By JANAKI CHADHA

September 19, 2022 4:30 AM

 

NEW YORK — With rents soaring and tourism rebounding, New York’s ambitious plan to convert tens of thousands of Covid-emptied hotel rooms into affordable housing is looking like a bust.

 

A similar plan in California has created 12,500 homes over the last two years, and municipalities from Missouri to Florida have followed suit.

 

But after a year and $200 million committed, New York hasn’t created a single apartment — thanks in part to a piecemeal implementation and lawmakers’ deference to the politically powerful Hotel Trades Council union. And now that travelers are returning, the window to act is closing.

 

“During the pandemic, the middle of the pandemic, there was this really amazing opportunity for the city to purchase hotels at a very steep discount,” Brenda Rosen, president at the nonprofit supportive and affordable housing provider Breaking Ground, which has pursued conversions, said in an interview. “But now with the return of tourism, and people coming back to work and people traveling back into the city for conferences and other things, that opportunity is not nearly as great. I’d argue that it’s basically slipped away.”

 

On the campaign trail last September, Mayor Eric Adams called hotel conversions a “once-in-generation opportunity” as he pledged to turn 25,000 city rooms into permanent affordable low-income apartments and supportive housing units for formerly homeless people.

 

But success relies on a depressed hotel sector spurring owners to sell, and that’s put Adams, who enjoys the HTC’s backing, in an odd position as he looks to tourism to rouse the city’s economy from its pandemic slumber.

 

Hotel occupancy in New York was 81.2 percent over the week ending Sept. 3, according to research firm STR. That’s up significantly from 39.1 percent for the same week in 2020 and 64.5 percent last year — and it’s approaching the 87.3 percent recorded in 2019. As travelers once again fill the city’s inns, owners are less desperate to offload their properties — particularly for sums that affordable and supportive housing developers can match.

 

“I don’t think the housing market is capable at this point of meeting that market requirement for ownership that’s willing to sell,” said Vijay Dandapani, president of the Hotel Association of New York City trade group.

 

A pandemic gambit

 

In August 2021, then-Gov. Andrew Cuomo signed the “Housing Our Neighbors with Dignity act,” establishing a $100 million program to help fund hotel conversions. But the effort garnered little interest from developers, mainly due to zoning and building code requirements that made conversions logistically or financially difficult. The state’s housing agency didn’t release a term sheet for the program until January of this year.

 

In June, the state Legislature eased those barriers and added another $100 million to the program. But still, it’s received just a handful of proposals from developers — four in New York City and one elsewhere in the state, according to the state Department of Homes and Community Renewal. And those proposals represent the earliest stages of a longer review and application process, the agency said.

 

Hoteliers who employed union staff and wished to sell their properties for conversion have to first get the blessing of the hotel workers union, meaning developers are unlikely to find success converting union hotels, even if they’re keen on selling.

 

Breaking Ground was on the verge of buying and converting Midtown’s Paramount Hotel into supportive housing when the agreement collapsed after pushback from the hotel workers union, which wanted to preserve the hotel jobs at the site. The property has reopened as a hotel, and people who were employed there before it shut down recently returned to work, according to the union.

 

It’s one of few proposals that even got close, yet Adams did little publicly to boost it or lament its failure. When he laid out the 25,000-unit goal last year, he said he wanted to focus on outer-borough hotels where workers are not unionized.

 

The union, which argues New York has a glut of hotels, was a major proponent of the June regulatory reforms — while convincing state lawmakers to limit funding and regulatory changes to non-union hotels. Adams and union officials have argued non-union hotels, which are more prevalent outside Manhattan, exploit workers and attract crime.

 

“Failing and distressed hotels that pay workers low-wages and are a safety risk to their neighborhoods should be converted into affordable housing,” Rich Maroko, president of the union, said in a statement. “But hotels that provide high-quality jobs and support the tourism industry should be preserved. We now have a smart, thoughtful program that can accomplish all of these goals.”

 

But outer-borough hotels tend to be smaller than their Manhattan counterparts, a fact that complicates supportive housing conversions when financing often depends on a volume of units, according to developers and housing advocates that have evaluated potential deals. Other far-flung hotels might be ripe for financing but too distant from public transportation, a less-than-ideal situation for a new supportive housing project. Some have found the state program’s requirements — which dictate, for example, that each unit must include a kitchen or kitchenette with a full refrigerator and cooking range — have made utilizing it too costly.

 

“I absolutely wish there was more progress and hope there is more progress soon,” said Samuel Stein, a housing researcher at the Community Service Society, who was involved in the push to establish the state program. “I know that they needed some of the regulatory relief that we secured from the state this year but now we have it and it’s time to do the thing and fulfill the promise.”

 

Reservations

 

Even with the exclusion of many unionized Manhattan hotels, the conversion program cannot thrive without cannibalizing the city’s hotel stock, others say.

 

“I do think that eventually, we’re going to have the need again for those hotel rooms. And hotel rooms not only attract visitors, which generates economic activity, but hotels tend to employ people who, in many cases, are otherwise difficult to employ,” said Seth Pinsky, former head of the city’s Economic Development Corporation under Mayor Mike Bloomberg. “And so, to lose those jobs because we’re trying to satisfy a need for new housing units, when instead we could be preserving those hotel rooms and building new housing, that’s the part of the conversation that I find concerning.”

 

Reducing the city’s hotel capacity is of particular concern after zoning changes enacted last year that require hotel developers to obtain a special permit through the city’s lengthy land use review procedure, Pinsky said. That policy — widely seen as a way to ensure future hotels use union labor, since any proposal would require approval by the HTC-aligned City Council — was pushed by the union and backed by Adams when he was Brooklyn borough president.

 

“That’s another reason why I think we need to be circumspect about a policy that pushes for the widespread conversion of hotel space, because unlike other uses, when the market turns, and if it turns out that we need more hotel space, it’s going to be much harder to produce,” Pinsky added.

 

The hotel conversion standstill comes as the city grapples with a historic housing crunch and bursting-at-the-seams homeless shelters. Average monthly rents in Manhattan topped $5,000 for the first time ever in June. The city’s shelter population has exploded in recent months, thanks to the post-pandemic resumption of evictions and the arrival of asylum seekers sent by Texas Gov. Greg Abbott.

 

The city is once again using hotels as homeless shelters — further limiting the pool of hotels that could be turned into permanent housing.

 

“Now those hotel owners have another use and therefore aren’t in a position where they need to sell immediately, they have revenue coming in from the city,” Stein noted. On the other hand, he said, “That was the condition that sparked many groups to want to see a [Housing our Neighbors with Dignity Act] program in the first place. … If the city is using hotels more as long-term shelter, then that might increase the pressure from people living in them.”

 

Some proponents say the urgency of New York’s homeless crisis means the city should still pursue hotel conversions, even if they are a more costly proposition than originally thought.

 

“As expensive as they might look today, the alternative will be increasingly expensive,” said Eric Rosenbaum, president and CEO of the homeless services provider Project Renewal, referring to continued and increased use of shelters. He also noted, “Even if these hotel deals got more expensive, they would still be better deals than ground up development.”

 

A city housing department spokesperson said multiple sites are in early pre-development and may be converted, referring to proposals from developers the agency is currently evaluating.

 

“New York City needs more affordable and supportive housing and we’re glad to have helped get this legislation done to make hotel conversions a feasible option for growing the city’s housing supply. Our doors are open to any opportunity to convert a hotel site that may be better utilized as affordable or supportive housing.”