Key Takeaways
- Sustainability mandates like Local Law 97 and evolving Environmental, Social and Governance (ESG) expectations are driving NYC developers to invest in energy efficiency, wellness features and smarter building systems.
- The One Big Beautiful Bill Act (OBBBA) reduces or phases out key clean energy tax credits, increasing the cost of green updates but adding new deductions for wellness-focused residential projects.
- Office-to-residential conversions present opportunities amid high vacancy rates, but developers must navigate complex tax rules, zoning changes and infrastructure challenges to execute successfully.
New York City’s real estate industry is undergoing significant transformation, with sustainability taking center stage in nearly every development conversation. Developers are also adapting to changing expectations around lifestyle, remote work and flexible design, while navigating NYC’s evolving regulations has become as critical as location or price. The introduction of the One Big Beautiful Bill Act (OBBBA) presents new challenges for developers and investors planning future projects.
Carbon Footprint and Compliance
New York City’s Local Law 97 aims to lower the carbon footprint of most buildings that are more than 25,000 square feet, targeting a 40% emissions reduction by 2030 and net-zero by 2050. Building owners across the city continue to invest in retrofit strategies to avoid penalties and capture energy savings, while new developments are turning to geothermal, solar and smart energy systems to achieve net-zero goals. These measures ultimately aim to reduce reliance on fossil fuels, promote sustainable living and align with growing investor and tenant Environmental, Social and Governance (ESG) expectations.
Measuring and reporting carbon emissions remain a challenge, with most owners piecing together different systems to track data, verify accuracy and meet ESG requirements. The process is rarely seamless but the pressure to comply is rising.
Adding to the complexity, OBBBA phases out or reduces several clean energy tax credits, including those for solar, wind and electrification, which may increase costs for sustainability updates. With climate reporting demands growing and federal incentives shifting, developers should act now to leverage remaining tax benefits before they expire under the new law (2025–2028).
Wellness and Biophilic Design (Nature-Inspired Spaces)
Real estate development is evolving with an increased focus on sustainability, driven by tenant and buyer demand. Location and square footage still matter, but tenants and buyers now place equal importance on fresh air, natural light and spaces that support well-being. Today, sustainability and wellness go beyond physical health to encompass emotional, mental and social well-being. More residential properties are adopting hybrid models that combine multifamily living with hotel-style amenities for long-term stays. Urban green spaces are increasingly integrated into new developments to bring nature into living and working spaces. NYC is leading this shift with biophilic design, blending nature elements into the urban environment to enhance well-being and environmental impact.
OBBBA introduces new deductions for residential projects that prioritize wellness features, like smart heating, ventilation and air conditioning (HVAC) systems and advanced filtration. These tax benefits may encourage more developers to incorporate wellness into their sustainability strategies.
Sustainability and wellness can also benefit real estate investors by increasing asset value, creating higher occupancy and lower tenant turnover and helping maintain steady cash flows.
Office-to-Residential Conversions
The rise of hybrid and remote work, combined with increased housing demand, has accelerated the trend of converting office spaces into residential units. While Class A buildings continue to attract tenants, Class B and Class C office spaces are experiencing high vacancy rates, creating opportunities for developers to repurpose underutilized spaces into residential units.
To support post-pandemic development, New York City introduced legislative and tax incentives. These include the “City of Yes for Housing Opportunity,” which modernizes zoning laws near transit and programs such as RPTL 485-x (Affordable Neighborhoods for New York) and New York State’s RPTL 467-m (Affordable Housing from Commercial Conversions Tax Incentive Benefits).
Federal tax incentives under OBBBA may complicate these efforts. While some deductions are available for projects that meet specific affordability and energy-efficiency targets, others — like the loss of certain interest deductions — may increase financing challenges.
While the office-to-residential trend presents opportunities, hurdles remain, including high renovation costs, structural constraints and concerns about increased pressure on local infrastructure such as transit, schools and other public services. Balancing these factors with state ESG compliance and evolving federal tax rules underscores the importance of expert planning.
Conclusion
The real estate world is transforming rapidly. Success today requires flexibility, creativity and a willingness to pivot. Rising expectations around sustainability and wellness are reshaping how people live and work, while federal tax changes under OBBBA are adding new financial and compliance considerations.
Yes, there are challenges, but opportunities abound for those willing to adapt, think long-term and stay in tune with the people and communities for which they’re building.
Contact Us
We can help you navigate affordable housing programs, property tax incentives and evolving ESG requirements. We also provide guidance on how OBBBA may affect your real estate investments, conversions and sustainability planning.
For more information, contact your PKF O’Connor Davies client service team or:
Kathleen Mills, CPA
Partner
kmills@pkfod.com I 646.699.2886
Samantha Wolf, CPA
Partner
swolf@pkfod.com I 646.699.2894