By CHAU LAM
June 16, 2022
A year ago, Gov. Kathy Hochul and state lawmakers set aside $100 million to encourage real estate developers to take New York City’s vacant and underutilized hotels that were struggling due to a lack of guests during the pandemic and turn them into permanent housing for the homeless and low-income residents. Not one hotel has been converted under the program so far.
Lawmakers in Albany doubled the funding to $200 million this month and Hochul signed legislation waiving some regulatory hurdles to make it easier and faster for nonprofit developers to fully convert hotels into affordable and supportive housing. The new program, officials said, is meant to save developers time and money as a way of enticing them into converting enough units to help solve the city’s housing crisis.
The question now is whether it can have an impact as the city continues to find a new sense of normal, more tourists return and fewer hotels are struggling to operate. Some said they see the expansion of the program as a step in the right direction. Others said they aren’t sure whether even a doubling of funds, and the removal of red tape, is enough to make a difference.
“I’m hopeful that we will see a whole bunch, but I’m reluctant to say a number,” said Ted Houghton, president of Gateway Housing, a nonprofit that advises affordable housing developers. “It is going to be a couple hundred units or is it going to be a couple thousand units. I don’t know. I mean, both are very much possible.”
The idea of converting vacant hotels into affordable housing took hold after COVID-19 decimated the hotel industry in the spring of 2020. The federal government limited travel and states told residents to stay home as part of an effort to contain the coronavirus. Hotel owners were hemorrhaging money at the same time that housing advocates were looking to move homeless people out of congregate shelters that were not conducive with social distancing requirements and into safer, permanent housing.
Turning financially distressed hotels into affordable and supportive housing is seen as a way to solve both problems.
“We saw hotel conversions, and still see hotel conversions, as crucial because they are one of the few ways that you can increase housing capacity quickly,” said Eric Rosenbaum, president and chief executive of Project Renewal, a homeless services group that provides housing, health, and jobs for homeless people.
In June 2021, the state Legislature passed the Housing Our Neighbors with Dignity Act, designed to help nonprofit developers buy distressed hotels, pay for the renovations, then turn them into affordable housing. So far, there have been no takers.
The state agency that administers it received two preliminary proposals for buildings in New York City and one outside the city, but no formal applications for financing have been submitted, according to a spokesperson.
Hochul and state lawmakers went a step further earlier this month and amended what’s known as the state’s “multiple dwelling law” to allow certain hotels located in areas zoned for light manufacturing to be used as permanent housing. Hotels can retain their preexisting certificates of occupancy and developers can skip the lengthy land use review process, known as the Uniform Land Use Review Procedure.
As a mayoral candidate, Eric Adams proposed turning shuttered hotels into supportive and affordable housing. As mayor, he lobbied for the legislation.
“This bill will do more than build apartments, it will transform lives,” Adams said when Hochul signed the bill into law on June 7th.
There are 177 hotels located in light manufacturing districts that could be eligible for conversion, said Houghton, who helped draft the legislation. But the law only allows hotels within 400 feet, or about two blocks, of a residential area, to be converted. And, if hotel workers are represented by a union, the union must sign off on the conversion. Other factors, including the cost to buy and renovate a hotel, and its condition and location, could reduce the pool of candidates for conversion further.
Low-cost housing, readymade
Because of a lack of vacant land for development in New York City, Rosenbaum, of Project Renewal, said new construction projects can take five years to complete. Whereas it would only take about only 18 months to convert a hotel into permanent, low-cost housing, according to his estimates.
“There’s almost nothing else out there that offers that speed of getting affordable housing online,” Rosenbaum said.
By design, hotels are built to provide people with temporary shelter. The physical infrastructure – such as plumbing, elevators, and rooms – is already in place.
“All you need to do is add a small kitchenette and you’ve got a fully functioning, small studio,” Rosenbaum said.
But the cost of conversion can be prohibitively expensive, which is what the new legislation aims to address.
Two recently completed hotel-to-housing projects, started before the legislation was enacted, give an idea how much time and money it takes to create affordable housing in New York City.
Real estate developer Fairstead repurposed the former Park 79 Hotel, a seven-story building near the Museum of Natural History on the Upper West Side, into affordable housing for seniors. The price tag for the gut renovation came to about $60 million, said Brett Meringoff, a managing partner. It took the firm a couple years to turn roughly 110 hotel rooms into 77 studio apartments. That works out to nearly $780,000 per unit.
In Brooklyn, Breaking Ground, the city’s largest supportive housing developer, spent $233 million, thanks to financing from City Hall, to turn a 29-story building once used by Jehovah’s Witnesses as a hotel for staff and volunteers into 491 apartments for extremely low-income and moderate-income households, according to Matthew Costantini, a spokesperson for the nonprofit. Of those, 305 apartments are set aside for formerly homeless individuals. Breaking Ground paid $178 million for the DUMBO property in 2018 and broke ground in November 2020.
Challenges facing developers
While tourism is slowly returning to the city, hotel occupancy is nowhere near pre-pandemic levels. Vijay Dandapani, president and chief executive officer of the Hotel Association of New York City, said roughly 100 hotels, representing 13% to 14% of the city’s inventory, remain closed,
He supports hotel-to-housing conversion, but he believes hotel owners who might have wanted to unload their properties for a bargain in 2020 may be less inclined to sell them at distressed prices, considering that the industry expects tourism to fully recover by 2024.
“They’ll hold out,” Dandapani said. “Many of these owners, if not all of them, built their hotels with the view of being a hotel owner, not an affordable housing owner.”
He also said that adding kitchens, even small kitchenettes, is not an easy task. Most hotel rooms are too small to accommodate one, Dandapani said, which means adding cooking facilities will likely require costly renovations that include moving walls in order to create additional space.
“When you convert these hotels into affordable housing, you need to square that circle,” Dandapani said.
With more than 48,000 people staying in the city’s main shelter system and thousands more unsheltered individuals living on the streets and in the subways, Dandapani said the city and the state will have to spend a lot more than $200 million to curb homelessness.
“It’s a bit of a challenge. So, where’s the money going to come from.”