While Colorado is earning praise from climate advocates for its new mandates to reduce greenhouse gas emissions, developers and their economists are giving D and F grades to the state and its capital city, blaming the regulations for a noticeable decline in some projects.

Representatives for developers and property owners are flagging new data showing a marked drop-off in investments and revenues from commercial projects in Colorado. That decline, they said, follows directly on the heels of Colorado’s adoption of some of the nation’s boldest carbon-reducing strategies.

The regulations include the Energize Denver ordinance, adopted unanimously by the Denver City Council in 2021. The ordinance seeks to reduce carbon emissions from larger commercial buildings by 30% by 2030 and by 80% by 2040.

Then in 2023, the Colorado Air Quality Control Commission issued its own, statewide carbon-reduction package known as Reg 28, after a landmark climate bill was passed by the legislature in 2021.

Impacts of both measures are now looming in the windshield of investors, property owners and developers, as they decide whether to invest in large properties here and put a pencil to costs.

Last year, industry groups filed a lawsuit against both initiatives, but a federal judge has now dismissed that action. Meanwhile, in early March, Denver Mayor Mike Johnston announced a loosening of deadlines and penalties cited in the Energize Denver mandate.

‘I can’t do business in Denver now’

Neither correction is likely to curb complaints by owners and developers, as they weigh the impacts on the health of the state’s economy, several experts told The Denver Gazette. 

“I’m the biggest evangelist that Denver has ever had, and I can’t do business in Denver now,” developer Andrew Feinstein, the CEO and managing partner of EXDO Group, which is heavily involved in Denver’s burgeoning RiNo district, told The Denver Gazette last week.

Feinstein is among a number of developers, owners, brokers and trade representatives who have spoken out, as costs of the regulations take shape.

A new study released by NAIOP, which represents the national commercial real estate industry, shows a sharp lag in economic contributions to Colorado made by the commercial development sector, in comparison to those of similar Rocky Mountain states that lack the ambitious carbon initiatives.

One year ago, NAIOP’s 50-state data showed that the input to Colorado’s broader economy from development and improvement of hotels, apartments, large retail and offices totaled $14.81 billion. NAIOP’s newest data indicate that contributions here from that sector fell to $6.67 billion last year, a 55% drop.

By comparison, the study shows Utah having received multifold favorable impacts from commercial development in 2024. Other nearby states show some declines at a moment when stubborn interest rates may be affecting real estate spending — but nothing on the order of Colorado’s sizable loss.

Electric or gas? 

“Correlation is not causation,” Elizabeth Babcock, executive director of Denver’s Office of Climate Action, Sustainability and Resiliency, told The Denver Gazette when queried about the data.

She added that her agency had recognized recent struggles in the office market and other commercial sectors, and has done an extensive review of the program to adapt.

“We really saw that the post-covid sector was not rebounding,” she said, noting that interest rates make the picture more challenging still.

But developers using recent versions of the city’s modeling for compliance said they still find the program’s requirements and processes daunting.

Energize Denver and the state’s Reg 28 each require larger buildings — 50,000 square feet or more in the state ordinance, 25,000 feet or larger in the city buildings — to substantially cut their carbon use. A 25,000-foot building is roughly equivalent to an apartment of 25 units, figuring in some common indoor spaces.

Developers complained the costs of the requirements are poorly defined in the mandates. Moreover, they said the ordinances essentially force owners using natural gas heating to convert to electric systems to avoid penalties.

Electric systems, industry sources said, aren’t inherently more efficient than gas-fired systems. But in new calculations, where planners assume that solar or wind systems might be the primary electric source, they count for less carbon emissions.

“Installing systems that use electricity to heat water and air is not drastically more expensive than installing natural gas systems,” said Andrew Hamrick, senior vice president and general counsel to the Apartment Association of Metro Denver.

“The problem is for the tenants,” Hamrick added. “It costs around three times as much to heat the same space with electricity as with than natural gas. The reason developers use gas is not because it’s cheaper to install, but because over the useful life of the system, the residents will pay far less.”

Hamrick’s association represents around 3,200 owners and managers of apartments in Colorado, serving more than 600,000 tenant homes.

The potential costs become more forbidding on older buildings that would be forced to convert, experts said.

“Applying the standards to structures that have already been built with natural gas, that is massively expensive,” Hamrick says. “It will impact people’s willingness to buy existing property.”

Won’t the switch to technology like heat pumps equalize those costs?

“For multifamily buildings those systems don’t exist; it’s virtually impossible to convert a multifamily building from gas to electric,” Hamrick said. Heat pumps, he added, are less effective in Colorado’s dry climate than elsewhere.

Denver developer is exploring opportunities outside of Colorado

“What’s being asked of developers doesn’t comport with what’s feasible,” said Carl Koelbel, president of Koelbel and Company.

The company has a storied history in Denver that includes several “new urban” multifamily and commercial projects that were hailed for their sustainability.

The disconnect, said Koelbel, has led the Denver-based developer to begin looking outside Colorado for its next projects.

“After 73 years, we are actively pursuing opportunities out of state,” Koelbel told The Denver Gazette. He mentioned Dallas, Atlanta and locations in Nebraska among markets being explored.

On the other side of the equation is Pacifica Capital Investments, a developer with office-warehouse properties in West Coast markets and is now testing the same waters around Denver.

Adi Leonard, Pacifica’s principal and COO, said she sees the new regulations as a caution light for developers.

“It’s going to cost landlords a lot of money, and creates tension with the tenant,” Leonard told The Denver Gazette. “An older building will become more expensive or impossible to maintain. At the end of the day, that will have to be borne by the tenant as higher rent or triple-net.”

Leonard pointed up another product of the mandates that is mentioned by numbers of developers: “It becomes harder to make business decisions, and the people that make money are the consultants.”

All of this sounds like an advantage for investing in newer properties built to higher standards, as opposed to older buildings — but that’s far from clear, experts said. 

‘I’m not sure it’s achievable’

One principal of a prominent brokerage that spoke with The Denver Gazette on condition of anonymity, cited a large building in Denver, just 10 years old and fully leased. On the market now at a price over $20 million, the offering has seen dozens of interested buyers — but no takers.

“Some have passed, worried that it’s not up to par. Others have offered lower prices,” this source said.

In both situations, the source said, buyers specifically cited worries about Energize Denver in their decisions not to invest.

Caught in the crosshairs of the guidelines is developer David Spriggs, who has five warehouse and truck-bay type projects around town, all large enough spaces to be mandated by the program.

“I’m a smaller operator,” he said.

The modest buildings he takes on end up as work bays for plumbers, electricians and auto mechanics. The model is to fix up the space, find tenants, then hold onto them and the jobs they create well into the future.

In a café over pancakes and coffee, Spriggs dropped three large documents on the table, one totaling a hundred pages, comprising the latest, redlined version of the Energize Denver code.

“On one building we spent $1,250 with a consultant just to verify the benchmark certification,” he said.

That precedes what he expects to be $20,000 to $30,000 he would pay for a study following standards of the American Society of Heating, Refrigerating and Air Conditioning Engineers to create a customized compliance plan.

That’s all before making any actual improvements in the building.

“I’m a Denver guy, not anti-environmental, and I want to see Denver succeed,” Spriggs said.

He noted that he has solar panels on his own house and on multiple buildings his firm has developed in the past.

Values that popped up on the city’s modeling software show the shortfall, followed by a line titled “Potential Fines Forecast” for non-compliance.

In Sprigg’s building, fines would be $203,000 in 2025; $196,000 in 2030.

Can he add anything to bring his building into compliance?

“I’m not sure it’s achievable,” Spriggs said.

“It was a noble cause, but what the City and County’s approach ultimately did was create regulations and fines. What that does is scare away business.”

“I don’t have Wall Street behind me,” Spriggs added. “This comes out of my pocket, and ultimately the costs pass on to the consumer, while chasing investment dollars out of Denver.”

When asked about his experience, CASR’s Babcock said, “It’s hard to say what their calculations are with regard to projects, without the specific information.”

“Eighty percent of the benchmarking we’re seeing isn’t correct, and if the information is wrong, the targeting is wrong,” Babcock said.

Babcock noted that CASR is providing added technical assistance now through its help center, and that Spriggs would likely qualify for some new rebates.

Meanwhile, whether talking about truck bays or nicer retail and office property, developers complained that the guidelines fail to work in real-world situations.

‘The targets are very aggressive’

Carl Koelbel questions whether managers of the programs have a full grasp of the technical aspects. “The targets are very aggressive, and I’m not sure they understand what would require a great deal of construction,” he said.

“The metrics they’re using are insufficient,” said Koelbel. “Construction is actually very carbon intensive. If a building is reconstructed, you need to take that into account, and we’re not seeing that in the analysis.”

“There are very few people at the statehouse that seem to care about the financial feasibility,” Koelbel added.

Others said that Denver’s specifics place a thumb on the scale in favor of businesses viewed as more desirable by planners and officials, as opposed to ones viewed as less desirable.

A party that asked not to be identified said that the city’s requirements appear significantly lessened for tech-related business, such as data centers and agriculture uses, assumed to include marijuana growing facilities.

Several parties mentioned they fear reprisal in their dealings with both the city and state, and that they are reticent to use their own names with respect to complaints about the initiatives.

Commercial broker Jon Weisiger with CBRE in the Denver Tech Center worries about the economic impacts of the mandates at a moment when projects financed a few years ago with mortgage-backed securities are facing time horizons on those loans in what is a higher rate environment.

“It’s definitely challenging when putting together an operating plan,” Weisiger told The Gazette.

He noted that relatively few such properties have traded hands in the past few years as rates have risen.

“The interest rate environment took buyers out, while owners took properties off the market, worried about price,” Weisiger added. “But we’re seeing that they can’t hold off forever, and it’s having the effect of more sellers putting properties on the market. If you bought at 3% and it’s now 6% or 7%, it’s not as easy to refinance to make cash flow.”

“Retail shopping centers are darlings of industry now nationally, and a relatively good market here,” Weisiger said.

But the new energy guidelines are hard to quantify, he added, requiring expensive consulting to decipher.

CASR emphasized to The Denver Gazette that new modifications to the program are based on extensive review with 2,000 of what they term stakeholders. According to Babcock, concessions accommodate longer timelines, impending lease expirations and situations dealing with financial hardships.

The city added that it is flexible on continuing to use older heating systems that still function. Buildings that qualify for “adaptive reuse credits” could see an easing off of some targets.

‘Why would we want to come to Colorado to invest when regulatory environment is so negative?’

Kathie Barstnar, executive director of NAIOP Colorado, who provided the national data showing lower inputs to the state’s economy last year, reiterated that negative effects are combining with other new regulations to create competitive disadvantages for Denver now.

“I get called by real estate investment trust managers, investing on behalf of things like a firefighter retirement fund, asking me: Why would we want to come to Colorado to invest when regulatory environment is so negative,” Barstnar said.

“It’s a wonderful place to live,” she added. “We don’t want to lose talent, but people can’t live here, and the regulatory environment ends in some of the outmigration we’re experiencing.”

She noted that city promotions for the initiatives cite commercial buildings as the source of over 40% of Denver’s greenhouse emissions.

“I would argue that (commercial) is primarily what makes up Denver,” she said in a statement accompanying the data. “If I were Denver, I would be more worried about the impact on property tax collections from a freefall in property values.”

Not covered in the Energize Denver are the smallest apartment buildings, nor single-family homes.

Barstnar opined that has less to do with how much carbon houses are using than with how homeowners would react if they were faced with making the improvements that larger building owners now face.

“They’re going after the low hanging fruit,” said the Apartment Association’s Andrew Hamrick.

He added that Energize Denver and the state initiatives will likely reduce multifamily home construction, at a moment when Colorado is striving to increase housing supply.

“It’s so misguided that (the mandates) only apply to multifamily housing,” he said. “Multifamily is the most energy efficient housing out there.”

Hamrick added: “When you use these draconian regulations, you’re automatically incentivizing people to live in single-family houses that are less efficient.”

‘It will wipe out our bottom line’

Andrew Feinstein, developing properties in RiNo, added his own worries about how the new regulatory environment affects prospects.

“I own Tracks in RiNo, the largest LGBTQ nightclub in the Rocky Mountain West,” Feinstein said. “We had our best revenue ever in 2024, but our net revenue has been cut in half because of all of these regulations. If you foist Energize Denver on top of that, it will wipe out our bottom line.”

CASR’s Elizabeth Babcock told The Denver Gazette her office is anxious to partner with NAIOP and other organizations in setting a course forward.

“We want to be business friendly,” she said, noting that the broader climate goals of the program are strongly supported by Denver voters.

“They want climate action,” she added. “We want to be pro-climate and pro-business.”

David Spriggs and other developers expressed doubts, however.

“I’ve always had long term approach to investment, but the Energize Denver code has changed my thoughts about future investment in Denver and about our future commitment to Denver.

“They need to throw this out completely and create a system that promotes and incentivizes.”