NYC is relaxing zoning to incentivize commercial-residential building conversions; industry experts say it’s a complicated process

With the commercial vacancy rate cresting 17% nationally this summer, cities and counties across the United States are scrambling to find sustainable strategies to reverse the trend. Converting empty commercial spaces into residential housing is one oft-talked about solution that many communities are considering. Following an “up to 75%” tax break initiative in Boston announced earlier this summer, New York City is the latest metro center to take action.

Included in the city’s “City of Yes” initiative, which is designed to increase the amount of affordable housing options available, is a plan to convert commercial real estate into residential units. To facilitate that endeavor, Mayor Eric Adams announced last month the launch of an Office Conversion Accelerator team, which creates a single point of contact within city hall for all renovation projects of more than 50 housing units.

“We are throwing open the door to more housing—with a proposal that will allow us to create as many as 20,000 new homes where the building owner wants to convert offices into housing but needs help cutting through the red tape,” Adams said in a statement. “With these three initiatives—converting empty offices to homes, an Office Conversion Accelerator, and the Midtown South Mixed-Use Neighborhood Plan—we continue to use every tool at our disposal to increase the supply of homes for New Yorkers.”

The Midtown South Mixed-Use Neighborhood Plan is a process that will update zoning rules to allow more residential units. Technically, the proposed actions to facilitate office conversions extends substantial building flexibility to a 136 million square feet of office space—roughly the amount of office space in the entire city of Philadelphia, according to the statement. The zoning changes make buildings built before 1990 eligible to convert into housing, and allows offices and other non-residential buildings to be converted to housing anywhere in the city where housing is permitted under zoning. The policy also allows a wider variety of housing types to be retrofitted in converted offices, such as supportive housing, shared housing, and dorms.

“It makes no sense to allow office buildings to sit empty while New Yorkers struggle to find housing. By enabling office conversions, New York will reinvigorate its business districts and deliver new homes near jobs and transit,” said Deputy Mayor for Housing, Economic Development, and Workforce Maria Torres-Springer.

The office-to-residential conversion plan is touted as having the potential to produce 20,000 new homes.

But while many in the public sector are looking to the residential conversion of commercial real estate as a silver bullet that can simaltaneously fill vacant office spaces and solve a national housing shortage—driving down residential real estate prices in the process—it isn’t that simple.

“Building residential housing is incredibly (complicated),” said Gary Kerr, who runs the Northeast region for Greystar Real Estate Partners, an international South Carolina-based real estate developer and management company. Converting offices into residential units “Is possibly one of the most complicated conversions you can do. “It is, in most cases, infeasible.”

In many cases, residential conversion requires a total gut of the commercial building’s interior. Utilities like plumbing systems must be rerouted so that each individual unit can be metered. Loading docks need to be filled in. Glass walls must be remediated, as they aren’t economical. Elevators might need to be reolocated to meet residential code. Interior walls and egress stairways sometimes need to be added. Then there’s the financial drain of bureaucratic red tape.

“You’re going to span three, four, five, six months just on feasibility studies,” Kerr said, noting that from conception to completion, a typical residential conversion takes about a year. “I think there is some disconnect between how feasible this is—and a lot of times we get stuck on ‘if it’s physically feasible,’ compared to ‘financially feasible.’ There are places where it’s both, and that’s when it happens.”

The idea that converting a space will take faster than building a new one is “a little bit of a misnomer,” he continued. “It’s actually quicker sometimes to knock these buildings down and start from scratch.”

Even so, Kerr noted that the steps many cities like New York City are taking to incentivize conversion for commercial real estate owners is promising.

“It is definitely a significant cost-benefit. It really comes down to the individual building,” he said.