish Michael Miller Robin Nolan David O’Leary Sarah Sicotte Adam Veltri Kelly Vos John Watson Our Real Estate Group Serving the Commercial Real Estate Community • Leasing • Real Estate Development • Real Estate Acquisition • Environmental • Private Equity • Commercial Lending, Workouts and Foreclosure • Real Estate and Commercial Litigation • Construction Contracts and Litigation • Corporate Our clients rely on our experienced team of lawyers to guide them through all of their legal needs, from signi cant business decisions to the most complex global deals and litigation. Our breadth and depth of practice enable us to handle the most complex matters and solve our clients’ problems seamlessly. 1700 Lincoln Street, Suite 2100 Denver, Colorado 80203 303-298-1122 SennLaw.com Law & Accounting Reg. 28 forces some owners to abandon use of nat. gas Mathew K. Tieslau Associate, Greenberg Traurig LLP Please see Seby, Page 31