Resilience as Underwriting: Local Law 97, Insurance Pricing, and the Return of Mitigation Capital

For years, resilience was treated as a design preference. In 2026, resilience is underwriting. Insurance markets, building performance standards, and regulatory compliance now show up directly in net operating income and valuation. Nowhere is this more visible than New York City, where Local Law 97 (LL97) requires large buildings to meet greenhouse-gas emissions limits beginning in 2024, with stricter limits in 2030 and a long runway toward net-zero ambitions.

LL97 is not simply an ESG talking point. It is a compliance regime that creates both cost risk and opportunity.

Compliance is a cash flow item

NYC’s own Accelerator program explains that buildings exceeding annual emissions limits face financial penalties of $268 per ton of CO₂e over the limit (based on 2024 energy usage and emissions), making emissions performance a line-item risk. Whether a building pays penalties, invests in retrofits, or executes a fuel-switch strategy, the decision changes NOI.

That shift changes transactional behavior:

• Buyers increasingly diligence emissions exposure alongside leases and capex.

• Lenders begin to ask for compliance plans, not just energy audits.

• Owners of older stock face a new version of obsolescence risk: not functional obsolescence, but carbon obsolescence.

Resilience now has two return streams: penalty avoidance and capital access

Retrofits have always been justified by utility savings and tenant appeal. In a regime like LL97, retrofits can also be justified as penalty avoidance. That is effectively a predictable return stream (assuming stable enforcement), and it can be underwritten as such. The second stream is capital access: buildings with credible compliance strategies may attract better financing terms or broader lender interest, while buildings without a plan may face tighter covenants or reduced proceeds.

Underwrite the compliance pathway, not just the endpoint

The biggest mistake is to underwrite LL97 compliance as a one-time event: “We’ll retrofit and be done.” In reality, compliance is a series of periods with tightening limits.  Buildings need pathway strategies: near-term measures (controls, low-cost electrification, envelope fixes) and longer-term measures (deep electrification, system replacements, potentially onsite energy solutions).

Insurance is pulling resilience into pricing

Even beyond carbon, insurers increasingly care about physical risk—flood, storm, wildfire smoke, and heat stress—especially for large portfolios. When premiums rise or exclusions increase, resilience capex becomes a financial decision rather than a philosophical one. The market has started to treat resilience upgrades (elevation, envelope hardening, backup power, air quality retrofits) as ways to preserve insurability and reduce volatility.

Mitigation capital is returning

When resilience becomes underwriting, capital follows. This can take many forms: green banks, retrofit financing products, property-assessed clean energy mechanisms in some jurisdictions, and climate-aligned investment mandates. The point is not that capital is “cheap”; it’s that more capital sources exist for projects that can document measurable resilience outcomes.

In 2026, deals don’t die only because rents are wrong. They die because risk is unpriced. Resilience is the process of pricing risk, funding the solution, and protecting value.