Zero.

As we kick off 2025, it's clear that we're entering a transformative phase in the real estate industry. As federal support is eroded, building performance standards (BPS) are poised to play an even greater role in shaping the future of real estate, forcing asset managers and property owners to rethink their strategies for decarbonizing buildings.

Unlike previous generations of regulations, BPS policies introduce direct financial accountability to building owners, with escalating fines directly affecting operating income, and subsequently property values. These regulations represent a fundamental shift, from sustainable buildings as a ‘nice to have’ to a fundamental understanding that modern, valuable buildings are also low carbon—and it’s one that market leaders are already leveraging to create competitive, resilient portfolios.

What Are BPS Policies and Why Do They Matter?

Building performance standards (BPS) are a predominantly city-led framework that aligns a well-acknowledged need for climate adaptation in our population centers, with the ability of policy to change behavior. These standards—already active in cities like New York (Local Law 97), Boston (BERDO), and Seattle—introduce escalating penalties for carbon emissions, directly impacting net operating income (NOI) and subsequently property valuations. According to the Institute for Market Transformation, more than 30 jurisdictions are in the process of adopting similar policies.

What makes BPS an effective lever, is its ability to cut through the split incentive problem, where landlords avoid upgrades because tenants bear the utility costs. With owners bearing the financial burden of emissions, it is now much more possible to shift focus from short-term utility savings to more ambitious carbon reduction strategies.

For properties in jurisdictions without BPS, the writing is on the wall. Once factored into operating costs, the value divide between compliant, future-ready buildings and those carrying ‘carbon debt’ is evident is growing. For leading asset owners, this is a moment to act decisively and position portfolios for resilience in a decarbonizing market.

The Bigger Picture

Globally, over 1,500 cities have declared climate emergencies, and in the US and Canada, building performance standards (BPS) are now central to how they plan to tackle emissions. Buildings have become a primary focus—not just as contributors (in New York >70% of emissions come from buildings) to the problem but as a critical part of the economic solution.  By demonstrating competitive advantage through future-proofing assets, progressive global asset managers can create, and drive markets.

But let’s not gloss over the challenges. For example, properties with significant deferred maintenance or limited resources, particularly low-income housing, are facing steep barriers to compliance. Without stronger support from utilities, governments, and incentive programs, these buildings risk falling even further behind. This isn’t just an infrastructure issue—it rises to a matter of equity, and we need to address it if the transition to decarbonization is going to be a fair one.

At the same time, the opportunity is clear. Deep retrofits—upgrading heating systems, replacing aging infrastructure, and reducing reliance on fossil fuels—aren’t just compliance measures. They’re foundational to protecting NOI, creating property value, and ensuring long-term resilience. For those of us thinking about the future of real estate, these investments are becoming the baseline for staying competitive in an evolving market.

Why 2025 Matters

In May 2025 large commercial building owners in New York, Boston, and St. Louis will need to meet the final deadline for compliance reporting or face the first tranche of fines. From there, escalating penalties for carbon emissions will begin to directly impact NOI and subsequently property values. With a weakening federal focus on climate, BPS is increasingly being seen as an important lever for furthering the carbon transition and we will continue to see these policies expand across jurisdictions as a response. 

For those exposed to BPS, this year will be about planning and beginning deliberate steps to reduce emissions and future-proof portfolios. Deep retrofits, phasing out fossil fuel systems, and aligning assets with regulatory expectations are essential measures to navigate the evolving market landscape. These aren’t simple tasks, but they are necessary to ensure properties remain competitive and resilient.

There’s no question that 2025 will be a year of increasing pressure, change, and action in our space. The progress we, as change-makers, achieve together now will define the future of real estate sustainability.

As part of an exclusive offer at IMN’s decarbonizing real estate forum, we’ll be offering a free 100-building BPS exposure and mitigation analysis. If you’re on-site in Nashville next month, come find me. If not, drop me a line and I’ll see if we can squeeze you into the offer ;)

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