Are Residential Conversions the Answer NYC Is Looking For?
- Mar 31, 2021
Facing an affordable housing crisis and an oversupply of underutilized hotel and office space, New York state Gov. Andrew Cuomo has proposed legislation that would make it easier for developers to convert vacant assets into residential space. The bill, which includes support for affordable housing, would override local zoning regulations through the end of 2026 to facilitate an increase in multifamily supply. Currently, the bill is being considered by the state legislature.
In light of the situation, we spoke to Stephen Jacobs, president & founder of Stephen B. Jacobs Group, about the feasibility of residential conversions to keep up with the times and maintain pristine functionality. A renowned architect and a Holocaust survivor, Jacobs has made adaptability the heart of his work. Lately he’s been contemplating the best ways to move forward as the pandemic continues.
How has the practice of converting commercial real estate changed throughout your career?
Jacobs: If we looked at obsolete, mercantile buildings as a residential resource, this goes back to the early 1970s. We did some of the biggest buildings that were converted at that time, including the Cast Iron Building at Broadway and 11th Street, and The Printing House at 421 Hudson St., among others.
Since I had been advocating this for almost 50 years, I certainly continue to advocate converting obsolete buildings to residential uses because there is a tremendous demand for housing, particularly affordable housing. And if there is a glut of office space, it is a very logical thing to do. This has been happening in New York City for years; this is not a new phenomenon.
From an architectural point of view, the process is very much building-specific because it depends on the vintage of the office building. If we are talking about older office buildings, they could take any configuration. Are the stairs and the elevators in a usable location? Not always. Sometimes it makes sense to relocate them. In the case of old loft buildings, particularly the smaller ones, it is not unusual for the service elevator to block the creation of an additional room or an additional unit. So in those cases, you’ll want to find a better location.
The issues also pertain to the underlying zoning. NYC still has manufacturing zones, which do not permit residential conversions. So it is really a question of whether these buildings are located in commercial zones. But they could very well be in manufacturing zones, so the conversion could not be done as of right.
The other issue is the issue of light and air. For example, new residential buildings require a 30-foot rear. Office buildings, particularly the older ones, are much deeper. Sometimes, they have a yard of 5, 10 or 12 feet. Sometimes none at all.
In the early years—until the mid-1980s—every one of these projects had to go to the Board of Standards and Appeals for variance, because of the light and air issue. Because when you change the use of an existing building to a different use, the law requires you to conform to all standards, as if it were a new building. So every one of these conversions required variance until the mid-1980s, when they passed Article 7B of the New York State Multiple Dwelling Law, which was specifically written to facilitate the conversion of these types of buildings to residential use.
What kind of particularly challenging projects have you worked on?
Jacobs: We have converted almost every possible building type that I can think of: office buildings, schools, hospitals and churches. I could say I have never met a building that I did not know what to do with.
One of our recent projects that was a particularly difficult building was the conversion of 70 Pine. Built in 1932, 70 Pine was an old iconic art deco skyscraper, which at one point was the tallest building in Lower Manhattan. It had a very slender tower sitting on top of a very deep podium—120 feet deep. More depth than I had ever tackled. This was further complicated by the fact that the building was not only an exterior landmark, but also had interior parts that were landmarks.
Pine 70 was the headquarters of AIG insurance company. In the last financial crisis in 2008, federal officials took this building back as an AIG asset. And they had a very hard time selling it because nobody knew what to do with the place. Until somebody brought it to us. We came out with a rational, reasonable scheme and we successfully converted that building into more than 600 apartments and two hotels.
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What is the profile of a building that is a good candidate for a residential conversion in today’s market?
Jacobs: A building that has a core that is in a location that can be retained. A building that provides light and air, at least in conformity to the requirements of Article 7B of the New York State Multiple Dwelling Law. If you have those two things, the building is easily convertible.
By the way, we have a lot of vacant hotels, also. Hotels lend themselves to residential conversions much more easily because they have guest rooms. Typically, the core and other building infrastructure elements are in the right location. Or let me say usable location, rather than right location.
That’s essentially it. But the question of whether a building is a candidate for a conversion is much more a question about the value of the real estate and how much you can afford to invest in the conversion. Does this make sense? Can you get an adequate rent or adequate sales price to justify the renovation?
There’s also the underlying question of how much you can buy the building for. If the building is very expensive and requires a very expensive renovation, unless it happens to be in a super prime location, the conversion probably wouldn’t be feasible. Do you think there are greater challenges to convert retail space?
Jacobs: Yes, it’s a greater challenge because ground-floor residential space, particularly at the front of the building, is not a great thing. But there’s still going to be retail, it’s not going to disappear. There will be different kinds of retail. But you still need services and there will always be food and beverage operations. I also think that even though retail is going to have a hard time for quite a few years and its rent value will probably be reduced, that space can’t easily be converted into residential space. It could be converted into other kinds of uses, like coworking environments or other types. People’s imagination can be very, very broad.
Do you think residential conversions could help alleviate the affordable housing crisis or will the cost of retrofitting properties make the rents prohibitive? Are these conversions feasible without government assistance?
Jacobs: The problem is that it is very difficult to do affordable housing without government participation. Government participates in a lot of different ways: at the state, city and federal levels. Subsidies make the project financially and economically feasible at the reduced rent levels that make the apartments affordable.
Another way to do this is the concept of inclusionary housing, where the city gives you a zoning bonus to let you build a taller building, while encouraging you to make some of the units affordable. Unless the building is city-owned and turned over for a dollar or something like that, or the acquisition value is so low. It would be very difficult to create affordable housing without government assistance.
How much do you think residential design will change, considering that work-from-home models have been the norm in the past 12 months?
Jacobs: Right now, if you were thinking and planning for something, yes, it would impact your thinking. Long term, I’m not sure. Because people have very short memories. If you go back to the pandemic of 1918, by 1923-1924, everything was normal. Nothing changed. Will this happen again? I don’t know.
But the question of work-from-home areas is deeper than the pandemic because employers and employees have realized that it is much more feasible to work remotely than they had originally assumed. I think this will have a long-term impact. It will give people a lot more flexibility. I’m not sure that is going to happen in every industry and in every company.
If you take our company for example, in July, the city let us reopen the office. We have about 50 people. We broke the staff in half and alternated weeks. The office building closed on Fridays, so it could be cleaned. But we gave people the option. If, for example, you had to commute on public transportation, or if you had kids at home that weren’t going to school, we would certainly be flexible. So, at the end of the day, maybe 15 percent to 20 percent of the people come in. Some days, even fewer than that. As an employer, do I think that is great? I’m not sure. I’m told by my people that we are not losing efficiency. I find it hard to believe.
Should residential conversions take off in New York City, do you envision more walk-to-work environments?
Jacobs: Absolutely. All of human civilization has occurred in cities. Cities create the kind of environment that stimulates people in every creative field. That requires a certain density, so that people can interact with each other. I miss that and I think that, to a large extent, a lot of people miss that.
So maybe remote working could be different. Maybe you work remotely for two or three days a week, and offices are designed with flexible desks that are shared by more than one person. This, however, does not always work in every industry. For example, every individual computer in our office is geared for the specific person working in that spot. But these are all possibilities. It’s very hard to predict.
What’s your take on office demand in Manhattan? Will employees want to go back to their offices?
Jacobs: I think yes, particularly in creative fields. Something gets lost when there isn’t a personal interaction between people. By the way, some people don’t want to work from home. We had people that came into the office throughout the whole thing, because they just didn’t have the conditions to work from home. It was perfectly safe because there were only one or two people there, and we have a very big office.
So yes, I believe people will come back. But I think that demand for office space is going to be reduced for a long time. Not only do we have a lot of companies going out of business, but the concept of remote working makes it possible to reduce the amount of space you need. And this has an impact. That’s why the office rental market is in such terrible shape.