The Governor’s Proposed Commercial Conversion Initiative

Kramer Levin Naftalis & Frankel LLP

On Jan. 19, 2021, Governor Andrew M. Cuomo proposed an amendment to Section 277 of the New York State Multiple Dwelling Law (MDL) that would “authorize flexibility in zoning to address high commercial vacancy rates and underutilized hotel properties located within specified areas in New York City, particularly in response to the COVID-19 pandemic” (State Division of the Budget, Memorandum in Support). The proposed amendment was contained in the FY 2022 State Executive Budget for Transportation, Economic Development and Environmental Conservation and would sunset on Dec. 31, 2026 (Part L: Repurposing Underutilized Commercial Space for Housing) (Governor’s Proposal).

If adopted, the Governor’s Proposal would, in New York City, permit residential conversions of (x) hotels with fewer than 150 rooms, and (y) Class B and C office buildings, in each case without regard to the building’s date of construction. Qualifying hotels may be located either outside of Manhattan or in Manhattan between Chambers and 110th Streets. Eligible office buildings must be located between Ninth and Park Avenues and 14th and 60th Streets. In addition, all conversions must (i) provide at least 20% of the housing units as affordable housing, either as part of a state affordable housing plan or pursuant to an agreement with the Department of Homes and Community Renewal (DHCR); (ii) be operated with 100% of its units as “supportive housing”; or (iii) provide a contribution toward the creation or preservation of affordable housing or prevention of homelessness in an amount determined by the commissioner of DHCR. In contrast to existing state and city programs, the Governor’s Proposal extends residential conversion opportunities to qualifying hotels and office buildings constructed after 1961 and appears to permit residential conversions of qualifying buildings located within manufacturing districts, which would otherwise not be permitted on an as-of-right basis.

The Governor’s Proposal overrides any state law and other local zoning law, ordinance, resolution, or regulation that would otherwise limit the conversions contemplated by the Governor’s Proposal. However, it is unclear whether the Governor’s Proposal overrides the Building Code or whether any alternative standards would be established to ensure that converted units have adequate light and air. The Governor’s Proposal does not appear to be mandatory, so all existing programs for the conversion of buildings to residential use (e.g., conversions under MDL 277 and Article I, Chapter V of the Zoning Resolution, which do not have an affordability requirement) remain available.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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