NYC’s Commercial Break — Critiquing the State’s Commercial to Residential Conversion Proposals
Everyone’s been talking about it, and later this week, New York lawmakers may pass legislation that allows for and (heavens!) even encourages the conversion of existing commercial buildings into residential uses.
The need for substantially less office has been obvious since the start of the pandemic, and for some of us, earlier still. There will be a significant drop in demand in office space once things normalize — and that’s a good thing for the climate, for families, for equity. Last summer we wrote about this, and how it can transform NYC into a kinder, greener, more human-friendly place to live and work.
If we assume, conservatively, that demand for office space in coming years will fall by 25% (although we think this is conservative, indeed), Manhattan alone will have approximately 125 million square feet of vacant office space. And if, as we have previously predicted, this vacancy will not be evenly distributed (meaning every building won’t be 25% vacant) but rather there will be winners and losers (meaning 1 out of every 4 buildings will be mostly or entirely vacant), we must figure out what to do with the thousands of soon-to-be vacant office buildings.
Conversion to residential was obvious last year, and remains the obvious answer now. It addresses the vacant office problem; can help the cratered hotel industry; creates thriving, walkable neighborhoods; and can be part of a solution to the affordable housing crisis. But actually doing the conversion is not so easy. There are both physical and regulatory hurdles, whose complexities have resulted in competing proposals from the Governor and two State Senators.
Following is a summary of:
- the Cuomo proposal
- S4937 — NYS Senator Kavanagh’s hotel conversion bill
- S5257 — NYS Senator Gianaris’s distressed acquisition bill
- Envelope’s proposal.
Gov. Cuomo’s Proposal
The Governor has proposed amendments to the State’s Multiple Dwelling Law that would override zoning regulations to allow for the conversion of certain commercial buildings to residential uses.
Specifically, the proposal would allow conversions of hotels that meet the following criteria:
- CO in place as of Dec. 31, 2020
- Less than 150 rooms
- Outside Manhattan
- In Manhattan limited to north of 110th St. and south of Chambers St.
The proposal would allow the conversion of office buildings that meet the following criteria:
- In Manhattan below 60th St.
- Constructed pre-1980
- Constructed anytime prior to Dec. 31, 2020 AND subject to bankruptcy or receivership
All buildings converted pursuant to these regs would be required to provide 25% affordable housing.
The Governor’s proposal is temporary as buildings seeking to convert under these overrides must obtain a building permit prior to Dec. 31, 2024.
Our take: The proposal makes us think of the Muhammad Yunus quote in the Nobel Peace Prize winner’s book “Banker to the Poor”. He says, “Things are never as complicated as they seem. It is only our arrogance that prompts us to find unnecessarily complicated answers to simple problems.”
The proposal may work, to an extent, but it certainly is unnecessarily complicated and will not achieve enough conversions, affordable housing, nor meaningfully reduce commercial vacancy. Why the geographic limitations? Why the limit on the number of hotel rooms? Why does the age of the building matter? If we want things to happen, why do we instantly limit ourselves?
State Senator Kavanagh’s Proposal
Senate Bill S4937 proposes that any hotel can also be used for permanent residential uses, so long as:
- All units are rented to low or moderate income households
- The building is located in or within 800’ of a residential zoning district
Our take: This proposal would be a fine start but for the 100% affordable requirement. Obviously the production of affordable housing is critical, but making the requirement be 100% will, in practice, severely limit the usefulness of this legislation. And of course, the legislation focuses exclusively on hotels, but does not address office buildings.
State Senator Gianaris’s Proposal
Senate Bill S5257 creates a mechanism by which the State can purchase distressed assets and sell or lease them out as 100% affordable housing, including a 50% preference for the formerly homeless.
Our take: On its face, this is a good idea. The public sector should be focused on providing affordable housing. Creating a mechanism and a fund to do this should be supported. However, limited available funding combined with the government’s poor track record of execution may leave few distressed assets actually converted. There’s also compelling research showing that a more distributed, voucher-based — rather than concentrated — approach to low-income housing leads to far better outcomes for the children of families living in poverty. We agree that richly-supportive permanent housing for formerly homeless people is a worthwhile use of funds, although again, research says that this type of housing should be feathered evenly through mixed-income environments rather than concentrated in one area.
Envelope’s Proposal
The above conversion proposals rely on the power of the State to override City zoning regulations. The State should absolutely do this, utilizing its Multiple Dwelling Law to allow conversion to happen. In fact, it already does, in a too limited way, through Section 15 of the Zoning Resolution. This Section allows for flexibility in converting existing non-residential buildings to residential uses, but it does so with extreme limitations on location and date of construction. Our proposal calls for:
- An expansion of Section 15 to apply throughout the City with no limitations on age of building
- Additional zoning modifications to allow more square footage of the existing building to be deducted from the zoning floor area calculation (e.g. elevator shafts, stairwells, etc.)
- Relocated floor area to accommodate for light and air/yards/courts should be as-of-right without concern for height limits and/or sky exposure planes
- A 25% minimum affordable requirement in order to create thriving, mixed-income neighborhoods
- Eligibility for a renewed 421a program with increasing affordable requirements (up to 50%), including supportive housing for homeless people in exchange for increasing benefits
The goal is to make it easy, useful, and effective. The State should use the mechanisms we have in place that work, eliminate unnecessary limitations, and use additional tools at our disposal (like tax incentive programs) to spur the kind of behavior that will benefit all stakeholders.
After the financial crisis of 2008/2009, there was a push to convert office buildings in Lower Manhattan to residential uses. The most notable conversion being the beautiful Art Deco building at 70 Pine St. (the former AIG building). It can be done. The State has the tools at its disposal to both eliminate barriers AND incentivize good behavior.
Our Back of the Envelope Calculations
- 125m square feet of vacant office space
- Half of that converts to residential: 62.5m
- A minimum of 25% of that space is affordable: 15.6m sf
- 62k new residential units
- 15.6k new affordable units
