Seeking to Boost Minimum Affordability Requirements for Office Conversions
State Assembly member Deborah Glick (above), who represents much of Lower Manhattan in the State Assembly, is seeking to alter fundamentally the rules under which office buildings can be converted to apartment towers.
Under proposed legislation sponsored by Ms. Glick, existing commercial buildings with a “floor-area ratio” (FAR) that exceeds 12 would be eligible for conversion to residential towers only if 40 percent of these new dwellings were set aside as permanently affordable housing.
Since 1961, the City’s zoning code has prohibited residential buildings with an FAR greater than 12 times the size of the lot on which a building is constructed. Theoretically, this means that a lot of 10,000 square feet cannot host a residential building with more than 120,000 square feet of internal space. Although this might sound like a straightforward ban on apartment towers taller than 12 stories, in practice residential structures are permitted to reach much greater heights—in part because the footprint of such towers is often much smaller than the lots on which they are built, and in part because technical exceptions (such as internal mechanical spaces) and givebacks (such as public plazas or affordable units) allow for significantly greater elevation. The FAR cap of 12 also applies to conversions of office towers to residential use.
Ms. Glick’s bill was introduced in response to a proposal by Governor Kathy Hochul which sought to remove the FAR cap of 12 on residential development, but without any requirement for affordable housing.
“Removing the residential FAR cap city-wide, with no guaranteed affordable housing, is trickle-down economics in housing policy,” Ms. Glick says. “The last few decades have shown us that overdevelopment under the current 12 FAR cap has led to an abundance of luxury units and a dearth of affordable housing. The crisis is in affordable housing, which is critical to retaining young talented New Yorkers and ensuring a more diverse population. Years of entreaties to developers to include affordable housing have yielded precious little.”
If enacted, Ms. Glick’s measure could prove transformative because the remote-work trend that began during the Covid pandemic has yet to be meaningfully reversed, which has left millions of square feet of Manhattan office space empty, and has developers seeking new uses for their property.
For Lower Manhattan, in particular, the implications are profound for two reasons. First, the Financial District abounds in structures that lend themselves to residential conversion. The expansive floor plates of the modernist office towers that became the norm after World War Two are difficult to adapt to residential use because the vast distances from the inner core of such buildings to their facades (a measure known among real-estate professionals as the “lease span”) makes it difficult to comply with New York City legal requirements that all bedrooms and livings rooms must have windows. Newer offices buildings are also mostly equipped with windows that do not open, which is prohibited for apartments. But buildings from the late 19th and early 20th centuries tend to be much slimmer (in part because they were erected before the widespread use of air conditioning, which meant that all workspaces needed to be near windows), and also to have windows that can be opened. Such buildings are far more numerous in Lower Manhattan than in Midtown.
Second, Lower Manhattan is suffering more acutely from office abandonment by corporate tenants than other districts, such as Midtown or Midtown South. A recent report from the real estate investment firm Colliers notes that slightly more than 20 percent of Downtown office space is now empty, an all-time record. The same report notes that this metric ticked upward slightly from recent months, while asking rents for local office space are more than ten percent lower than at the start of the pandemic.
So what will become of unused office buildings in Lower Manhattan? A similar question confronted policy makers in the 1990s, when large commercial tenants were migrating out of Lower Manhattan, leaving in their wake millions of square feet of empty commercial space. Their response was an incentive program that came to be known as 421-g, which allocated generous tax benefits to developers who converted office towers south of a line formed by Murray Street, City Hall, and the Brooklyn Bridge to residential use, in exchange for affordability protections to the people who moved in.
According to a December report from the Citizens Budget Commission, “that package of incentives was used to convert nearly 13 million square feet of office space, or roughly 13 percent of the Lower Manhattan office market, to residential use between 1995 and 2006.” This resulted in the creation of 12,865 new apartments—more that 40 percent of the growth in housing units in Lower Manhattan in the two decades leading up to 2020.
While the 421-g program did succeed in triggering an upsurge in apartment development, it also unleashed a wave of gentrification, with the knock-on effect of increased local housing costs that forced many longtime middle-class residents out of the community. Very few of the thousands of apartments created as a result of the taxpayer subsidy provided by the 421-g program were set aside as affordable, and none of them were linked to any commitment on the City’s part to build out civic infrastructure, such as schools, parks, and healthcare facilities, to accompany the rise in residential population.
The program also ended up costing the City $1.2 billion—or $92,000 per apartment—in taxes that were waived, but the affordability provisions (which were designed to mimic rent stabilization) were mostly a chimera, because landlords were allowed to evade them by various legal pretexts. This has resulted in a wave of lawsuits, which may yet secure some retroactive financial benefit for tenants who were for decades deprived of the affordability protections they had been promised. That noted, the 421-g program is now widely regarded as a failure that conferred lopsided benefits on building owners and delivered almost none of the intended advantages to residents, and thus contributed to the worsening shortage of affordable housing in Lower Manhattan.
A similar narrative played out after September 11, 2001, when the federal government authorized the issuance of Liberty Bonds to help finance rebuilding in Lower Manhattan. Over the coming years, this program subsidized real estate developers with some $8 billion in low-interest, tax-exempt, government guaranteed financing—almost all of which went to build market-rate, luxury housing and office properties. That second wave of conversions was mostly halted by the real estate crisis of 2008, which left multiple buildings (some of them only half-finished) in foreclosure, while other development sites have languished as empty lots for more than a decade. That slowdown was deepened by the economic recession unleashed by the pandemic, starting in 2020.
Ms. Glick says that her proposed legislation “is a measured response to permit large residential conversion of commercial property while assuring truly affordable housing will be included without allowing evermore luxury overdevelopment citywide. Lifting the cap entirely is just the green light for rampant luxury development real estate developers seek.”
The 2023 legislative session in Albany ended on Thursday without enactment of either Ms. Glick’s measure or the Governor’s proposal to remove the FAR cap entirely without any affordability commitments. Advocates for affordability and for unfettered development are both likely to reassert their agendas when the legislature reconvenes.
In the meantime, according to the Downtown Alliance, six former office buildings in the Financial District are now in various stages of conversion to apartment towers. Among them is the 1960s-era commercial structure at 25 Water Street (at the corner of Broad Street), which is slated to contain 1,200 rental apartments, all of them market rate. This number of dwellings will make the building the largest office-to-apartment conversion in the City’s history.