The Real Estate Board of New York (REBNY) is the City’s leading real estate trade association representing commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople, and other organizations and individuals active in New York City real estate. REBNY thanks the Committee on Land Use for the opportunity to provide feedback at today’s hearing regarding commercial conversions to residential use.
Twenty years ago, New York City was 302.6 square miles with a population under 8 million. Today, it is still 302.6 square miles with a population of 8.8 million people, a number we were not projected to reach until 2030. Given our production rates over the past decade, New York City is ten years ahead in our supply of people and ten years behind in our supply of housing.
Density is how housing growth can be accommodated in land constrained geographies. Currently, the New York State Multiple Dwelling Law (MDL) freezes the eligible age for buildings to convert and establishes a floor area ratio (FAR) cap of 12 to residential use in New York City. No other major city in the country has a residential density cap set by the State.
Meanwhile, we have older office buildings that are struggling. Working with HR+A Advisors and REBNY’s leading commercial brokerage firms, analysis of CoStar data reveals a divide between Class A and Class B/C occupancy levels, leasing, and vacancy rates. Supporting this finding, REBNY recently released an analysis of location data from the firm Placer.ai, finding that Class A+ and A properties had a higher visitation rate than Class B properties in 2022.
We’ve seen these types of numbers in other challenging times, particularly in Lower Manhattan. But this time, due to the COVID-19 pandemic and the ongoing adjustment with how we balance where we live with where we work, this market shock and the adverse impacts to Class B and C commercial offices are not contained to one neighborhood.
Lower Manhattan is a prime example of how converting a neighborhood can provide an opportunity to support recovery from crisis. While Lower Manhattan starts 2023 with challenges in office occupancy and leasing, it did better than Midtown over the last several years because it has a significant share of residential units. That is due to public policy decisions made in the 1990s when that commercial office market was struggling.
The challenges in the office market today represents an opportunity to address the housing crisis and the lack of housing production occurring in high-income areas, particularly in Manhattan below 96th Street. Fortunately, the Governor’s Executive Budget on conversions supports these goals by proposing to amend the state multiple dwelling law so that buildings built before 1990 can convert to residential use and to create a tax incentive so that affordability can be financially feasible in complicated and costly conversions. While not all Class B and C office buildings are candidates for conversion, the Governor’s proposal to amend the MDL will permit the City to implement the recommendations put forth by the New York City Office Adaptive Reuse Taskforce Study and benefit from these opportunities.
Additionally, the Governor budget proposal would allow the City to subsequently amend the 12 FAR cap which would subsequently allow for new residential construction subject to the City’s Mandatory Inclusionary Housing (MIH) program.
Like all significant zoning text changes, it is the City Council who will act as the final approval body on the zoning text that will ensure existing conversions rules work better, and who will expand the geographic universe of eligible buildings. It is the City Council that will approve the neighborhoods where higher than 12 FAR is appropriate and ensure the Mandatory Inclusionary Housing (MIH) program is applied.
We appreciate the Council’s leadership on the issue of conversions as one of a variety of tools to face the significant housing crisis we are facing. If the State Legislature can come to agreement in enacting the Governor’s proposals on conversions, the tax incentive for affordable housing, and the 12 FAR cap, we subsequently look forward to working with the City Council to effectuate the local zoning changes that will also be necessary.
Thank you for the consideration of these points.