In August 2023, New York City Mayor Eric Adams and the New York City Department of City Planning announced three major initiatives to spur the development of housing stock across the city. First, they announced their City of Yes plan with the goal of removing regulatory roadblocks in the way of housing development, as discussed in further detail here. Second, they announced the Midtown South Neighborhood Plan to update the zoning code to allow for residential uses in the area between 23^rd Street and 40^th Street and Fifth Avenue to Eighth Avenue in Manhattan. Finally, they announced the Office Conversion Accelerator program, designed to expedite the conversion of existing office buildings to residential use. 

State of the Market

As the city continues to recover from the pandemic and its aftereffects, many workplaces have embraced hybrid work models. Concurrently, economic headwinds and rising interest rates have put stresses on many New York City businesses. In turn, demand for office space in the city has sharply fallen. According to a December 2023 Colliers study, Manhattan’s available office supply grew by almost 80% since March 2020. At the same time, the cost of housing across the city has increased dramatically. The price of renting or owning a home in New York City increased by 68% from 2012 to 2022, which was the largest increase in that time span in any metropolitan area of the country, according to a study by the Office of the New York State Comptroller. The same study found that over half of the households across the city were rent-burdened (defined as spending over 30% of income on rent). Despite the increase in housing costs, after the expiration of the 421-a tax incentive program which gave tax benefits to residential developments that included affordable units, building permits fell by 85% in the first eight months of 2023, with multi-family permits (properties with over one hundred units) falling by 91%. 

Office Conversion Accelerator 

To combat the twin issues of vacant office space and a need for increased residential development, New York City has set out to ease and streamline the process of converting existing office space into housing. The city’s Office Conversion Accelerator program gives the owners of office buildings a single point of contact within the city government to ensure that the conversion of an existing office building to residential use is, among other things, Code-compliant, and that projects move through the regulatory process quickly. This replaces the usual navigation of myriad, unconnected departments with authority over elements of a conversion, including the Landmarks Preservation Commission and Department of Housing Preservation & Development. Further, the program aims to assist with securing permits and analyzing zoning feasibility. Axios recently reported that a total of forty-six buildings are currently enrolled in the accelerator program. Of those forty-six buildings, four have already begun the conversion process. According to the Axios report, the buildings enrolled in the program will create an estimated 2100 new housing units. At this time, the program is targeting office-to-residential conversions that might provide fifty of more housing units. 

Conclusion

While some potential solutions to housing development exist at the state level, such as replacing the expired 421-a program and increased transit-oriented development in the suburbs surrounding the city, the City Government is attempting to quicken the development of housing in the areas that it can control. Although the Office Conversion Accelerator program has made the conversion process more straightforward, there is substantial work required from owners and developers. Hundreds of millions of dollars are being spent on major overhauls by buildings going through the conversion process, including $535.8 million at 25 Water Street, and $273 million at 160 Water Street. The city has also created an Office Adaptive Reuse Task Force, which has called for regulatory reforms to make the conversion process more efficient and to allow for more office buildings to be converted to other uses, including housing. Goulston & Storrs has experience with successful conversions, and we look forward to continuing to assist owners, lenders, and other stakeholders in the reshaping of New York City.