25 Jan Commercial Observer: NYC’s Oversupply of Hotel Rooms Can Solve Its Affordable Housing Crisis
While he was campaigning last year, Mayor Eric Adams promised that he would produce 25,000 units of supportive and affordable housing by converting shuttered hotels. But the question of how, exactly, the city and state can allow and encourage the conversion of offices and hotels to apartments has not been effectively answered yet.
Despite his ambitious promise, even Adams hasn’t furnished concrete details on how to produce 25,000 new apartments from hotels. And there are multiple layers of complex policy that officials need to unpack, across the various city and state agencies. Does the city need a new tax incentive program to encourage these projects? What kind of zoning changes need to be made? How should the state legislature change the multiple dwelling law to encourage commercial conversions? How much money should the city set aside to encourage affordable housing in hotels and office buildings?
The mayor’s office didn’t furnish specifics on Adams’ plan, but did say that “safe, affordable housing is a top priority for this administration, and we will use every tool in our toolbox to create and preserve the housing New Yorkers need.”
Amid these questions, many hoteliers have begun to consider whether converting their buildings to apartments is possible or financially feasible. On the Upper West Side, Emmut Properties in December 2021 purchased the shuttered Excelsior Hotel at 45 West 81st Street for $80 million. Emmut didn’t return a request for comment on the sale, but the company “specializes in converting buildings to pricey residential rentals,” according to the New York Post, which first reported on the transaction.
“We’ve seen in the last three or four months a pickup of that activity,” said Kenneth Colao, who runs contracting firm CNY Group. “There are a host of reasons that some hoteliers are looking at their portfolios and looking to get rid of less desirable properties.”
He added that any owner considering a conversion should look at how much work would be necessary to make the building conform to the city’s residential building codes.
“One of the main things that is important is the amount of reconstruction or teardown,” said Colao, his firm’s founding principal and president, referring to “any reorientation or changes to the core, stairwells and so forth.” He added, “That’s when it gets to be much more expensive and affects the feasibility.”
And, if the hotel is built larger than the current zoning allows, owners, have to do some tricky zoning work and re-massing of the building in order to make it work as a conversion.
“A lot of older properties may be located in zones where the property is overbuilt, where any conversion may trigger that deeper analysis of the zoning,” Colao said. Developers can “take that [building] and tum it into an L. Demolish a quadrant of that building and either take that unused [floor area ratio] and put it on top, or use it to fill out the lower floors. You may have your core at the intersection of the Land your rooms on both sides.”
Another typical playbook for hotel-to-residential conversions involves combining every two hotel rooms into one apartment. “One set of bathroom risers can be used for a kitchen and the other set can be used as the bathroom,” Colao explained. “If a property is 30 or 40 years old, you’d really want to replace all the MEP risers in the building and start fresh.”
However, he noted that hotel conversions to affordable housing are “not feasible” without either government subsidies or a property tax break. The city could also incentivize conversions by offering hotel owners zoning bonuses in exchange for adding apartments, he said. And on a more basic level, the city could streamline the lengthy approval process with the Department of Buildings for these kinds of projects.
“Things are just so bogged down in terms of the uncertainty involved in the time it takes to construct and develop a project,” Colao said. “It dissuades capital from going into certain areas.”