James Whelan wants to start converting commercial real estate into housing ASAP
As construction firms and developers focus on recovering from the industry downturn in New York City caused by COVID-19, many are investigating what can be done with older properties, including hotels that have closed as a result of the pandemic.
One approach to breathe new life into these properties is to convert them into apartments that include affordable units. Housing conversions would also help bring new residents to business parks, creating more livable communities, according to James Whelan, president of the Real Estate Board of New York (REBNY).
City & State met with Whelan to discuss how remodeling can meet the city’s need for affordable housing and its expectations for a return to the commercial real estate labor market. This interview has been edited for length and clarity.
How have conversions helped New York City in the past?
The pandemic has taken the subject of conversions to extremes, but it has been viewed as thoughtful policy in the past for a variety of reasons. The test case is Lower Manhattan. If you look back to the mid-1990s from a commercial office perspective, Lower Manhattan really turned it upside down. It had older office buildings that were not rented out very well from a commercial point of view. And what happened was a 421-g incentive program that really turned Lower Manhattan into something of a classic urban renaissance success story in the decades that followed, with those buildings redeveloped for residential use over time. They had very strong residential growth in Lower Manhattan. It really helped retail. Much more of a 24/7 environment is created. And bringing back Lower Manhattan really was an important part of the story.
When did the newer topic of conversion for affordable housing come up?
We started to focus on it, not last summer, but the summer before. Mayor Bill de Blasio put together some task forces. We started calling for it. I don’t think de Blasio wanted to do this because he only had a limited time in office and it will take a while. If you remember that former Governor Andrew Cuomo came up with the idea about a year ago at our urging, but they couldn’t actually get it going for various reasons in the budget. At the end of the legislature, $ 100 million was spent on this program called Housing Our Neighbors with Dignity Act (HONDA), which we have no faults in. The scope is only very limited. It is up to non-profit organizations to convert older hotels into residential buildings. There is a need for supportive housing, but with $ 100 million and the type of universe for whoever is allowed to use it, we think it will have limited applicability.
What do you think are the next steps to reuse these properties?
We need to be aware of how the city changes over time. While the 421-g did not require affordable housing, we think it important that if you have a conversion program you likely need an incentive to make the math work as well, a need for affordable housing will be required under the program. This will require a lot of coordination between city and state as you will need changes in state law as well as city planning and city ordinance changes. Given the tenor of the discussions by Governor Kathy Hochul, Mayor de Blasio and Mayor-elect Eric Adams, this is more likely because they seem to want to work more collegially than we may have seen in the past.
How do you see the return to the commercial sector?
Compare it to 9/11, the last real trauma to the city’s commercial market. Where were we a year and a half after 9/11? That would have brought us in early 2003. The site hadn’t even been evacuated. By the way, they were just beginning to argue about what the site would look like. I think we are in the early innings of this ball game and it will be a while before it is played out. The other thing that I find challenging about the conversation is that we all really need to get into what we’re talking about. Because when it comes to working remotely, I don’t think it’s all about 0 or 100. That means it will all be remote or everything in the office. It will end up somewhere in between. What is recommended to me by people who are way smarter than me – top trade brokers and business owners – is that it will be industry by industry and business for business. As a result, some companies will already have or have employees who come back five days a week. Others will say, “No, I want you two or three days a week and then we’re flexible.” So it will really take a while for this to all play out. We are encouraged. Leasing is picking up speed. Companies like Google make big bets on New York City. They won’t be making big bets on New York City thinking that their workers will be remote. I mean, that’s beyond logic, right?