Capital Planning: The misunderstood but mighty tool for co-op and condo retrofits

Editor’s note: The following guide to capital plan­ning was inspired in part by the Strategic Decarbonization Planning resource for co-ops and condos devel­oped by the Building Energy Exchange. This article has been updated to reflect this attri­bu­tion, and Skylight recom­mends using both tools complementarily.

Many New York City co-op and condo owners know by now that Local Law 97’s (LL97) increas­ingly-strict emis­sions caps will likely require major retrofit construc­tion projects. This work not only helps build­ings to avoid fines, but can also lower their oper­ating costs, and increase comfort and prop­erty value. Still, this work can seem daunting to boards who must navi­gate these demands. 

It’s also true that decar­boniza­tion projects can be expen­sive. One of the most powerful tools for managing this cost chal­lenge is by using careful finan­cial and project plan­ning. With a thought­fully struc­tured capital plan, boards can gain clarity and control as they take on projects that will neces­sarily stretch over many years. 

Capital plan­ning as it relates to decar­boniza­tion work is a process in which a building takes stock of its current building energy systems, and uses that infor­ma­tion to fore­cast future projects. By method­i­cally under­standing what work needs to be done and when, boards can decide when and how to deploy that capital. A capital plan can show that building elec­tri­fi­ca­tion and other LL97 modi­fi­ca­tions don’t have to happen all at once. 

“What you want to build into the capital plan is the ability to facil­i­tate deci­sion making,” explains Amalia Cuadra, senior director of engi­neering at EN POWER GROUP, an engi­neering firm with a focus on sustain­ability that has had a hand in designing several retrofit projects Skylight has written about. Cuadra led the decar­boniza­tion efforts at The Victoria, a Manhattan co-op that strate­gi­cally under­took a number of projects over four years, because they’d planned them out. 

Another building Skylight has profiled, the 67-unit co-op in the South Bronx called Sherman Terrace, also engaged in a capital plan­ning process. Board pres­i­dent Derek Jones worked with Thomas Morrison, director of energy manage­ment at EN POWER to develop a multi-year plan. ​“One of the most impor­tant points is that we worked in phases. We did not try to solve every­thing at once,” said Jones. ​“We have to patch what we can achieve now and prepare for what we are going to achieve in the future.”

For boards just starting out, there are several tools avail­able to begin the process of capital plan­ning. For example, NYC Accelerator offers free tech­nical assis­tance to help build­ings iden­tify poten­tial projects based on their specific compli­ance requirements. 

And this April, the Building Energy Exchange (BE-Ex) launched new Strategic Decarbonization Planning resources for co-ops and condos with city, state and industry part­ners. The toolkit offers a set of step-by-step recom­men­da­tions users to follow, as well as check­lists and case studies to refer to. 

The BE-Ex guide helped lay the foun­da­tion for Skylight’s own guide to capital plan­ning for an energy retrofit, as did expert advice from EN POWER GROUP. While experts empha­size that no two build­ings’ capital plans will look the same, these are some general prin­ci­ples to abide by.

Step 1: Understand the work ahead

The first step is about infor­ma­tion, orga­ni­za­tion, and personnel. 

It can be helpful for boards to create an informed committee with defined roles and a clear mandate to manage LL97 compli­ance along­side the building’s other capital projects. 

Early orga­ni­za­tional ques­tions are simple, but impor­tant: Given the complexity of energy retro­fits and other LL97-related work, who gathers infor­ma­tion, who commu­ni­cates with resi­dents, and where is outside exper­tise needed? Everyone on the committee should have an under­standing of what LL97 entails, and stay abreast of any rele­vant updates to the policy. Another chal­lenge for boards is preserving learn­ings in a way that survives board turnover.

This is also the point where boards may consider bringing on an outside profes­sional to help guide the work. Of all the experts Skylight spoke to, profes­sionals and amateurs alike recom­mended that build­ings not try to go it alone when embarking on this work. A strong team may include the existing prop­erty manager, as well as new members such as energy consul­tant, an engi­neer, legal counsel, city advi­sors such as those from NYC Accelerator, and financing partners.

“You really want a qual­i­fied firm that’s going to help put the entire land­scape in front of you,” said Cuadra, ​“and also, at the end of the day, make sure that you’re doing this work in a way that is practical.”

Jones relies on the Council of New York Cooperatives and Condominiums (CNYC), where he is a board member, as a resource, in addi­tion to working closely with EN POWER Group and NYSERDA. 

Step 2: Take an inventory of the status quo

The second step is diag­nostic: Having a holistic under­standing of where your building stands now is essen­tial to making wise deci­sions about what changes should come down the pike. 

This is where performing an energy audit can prove supremely helpful. These audits can offer reli­able data on a building’s current energy use and, impor­tantly, its current carbon emis­sions, rela­tive to LL97 limits. Boards should also review data from past energy bills, review square footage and system data, and do an inven­tory and inspect major equip­ment, to under­stand what’s near the end of its life cycle. 

The goal with all of this infor­ma­tion is to estab­lish a base­line for both emis­sions and phys­ical condi­tion before deciding what to replace, and when. 

Taking an inven­tory can offer a clear picture of a building’s current and future energy costs, but it’s also an impor­tant junc­ture to under­stand the future cost of inac­tion. Knowing that LL97 caps get stricter over time, a board can project future penal­ties to compare the rela­tive costs of a big capital expen­di­ture now versus the compounding costs of mounting fines in the future. 

“If you know your penalty is going to jump a crazy [amount] in 2035, even though we’re plan­ning now, you can start figuring out how you’re going to put this budget together,” explained Cuadra.

Sherman Terrace and EN POWER took advan­tage of incen­tives through NYSERDA to fund a detailed energy audit, which revealed that the building had only a low C for its Local Law 87 Building Energy Efficiency Rating. Not encour­aging news, but it was at least a clear starting point. 

“We’re under tight restraints,” Jones explained at a later event about the building’s projects. ​“We don’t have revenue-driving forces in this co-op envi­ron­ment, so we have to be very smart with how we are using money.”

Step 3: Sequence the work 

Once deci­sion makers under­stand the building’s systems, emis­sions, energy use, and replace­ment cycle, it allows them to make informed deci­sions about the order in which to tackle decar­boniza­tion work. This is at the heart of strategic decar­boniza­tion plan­ning: sequencing upgrades around equip­ment age, avail­able financing and incen­tives, building reserve levels, share­holder toler­ance for increased assess­ments, and compli­ance risk. 

“That’s the value of a capital plan,” said Cuardra. ​“You know within the imme­diate term, these are the things that I need to address imme­di­ately — anything that’s urgent. Then within the first one to two years, these are the things that I need to plan for. Within the next five years; within the next 10, 20 [years]. So you kind of expand it so [resi­dents] can see when they need the money.”

It’s helpful to review what Sherman Terrace was able to do: 

Like many mid-century co-ops, Sherman Terrace had no insu­la­tion, drafty single-pane windows, and aging building systems. Advised by EN POWER, Jones and the board used a phased strategy to make changes over four years. They took advan­tage of what Jones described as a ​“huge incen­tive and tax credit blanket,” including, Con Edison rebates, federal solar tax credits, and NYC solar prop­erty tax abate­ment, which all in all added up to more than $350,000 in supportive dollars. Jones said their capital plan­ning gave them ​“breathing room to explore other options such as heat pumps and insu­lating the building envelope.” 

Sherman Terrace added LED lighting in 2019, and a 305-kilo­watt solar array with net metering to reduce their utility costs in 2020. In 2021, they converted their boiler from using fuel oil to natural gas, and installed elec­trical subme­tering, a Real Time Energy Management System and boiler controls the following year. 

EN POWER’s Thomas Morrison empha­sized that, ​“The subme­tering and controls, including adjusting the boiler set points, and the behav­ioral changes on the resi­dents’ side, enabled savings that almost doubled from where they would have been, had they only dealt with the boiler and sepa­rate hot water heater.”

A note on financing

Experts stress that a successful capital plan is the key to a successful finan­cial plan. 
​“The capital plan tells you how you’re going to be spending money, and [then] you can do the finan­cial plan,” Cuadra explained, to deter­mine where the money will come from, and when.

Most build­ings will need a financing stack, not a single source of capital: mort­gage refi­nancing where avail­able, can be one source, as can increasing assess­ments on resi­dents. But build­ings may also look to ​“green lenders” who specif­i­cally provide financing for decar­boniza­tion projects. There are also many state and federal incen­tives and rebates avail­able to lower costs, such as those from NYSERDA. New York City offers a robust tax-incen­tive financing program for this work, the J‑51 abate­ment program, which the city and the state are currently revising in order to expand eligi­bility and timespan considerably 

For Sherman Terrace, an overall budget of roughly $1 million over four years was partially financed by $320,000 accessed from mort­gage refi­nancing, $350,000 in federal, state, and utility incen­tives, and local tax abate­ments. The work required only modest 7 – 10 percent increases in annual main­te­nance fees, begin­ning in 2023. The results of this careful capital plan­ning and systems upgrades is substan­tial: Sherman Terrace reduced its energy use by 34 percent, cut its emis­sions 42 percent, now enjoys a 30 percent utility-cost reduc­tion, and in so doing, raised its energy letter grade from a C to an A.

Other financing tools may be rele­vant for larger projects. Ivy Trzebucki, who leads climate financing for decar­boniza­tion at the Mayor’s Office of Climate & Environmental Justice, said that C‑PACE loans are an excel­lent source of capital for large projects. She predicts they will be more useful due to some recent under­writing changes. C‑PACE does require primary lender consent, however, and appli­cants may run into mort­gage restrictions.

Step 4: Carry out the work, but monitor costs

Execution is where the plan engages procure­ment, financing, resi­dent commu­ni­ca­tion, and construc­tion. Boards must select qual­i­fied vendors, lock in incen­tives, and keep the project scope aligned with the financing strategy.

Once the work gets started, it’s impor­tant to monitor how actual costs line up against the budget so that there are no surprises. 

This is also why boards should stay involved rather than dele­gate the process to a third party such as a manage­ment company or consul­tant. The point is to use profes­sionals well: consul­tants can prepare scopes of work, help eval­uate bids, iden­tify incen­tives, and impor­tantly, avoid expen­sive sequencing mistakes.

The most impor­tant thing to remember is that LL97 compli­ance is not a one-time project; once a plan is in place, adjust­ments can be made to accom­m­date changing real­i­ties. Boards need to track energy use, verify savings, and revisit plans as incen­tives, tech­nolo­gies, and capital needs change. 

This step also rein­forces the need for resi­dent commu­ni­ca­tion. Jones said, ​“A key lesson is to commu­ni­cate to share­holders in a way that will enroll them in the process. You want to onboard people that are proac­tive in eval­u­ating new ideas and who can help educate share­holders about how to operate your building in a clean way.” 

Jones said he likes ​“to be first,” because that means he’s in the loop when new ideas come around. Sherman Terrace has enrolled in a NYSERDA heat pump feasi­bility study launching mid-2026. The study covers the instal­la­tion of through-wall and saddle-window heat pumps for one year. If savings are real­ized, Sherman Terrace hopes to purchase the equipment.

For co-ops and condos, elec­tri­fi­ca­tion and building improve­ment is not all or nothing. The smartest boards start before they are forced to, compare multiple path­ways, and use incen­tives to make progress afford­able. The goal is to assemble a team of share­holders that can design a plan that is respon­sive to changing policy, tech­nology, and finan­cial incen­tives while improving the value, health, and comfort of their building.

Additional reporting contributed by Camille Squires