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Building M - Housing

Vacant, Zombie Office Towers Should Become Housing, Says New York Governor

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As we enter February, it’s amazing to think it has been almost a year since the pandemic hit the western world last March. Ever since, we’ve seen a grand exodus of city-dwellers fleeing large cities like New York, Chicago and Los Angeles, for smaller towns, or more remote areas. It’s unbelievable to think that over 300,000 renters have fled New York City, and even with the vaccine being distributed across the city of 8 million, who knows if renters will ever come back? (One local cultural pundit, public speaker and writer Fran Lebowitz, who stars in a new Netflix series directed by Martin Scorcese, tells them “Don’t come back, ok?“). 

With the grand exodus of New York comes the inevitable office-pocalypse. Since the pandemic hit last March, the work from home revolution has left office spaces in the dust. With Midtown and Times Square as a ghost town these days, one wonders if these offices will potentially make affordable housing. In his 11th annual State of the State address, New York Governor Andrew Cuomo concurred what we were all thinking, indeed, these office spaces could help out with the affordable housing crisis in New York City.

“The crisis of growing vacancies in our commercial properties provides an opportunity,” he said in the address delivered Monday. “We should convert vacant commercial space to supportive and affordable housing, and we should do it now. Take the negative and make it a positive.”

Governor Cuomo proposes a new law that will create a five-year period that will enable property owners to convert (and rezone) office buildings and hotels into residential properties. It could potentially lower rents, help low-income New Yorkers and attract new talents for New York’s employers.

But how exactly will that play out? It’s something desperately needed, says Vijay Dandapani, the president of the Hotel Association of New York City. “The hotel industry is the most stressed industry in the commercial property sector, due to the near total evaporation of revenues since March 22,” said Dandapani. “With no prospect of a meaningful revival for another three to four years, the Governor’s proposal that seeks to make it easier for owners and operators of hotels to maximize the value of their severely negatively affected assets will be welcomed by many.” 

The execution? It could be both simple and difficult. Some office spaces (Class B and C especially) could be simple to convert into residential space. This isn’t a new phenomenon, as it also happened in lower Manhattan in the 1990s. Occupancy rate was 25 percent at the time and the state and city created a tax exemption and abatement program to aid the conversion to residential use. A similar thing was done after 9/11 in 2001, and again after the bank crash in 2008.

But this time is a bit different. There has been a huge dip in people going to work—clearly the pandemic has brought on another homeworking revolution. This past summer, office towers like the Time & Life Building in Midtown, which accommodates 8,000 office workers, had just 500 workers a day show up on average. The adaptations that many companies have made in response to the pandemic could open the door for remote working becoming a mainstay of ‘office work’ and could hurt demand for office space long after the pandemic is over.

Also, in previous cases where office space was rezoned for residential use, the city introduced a 421-g Tax Incentive for commercial buildings in downtown Manhattan, which allowed an exemption from a 12-year real estate tax increase, and rental units were (some still are) rent stabilized.

And it isn’t just rezoning Midtown. Remember last fall, when New York City Mayor Bill de Blasio wanted to upzone some of lower Manhattan as well? His plan included adding over 3000 housing units in SoHo, twenty five percent of which would be affordable. But, the plan had pushback from local residents who protested new high-rise towers. Some experts, like Andrew Berman, executive director of the Greenwich Village Society for Historic Preservation, said building luxury condos with a small set-aside for affordable apartments is “bad for the neighborhood,” and yet, de Blasio plans on creating 300,000 affordable housing units by 2026.

Could it work uptown? There has been a recent uproar from residents of the Upper West Side, who were outraged when a number of local hotels were turned into shelters for the homeless during the height of the pandemic, which apparently diminished their quality of life. But one city council candidate in the UWS, Sara Lind, wants to rezone the wealthy neighborhood to usher in affordable housing from West 54th and West 66th Streets. Based on the local Area Median Income, studios would rent for $567, one-bedrooms for $717, two-bedrooms for $854, and three-bedrooms for $978.

It’s just one approach. Senator Brian Kavanagh, chair of the housing committee with the New York state senate, suggests that it comes down to public subsidies. Though Kavanagh hasn’t seen a detailed proposal as of yet, he thinks Cuomo is on the right track for  converting offices, retail space and hotels to affordable housing. “Those who favor this approach would like us to consider a wide range of changes in land use and density restrictions, as well as other state and local laws and regulations,” he said.

The key here is creating affordable housing, not just a small token amount of affordable apartments, while the rest is overpriced, skyrocketing rents. “If we want to create substantial amounts of truly affordable housing, we’ll also need significant public subsidies, for which we’ll probably have to rely on the federal government, given our state and local governments’ fiscal difficulties in the wake of COVID-19,” said Kavanagh.

It can’t be a policy that is a blanket law covering all rentals—as luxury developers are likely to take advantage as well.

As Kavanagh explains, some subsidies like the 421-a tax breaks have been problematic in the past. A $1.1 billion-a-year tax break which allowed real-estate developers to build new multi-family residential housing buildings in New York, which included upscale condos and penthouse apartments. This tax break saw backlash in 2015 from the Real Affordability for All campaign, among other protesters. 

“While all these steps will be challenging, and we don’t really know yet what will be possible, this may be a rare opportunity, so it’s worth the effort to see if we can come up with a plan that will substantially expand our supply of affordable housing and help ensure a vibrant future for New York,” explains Kavanagh.

With empty office towers, now could be the chance for a plan that could help the economy, and the city’s business districts by breathing life back into them.

“We especially applaud Governor Cuomo’s focus on reinvigorating New York’s economy,” said James Whelan, president of the Real Estate Board of New York, a trade association for the real estate industry in the area. “New York will remain a global commercial hub by instilling a 24/7 environment in its central business districts, which will simultaneously strengthen its retail and small business sectors, create ‘walk to work’ environments and provide much needed housing and affordable housing. This forward-thinking approach will make such areas even more attractive to cutting edge businesses and their employees.”

“We look forward to working with Governor Cuomo and stakeholders across the spectrum to continue driving New York’s recovery forward,” adds Whelan, “and ensuring that our state emerges from this generational crisis even stronger.” There are certainly plenty of stakeholders when it comes to the future of a city as large and influential as New York City. But hopefully, they can learn to work together on what is a very common goal of making the city a great place to live and attracting the kind of talented, diverse people that it is known for.

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