Does Cuomo plan to turn NY hotels, office space into housing make sense? How it could work
Gov Cuomo, NYC real estate groups want office building conversions in Manhattan.
- Gov. Andrew Cuomo proposed turning vacant office space and former hotels into affordable housing in his State of State addresses last week.
- Developers say the plan will need to include subsidies to be successful, and should focus on distressed hotels.
- Housing advocates say the implementation of the plan will be key to whether it'll adequately address the needs of homeless or housing insecure people.
Vacant office space could be New York's ticket to more affordable housing units, Gov. Andrew Cuomo announced earlier this month, but developers and housing advocates say the preliminary plan needs vetting in order to serve low-income residents.
In two of his four State of State addresses in early January, Cuomo touched on a concept that would allow for some hotels and office buildings in New York City to be repurposed for residential use as a means to address the affordable housing crisis in the city.
It could be a blueprint for the rest of the state, Cuomo said, as the state looks to reimagine its economy amid the COVID-19 pandemic and whenever the virus' wrath ends.
"Understanding and anticipating shifts in the post-COVID economy, we also recognize the over-availability of hotel and office space as a side effect of COVID," Cuomo said Jan. 12.
"These underutilized spaces also present an opportunity, especially in cities where housing has become too unaffordable for too many, especially with the growing homeless problem which is a crisis in many of our cities."
As part of the plan, Cuomo announced a group of Manhattan development projects that will include up to 1,400 affordable housing units across 14 buildings.
That is part of his $51 billion New York City-oriented agenda in the years ahead, which includes buying real estate south of Penn Station, redeveloping Pier 76 and transforming 140 acres in Midtown Manhattan.
But he didn't provide further details on the financial logistics, tax incentives or urban planning strategies related to such a conversion program.
The scant details left housing advocates, real estate trade groups and market analysts with questions about how such a proposal would work on the ground.
Many agree that it's too early to tell what it means for the future of New York City real estate and how the plan might be replicated in other New York cities with a glut of unused office space.
But Cuomo envisioned that "these commercial spaces can be adapted for other uses that benefit the community and make them commercially viable. Why not convert unneeded commercial space into affordable and supportive housing?"
Affordable housing, now, advocates say
New York City and many cities across the state desperately need affordable housing, said Brenda Rosen, CEO of Breaking Ground, a nonprofit affordable and supportive housing developer working primarily in Manhattan and Brooklyn for the past 30 years.
As an example, a 248-unit affordable housing development Breaking Ground built in the Bronx received more than 55,000 applications, Rosen said.
There were 3,000 to 4,000 homeless individuals on the streets of New York City at any given time last year; 17,000 single adults in the shelter system and more than 50,000 people (adults and children) who identify as part of families in shelters.
"We are presented with a huge opportunity, given the affordability crisis that existed pre-COVID and now has only become more urgent," Rosen said. "Our obligation is to look at this and say, 'What can we make happen?'"
The key to the success of Cuomo’s affordable housing concept will be robust housing subsidies, Rosen said. The state government has been an engaged partner on housing projects that incorporate nonprofits already supporting homeless and housing insecure populations, Rosen said.
“When we bring opportunities to them, they take them very seriously,” she said, adding that nonprofits should continue to advocate for adequate housing funding in the state budget.
Cuomo said he would form a Commission on the Future of the New York Economy because of the impact the pandemic has had on the jobs, businesses and housing.
"This commission will help draw a roadmap to find opportunities for New Yorkers to get back to work, in jobs that pay well, in industries that will grow rather than disappear in the coming decades," Cuomo said.
While office space could provide some opportunities, former or distressed hotels offer a much more suitable starting point for conversion to residential units, experts said.
Hotels have existing plumbing and common areas and are conveniently located near mass transportation options.
Converting hotels would “allow us to make a dent in the housing affordable crisis,” Rosen said. “It’s something that can be done for roughly half the price of ground-up new construction and in half the time.”
'We will win this war':Andrew Cuomo vows defeat of COVID in State of the State address
New York's broadband agenda:Cuomo wants $15/month internet access for low-income families. How it would work.
Will this work in upstate areas?
Conversion of office space has been a cornerstone of residential development in upstate cities like Rochester, where a number of historic downtown buildings and schools have been transformed into market rate or affordable residential space, said Bret Garwood, CEO of Rochester-based Home Leasing, which builds market rate and affordable housing in three states.
Home Leasing has developed about 30 residential projects to date, and all but one consist of affordable or supportive housing.
There’s no doubt — the projects can be very expensive, especially if the buildings themselves are in bad shape or have been vacant for many years, Garwood said. But they can be done by leveraging historic tax credits, low income housing tax credits or funding for supportive services for residents.
State funding for office space or hotel conversions would help make difficult development projects more feasible and bring down rents for residents, Garwood said — especially those in the lowest income brackets.
“We do have this problem of needing housing that is very affordable in a city that has very high poverty rates — that’s a challenge I think our industry has to try to address,” he said. “We don’t have a program that lets us do that on a large scale.”
By the numbers;Unemployment claims were up in New York in December
Housing advocates skeptical
On its face, a plan that includes more affordable housing sounds like something New York needs.
But some housing advocates are skeptical that the state will give them a seat at the table in the formation of a New York City or statewide affordable housing strategy.
“We are obviously deeply supportive of increasing the stock of affordable housing...but I have deep concerns about the implementation of that,” said Rebecca Garrard, campaign manager for Housing Justice with Citizen Action of New York, a statewide housing advocacy nonprofit.
Cuomo's program concept is too new and vague to fully analyze right now, Garrard said. But as far as she can tell, statewide housing advocates have yet to be consulted on it, raising concern that it may not potently address the barriers facing homeless and housing-insecure communities.
When affordable housing projects are developed by for-profit developers in exchange for tax breaks, taxpayers bear part of the burden to finish that project and rents go up in a multi-block radius surrounding the new development, Garrard argued.
She added that a great deal of research should be done to evaluate the neighborhood around a prospective conversion site for residential living suitability.
The bottom line? Affordable housing plans should, at their core, prioritize the individuals who will be served and incorporate their needs, she said.
“The state could say that it is going to take this opportunity to use resources to stabilize the unconscionably high population of people who don’t have a roof over their heads in the city,” she said.
“But when you look at a plan like this, it suggests the money will be thrown at these wealthy developers.”
How housing plans could develop
Paimaan Lodhi, a senior vice president at the Real Estate Board of New York, one of the largest trade groups in New York City, provided testimony on a similar plan to the state Legislature's committees on housing last month
Lodhi said 13.5 million square feet of all the available space in Manhattan was available for sublet as of September, suggesting the market, despite COVID, is robust.
"Converting hotels and older Class B and C office buildings to residential uses will increase housing supply, present opportunities to support affordable housing development, and create significant development activity that will result in good paying jobs," Lodhi testified.
Lodhi said a new wave of incentives and rezoning could have a similar impact on the city as the 421-g tax abatement had in downtown Manhattan in terms of converting commercial buildings into non-commercial uses.
According to the Furman Center for Real Estate and Urban Policy at New York University, the 421-g tax incentive included a one-year construction-period exemption, a 12-year exemption from increase in real estate taxes resulting from work and a 14-year abatement of about 80% of the real estate taxes paid on the property before conversion.
All rentals were subject to the city's rent stabilization law for the duration of the incentive.
Lodhi of REBNY said that despite the temporary ailments to the rental market in New York City, policies that allow developers to repurpose their properties may begin to address challenges in housing affordability in the city.
NYC real estate by the numbers
Apartment rents in Manhattan fell by 20% in 2020 and may not be done falling.
Since the onset of the COVID-19 pandemic and Cuomo's executive orders limiting businesses deemed non-essential, apartment rents and sales activity declined throughout the city and the boroughs, particularly in Manhattan according to Jonathan Miller, the president and CEO of appraisal firm Miller Samuel.
"If you had to pick a timeline, (Manhattan) is trailing the region by about six months," Miller said, also noting that prior to the pandemic the borough had the highest concentration of wealth and therefore mobility in the city.
The USA TODAY Network reported New York's population fell by 0.65% or 126,355 people in July on a year-over-year basis.
Rentals in Manhattan began to show positive signs in December when contract signings increased over 2019, but asking rents are not even close to stabilizing, Miller said.
Over half of all apartments rented in Manhattan in December required a concession, he said, and landlords, on average, granted two months of free rent or some equivalent form of concession.
While concessions like discounted rents and fee waivers were being used to lure in renters prior to the pandemic, they helped increase asking rents rather than keep them from falling further, Miller said.
- Investors broke ground on $8.86 billion worth of real estate projects in Manhattan in 2020, a drop of 15% from 2019, according to analytics firm Dodge Data & Analytics.
- Brokerage firm CBRE reported office leasing activity in Manhattan was down 82% on a year-over-year basis at the end of 2020 , while office rents in midtown Manhattan declined by 5% over 2019.
Miller said the process of converting office buildings into apartments is expensive, and Cuomo's would need to address investors' bottom line to lure in capital.
"There's just a lot of questions to be answered," Miller said. "Hopefully there'll be more clarification on this project in the near future."
Sarah Taddeo is the consumer watchdog reporter for USA Today Network's New York State Team. Got a story tip or comment? Contact Sarah at STADDEO@Gannett.com or (585) 258-2774. Follow her on Twitter @Sjtaddeo. This coverage is only possible with support from our readers. Please consider becoming a digital subscriber.