City to Consider Healthy Buildings Ordinance Tomorrow

Evanston to Catalyze $500 million in demand for high performance buildings

Tomorrow, the Evanston City Council will consider the Healthy Buildings Ordinance. I wrote about this last week and it was tabled after a lengthy (and at times, spicy) late-night discussion at the March 3 council meeting.

Mayor Biss included the HBO in his weekly campaign email this week;

Final Vote on the Healthy Buildings Ordinance (HBO)
This ordinance is a linchpin of Evanston’s climate action agenda. If it passes, we’ll become the first municipality in Illinois and the second in the Midwest to adopt a policy like this. It is one of the requirements that unlocks the $10.7 million DOE grant we were awarded to reduce building emissions while prioritizing equity, affordability, and workforce development. Passing this ordinance cements Evanston’s leadership in sustainability and gives us access to the resources needed to make these goals a reality.

You can view the current memo and amendments at this link. The memo also includes slides from the Institute for Market Transformation (IMT) which authored much of the ordinance. The IMT is a non-profit funded by large HVAC vendors which describes its mission as “CATALYZE DEMAND FOR HIGH­-PERFORMING BUILDINGS.”

More Covered Buildings: 50,000 sq ft → 20,000 sq ft

The first major amendment since last week is language around buildings subject to the ordinance. They lowered the square footage requirement from 50,000 to 20,000 square feet.

Any Type 1, Type 2, or Type 3 Covered Building as defined by this Chapter. The term “covered building” does not include any building whose primary occupancy use is classified as Assembly Group A-5 uses, Factory Group F uses, Storage Group S uses, High Hazard Group H uses, or Utility and Miscellaneous Group U uses, as defined by Chapter 3 “Use and Occupancy Classification” of the International Building Code adopted pursuant to City Code Section 4-2-1.

Any building including:

(A) A building or group of [adjacent] buildings with the same owner(s), having a gross floor area or combined gross floor area of 20,000 square feet or more;

(B) A municipally-owned building or group of adjacent buildings having a gross floor area or combined gross floor area of 10,000 square feet or more.

Excluding:

(C) Condominium buildings less than 50,000 square feet as defined in City Code Section 5-4-1-7, and co-op buildings;

Condo buildings and cooperatives over 50,000 square feet, which are common in Southeast Evanston remain subject to the ordinance. Single family homes and smaller apartment or condo buildings remain exempt from the ordinance. Any other building greater than 20,000 square feet is now covered by the ordinance.

Discretionary Carve Outs Determined by Committee of Climate Action Experts

They’ve kept the definition of an “equity prioritized building” to include public institutions, churches, non-profit organizations, and affordable housing. But it’s open ended, such that the Healthy Buildings Accountability Board can solely determine which buildings qualify or do not;

A covered property including but not limited to a public institution, religious institution, nonprofit organization, affordable housing, or other covered property so designated by the Healthy Buildings Accountability Board as an Equity Prioritized Building.

A covered property so designated by the Healthy Buildings Accountability Board as an Equity Prioritized Building. Such properties may include but are not limited to public institutions, religious institutions, nonprofit organizations, and affordable housing.

This Board will consist of 9 members, 6 appointed by the Mayor and 3 building owners. At least six of those members should be experts in racial, social equity, or climate action. It is not clear how expertise is defined.

The Healthy Buildings Accountability Board shall consist of nine (9) members. Three (3) of these members shall be those appointed to the Healthy Buildings Technical Committee (HBTC), that were nominated by building owners, as set forth in Section 2-21-2(C), and the remaining six (6) members shall be appointed by the Mayor and confirmed by the City Council, selected for their expertise in racial and social equity, housing, affordability, environmental justice, and climate action. If the three (3) HBTC members nominated by building owners do not wish to serve on the HBAB, then the remaining members shall be appointed by the Mayor and confirmed by the City Council. At least [5] members of the Board shall be residents of Evanston

This is my opinion, but this strikes me as a bad idea! Even your church is included unless you go to this 9 person political appointee board and plead for an exemption. The language in the ordinance says nonprofits may be exempt — it doesn’t say they are until they get the exemption from this Board. This Board has a tremendous amount of power!

Even District 65 and ETHS, which are, in theory, exempt from this ordinance will have to depend on the Accountability Board to exempt them. The Accountability Board which is going to be staffed by ”experts in climate action”, who could, in theory refuse to exempt any building. Now that would really catalyze some demand and also bankrupt District 65.

What happens when Northwestern shows up to this Board? 🤔

Cost Estimate: $500 Million or More 💸

If you use the square footage estimates from the City’s benchmarking FAQ and the $9-15 per square foot estimate¹ from the City’s memo, you can get a sense of the total cost. It’s quite eye popping. The cost ranges from $410 million to $683 million - half a billion dollars city-wide to decarbonize a very limited set of buildings.

Even on the low end, the City, which owns ~1.9 million square feet could end up spending between $17-$19 million for their facilities to be compliant. Mayor Biss was bragging about the HBO unlocking a $10.7 million Department of Energy grant, but with these costs, it will barely cover the City’s cost!

Unknown for Condo Owners: Fannie Mae Rules

I discussed this in my prior story but there are massive unknowns for condo owners, especially those in older buildings. In particular, the deferred maintenance related to full decarbonization may prevent owners from being able to obtain mortgages or sell condos in vintage buildings.

In particular, I spoke with a building treasurer in Southeast Evanston for a 23 unit building with 55,000 square feet. He sent this email 3rd ward Councilmember Melissa Wynne, and has given me permission to publish this here.

I live in a 23 unit condo in the Third Ward, located at the corner of Hinman & Kedzie. I have lived here for 10 years and have served as our condo treasurer for 6 years. I have serious concerns about the impact the proposed Healthy Buildings Ordinance (HBO) will have on residents who live in Evanston condos. I believe its unintended consequences will have a profound negative impact on individuals' ability to secure mortgages which will lead to a detrimental impact on home values throughout our community.

In the wake of the 2021 Florida condo collapse, Fannie Mae enacted a series of rules that impact mortgage eligibility for condo buildings. In particular, Fannie Mae states that a condo building that has "any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months" will be ineligible for Fannie Mae mortgages. This would impact prospective home buyers, condo sellers, and anyone seeking to refinance their mortgage. Given that Fannie Mae backs the majority of mortgages, this would have a detrimental impact on home values.

The link to the primary source documentation from Fannie Mae regarding Fannie Mae ineligible project (condo) criteria.

I believe this is more than mere theory. As treasurer I have personally responded to several dozen condo questionnaires provided by mortgage lenders that specifically address the Fannie Mae mortgage eligibility criteria. Our condo building has taken proactive steps to stay on top of our deferred maintenance. In 2022 we had a structural engineer conduct a thorough building assessment and received good marks. Even with that in mind, we are increasing our HOA assessments 13% this year, and likely 13% in each of the following two years in order to transition to this phase where we do not rely on special assessments to pay for major projects. This transition is a huge lift for our residents to address a 10-year capital plan that averages $50k a year on deferred maintenance. And getting residents to accept this large rise in assessments has been onerous to say the least.

Our 10-year capital plan calls for $500k worth of projects on items such as lintel replacement and tuckpointing. These are basic projects to keep our building intact. Estimates for complying with the HBO state that it will range from $27k-$45k per unit. For our 23 units this is roughly $600k - $1 million in total. This is potentially backbreaking for many of our residents.

Coming back to the matter of new Fannie Mae rules. My perspective is the Healthy Buildings Ordinance will put most or all condo buildings in SE Evanston in a position where they will not be able to obtain Fannie Mae mortgages. The sheer cost of complying would require special assessments well in excess of the Fannie Mae $10k per unit threshold. Even if a condo owner decided that they wanted to sell, the impact of not being able to get financing from Fannie Mae on a widespread basis could tank condo values neighborhood wide and prevent people from being able to sell their condo. I do not think it is hyperbole to say that this would be grounds for a class action lawsuit on behalf of the homeowners.

I love Evanston. I appreciate that people are trying to move our city forward in a positive direction. However I believe this proposed ordinance is blind to the cold financial realities of how this will impact those who live in condos. The impact would be beyond mere inconvenience and could be financially catastrophic for those impacted.

Thank you,

Jonathon Danko

Hinman Kedzie Condo Association

One Last Note: It’s good to be rich!

I don’t want readers to think I’m opposed to climate action or legislation which can help combat climate change. However, this ordinance is riddled with bad ideas:

• It creates two new public committees, and the Accountability Board has way to much power. Do we really want a committee staffed by climate action activists determining if your church has to spend potentially millions of dollars or not?

• There are so many unknowns to property owners from both a technical standpoint (does the technology I’m required to buy actually exist?) and from a rules standpoint (see the Fannie Mae issue above?)

• The $10.7 million dollar grant from the Department of Energy, which we may never see anyway because of DOGE isn’t exactly a strong selling point when the total cost is going to so much more.

• This Ordinance was literally written by multiple industry nonprofits which benefit monetarily when buildings are forced to upgrade HVAC equipement.

• Northwestern will surely appeal to the Accountability Board who will deny their exemption and then Northwestern will sue, creating a big mess and end up exempt anyway. If we’re going to use the existing language, they have a strong case as a nonprofit for being exempt.

Lastly, this continues to exempt all single family homes in Evanston. It seems patently unfair that folks living in (the still affordable) condos have to bear the burden of the costs for decarbonization, while folks in million dollar houses do not.

Why are the mansions on Edgemere Court exempt from the HBO while a retired person on a fixed income in a condo is not. This is going to force fixed income folks out, if they can even sell at all.

1. Both locations had cost studies completed that estimated the cost of complying with the ordinance. On average, the Washington, D.C., study estimated it would cost approximately $9 per square foot to achieve the required 20% energy savings. The study in Denver estimated an average of $11 per square foot to achieve a mid-term target and $17 per square foot to achieve approximately 30 percent savings.

Based on these findings, as well as data collected on costs to achieve BPS targets in other cities, a reasonable range for typical total costs to owners of buildings that currently have an EUI that exceeds the assumed 2030 threshold may fall between $9/sf and $15/SF. It is likely that the level of energy use in a significant number of covered buildings is already below the anticipated 2030 target. Owners of these buildings would not need to incur any costs for energy improvements during the first compliance period.