Success eludes New York’s plan to convert hotels into affordable housing


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

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

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

“During the pandemic, in the middle of the pandemic, there was this really amazing opportunity for the city to buy hotels at a very deep discount,” said Brenda Rosen, president of nonprofit, supportive, and affordable housing provider Breaking Ground, which has tracked conversions, said in an interview. “But now, with tourism coming back, people coming back to work and coming back to the city for conferences and things, that opportunity isn’t nearly as big. I would argue that it basically slipped away.”

On the campaign trail last September, Mayor Eric Adams called hotel conversions a “unique opportunity” when he pledged to convert 25,000 city rooms into permanently affordable, low-income housing and assistive living units for formerly homeless people.

But success depends on a struggling hotel sector spurring owners to sell, and that puts Adams, who enjoys HTC’s support, in an odd position as he relies on tourism to wake the city’s economy from its pandemic slumber to wake up.

Hotel occupancy in New York for the week ended September 3 was 81.2 percent, according to market research firm STR. That’s a significant increase from 39.1 percent in the same week in 2020 and 64.5 percent last year — and approaching 2019’s 87.3 percent. As travelers fill up the city’s inns, the owners are less desperate to sell their properties – especially affordable and supportive home builders for such sums can keep up.

“I don’t think the housing market is capable of meeting the market demands for ready-to-sell property at this point in time,” said Vijay Dandapani, president of the Hotel Association of New York City trade group.

A Pandemic Gambit

In August 2021, the then governor became. Andrew Cuomo signed the Housing Our Neighbors with Dignity Act, which established a $100 million program to fund hotel remodeling. But the effort drew little interest from developers, largely due to zoning and building codes that made conversions logistically or financially difficult. The state housing authority only published a term sheet for the program in January of this year.

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In June, the state legislature relaxed those barriers and added another $100 million to the program. Still, it’s only received 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 these proposals represent the earliest stages of a longer review and application process, the agency said.

Hoteliers who employ union staff and wish to sell their properties for conversion first had to get the blessing of the hotel workers’ union, meaning developers will have little success converting union hotels, even if they are interested in selling.

Breaking Ground was on the verge of buying the Paramount Hotel in Midtown and converting it into public housing when the agreement collapsed after the hotel workers’ union wanted to keep the hotel jobs at the site. The property has reopened as a hotel and staff who worked there before the closure have recently returned to work, according to the union.

It’s one of the few proposals that has come close to being achieved, but Adams has done little publicly to encourage it or to bemoan its failure. When he set the target of 25,000 units last year, he said he wanted to focus on suburban hotels where workers aren’t unionized.

The union, which argues that New York has an oversupply of hotels, was a key supporter of June’s regulatory reforms — convincing state lawmakers to limit funding and regulatory changes to non-union hotels. Adams and union officials have argued that nonunion hotels, which are more common outside of Manhattan, exploit workers and attract crime.

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

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But suburban hotels tend to be smaller than their Manhattan counterparts, a fact that complicates supportive apartment conversions when funding often depends on unit volume, according to developers and housing advocates who have evaluated potential deals. Other remote hotels may be ripe for funding but are too far from public transport, a sub-ideal situation for a new supportive housing project. Some have found that state program requirements — which, for example, dictate that every unit must contain a kitchen or kitchenette with a full refrigerator and stovetop — have made it too costly to use.

“I definitely wish for more progress and hope to see more progress soon,” said Samuel Stein, a housing researcher at the Community Service Society who helped set up the state program. “I know 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 of Manhattan’s unionized hotels, the conversion program cannot thrive without cannibalizing the city’s hotel inventory, others say.

“I think that at some point we will have a need for these hotel rooms again. And hotel rooms not only attract visitors, which creates economic activity, but hotels tend to hire 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 losing those jobs because we’re trying to meet the need for new housing units, when instead we could get these hotel rooms and build new apartments, that’s the part of the conversation that I find worrying.”

The reduction in the city’s hotel capacity is of particular importance after zoning changes were enacted last year, which require hotel developers to obtain special permission through the city’s lengthy land-use review process, Pinsky said. This policy — widely seen as a way to ensure future hotels use unionism, since any proposal would require approval from the HTC-affiliated City Council — was pushed by the union and supported by Adams when he was Brooklyn Borough President.

“That’s another reason why I think we need to be cautious with any policy that pushes for widespread conversion of hotel space, as opposed to other uses, when the market turns and it turns out we need more hotel space , this will be much more difficult to manufacture,” Pinsky added.

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The hotel’s remodeling grinds to a halt as the city grapples with an historic housing crisis and homeless shelters that are bursting at the seams. Average monthly rents in Manhattan surpassed $5,000 for the first time in June. The number of shelters in the city has exploded in recent months thanks to the resumption of post-pandemic evictions and the arrival of asylum seekers sent by Texas Gov. Greg Abbott.

The city is once again using hotels as homeless shelters – further narrowing the pool of hotels that could be converted into permanent shelters.

“Now these hotel owners have another use and so aren’t able to sell right away, they have revenue from the city,” Stein noted. On the other hand, he said: “That was the condition that made a lot of groups want to see you [Housing our Neighbors with Dignity Act] program in the first place. … If the city uses hotels more as long-term accommodation, then that could increase the pressure on the people who live there.”

Some advocates say the urgency of New York’s homeless crisis means the city should continue to pursue hotel renovations, even if they’re costlier than initially thought.

“As expensive as they may look today, the alternative is becoming more expensive,” said Eric Rosenbaum, president and CEO of homeless services provider Project Renewal, citing the continued and increasing use of shelters. He also noted, “Even if these hotel deals got more expensive, they would still be better deals than a development from the ground up.”

A spokesman for the city’s housing department said several sites are in early pre-development and may be converted, citing proposals from developers the agency is currently evaluating.

“New York City needs more affordable and supportive housing, and we are pleased to have helped pass this legislation to make hotel conversions a viable option for expanding the city’s housing supply. Our doors are open to any opportunity to convert a hotel site that could be better used as affordable or supportive housing.”



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