Will New York Make Good on Pledge to Convert Hotels into Affordable Homes?

The Assembly’s Housing Committee is scheduled to vote on a measure Tuesday morning that would unlock $100 million in state funds to purchase unused hotels and convert them into affordable housing, what advocates say would serve as a template for future commercial-to-residential conversions.

Editor’s Note, updated 6/11/21: The Housing Our Neighbors with Dignity Act (HONDA) passed in both the New York state senate and assembly by wide margins Wednesday, sending the legislation to Gov. Andrew Cuomo. Assembly sponsor Karines Reyes of the Bronx hailed the measure as a mechanism for converting unused hotels to permanent housing for some New Yorkers experiencing homelessness. “If we’re going to be serious about building affordable housing we have to have government play a role in that,” Reyes said. “We need to make sure we have affordable housing for families who are chronically homeless, low income families, and we have to make that housing permanent.”

---

Gov. Andrew Cuomo supports the concept. So do progressive organizers, leftwing lawmakers, homeless New Yorkers, hotel workers’ unions and the real estate lobby.

But will New York actually seize an opportunity to purchase unused hotels and convert them into permanent affordable housing? 

Heading into the end of New York’s legislative session, fair housing advocates and progressive lawmakers have rallied around a bill that would create a framework for unlocking $100 million specifically set aside to fund the commercial-to-residential conversions in the April budget. The Housing Our Neighbors with Dignity Act (HONDA) would force the Department of Homes and Community Renewal (HCR) to use that money to buy or finance the purchase of commercial properties, especially hotels, that nonprofits would convert into affordable housing.

Unlike other hotel conversion proposals, buildings funded by HONDA would reserve 50 percent of units for people who have experienced homelessness and another 50 percent for New Yorkers earning no more than 80 percent of Area Median Income — equal to $66,880 for a single adult in the five boroughs. The new units would fall under local rent-stabilization laws.

The bill has broad support in the Senate, but the outlook remains less clear in the Assembly, according to five Democratic members interviewed for this story. The Assembly Housing Committee is scheduled to vote on the measure Tuesday morning — a good sign, said the lawmakers, who asked to speak about their conference without attribution.

There is a strong chance HONDA passes both legislative chambers and heads to Cuomo’s desk. His office did not respond to a question about whether he would sign the legislation.

Cuomo has, however, discussed the hotel conversion concept for months, starting with his State of the State address. “The housing problem in our cities has gotten worse,” he said during his January speech. “But the crisis of growing vacancies in our commercial property provides an opportunity. We should convert vacant commercial space to supportive and affordable housing and we should do it now.”

He later backed a measure to ease zoning restrictions for developers who convert hotels and make 25 percent of the units affordable.

That plan died during budget negotiations, leaving HONDA as the last and, tenants’ rights advocates say, best hope to capitalize on an opportunity precipitated by the COVID-19 pandemic. The crisis has devastated the hotel industry, depressed their values and motivated some owners to sell. But supporters say the window to purchase the properties is closing.

“We know this is a golden opportunity to turn this crisis, which we must be clear is a policy choice, into an opportunity to have a moral compass to do the correct thing,” said VOCAL-NY organizer Celina Trowell at a rally last month outside an unused Holiday Inn Express on Brooklyn’s Broadway, the border between Bedford-Stuyvesant and Bushwick. “We are asking our lawmakers to convert these units to affordable housing. To convert these units into the supportive housing that we needed, that was promised to us.”

Queens State Sen. Michael Gianaris, HONDA’s sponsor in the Senate, says his bill provides a mechanism for purchasing buildings and housing New York City’s homeless, and has appeal across the ideological and land use policy spectrum.

“We have a solution, there are lots of buildings, lots of hotels that are sitting empty just like this one,” Gianaris said at the Brooklyn rally. “It almost makes too much sense.”

“We got the money, now we need to get the program,” he added.

‘A down payment on a much larger investment’

The program will unlock a relatively modest amount of money, however; $100 million doesn’t go very far in New York City commercial real estate.

“It’s the kind of thing that sounds like a lot but disappears very quickly when it comes to real estate acquisitions,” says Community Service Society Housing Policy Analyst Samuel Stein.

As a general rule, developers say a hotel room costs $500,000 to convert into a supportive housing unit, though that amount varies depending on the state of the hotel and the existing infrastructure. In the simplest terms, $100 million could fund the complete purchase and renovation of roughly 200 units in one or two “demonstration projects,” which would provide some deeply affordable housing while serving as a blueprint for future conversions, Stein says.

More likely, the state would allocate a portion to various projects where developers assemble loans and financing from other sources — including the federal government’s new $5 billion commitment for housing for the homeless.

The purchase and ongoing conversion of a former Jehovah Witnesses hotel at 90 Sands St. in DUMBO provides something of a template. The supportive housing organization Breaking Ground spent $170 million to buy and renovate the hotel into 491 affordable and supportive housing units in 2018. Breaking Ground broke ground there in November 2020.

The project demonstrates the various sources of money and financing that go into creating a new supportive or affordable housing site, said New York Housing Conference Executive Director Rachel Fee.

“You never have one source of funding that does everything,” Fee says.

Breaking Ground received a $155 million loan from the New York City Department of Housing Preservation and Development (HPD), a $2 million allocation from the City Council and a $10 million grant from nonprofit developer Enterprise Community Partners, Inc. Breaking Ground and the Leviticus Fund also financed more than $8 million in pre-construction costs. New York City’s Housing Development Corporation (HDC) has financed renovations by issuing 501c3 and taxable bonds worth more than $70.4 million. HDC also provided a $6 million subsidy, according to Breaking Ground.

Some nonprofit developers had hoped for a bill that enabled the creation of “modern SROs”— single-room occupancy hotels which historically lacked private bathrooms or kitchens and could be built more cheaply. The construction of new SROs was banned in New York City in the 1950s and the existing sites gradually closed over the ensuing decades, eliminating a deeply affordable, albeit unappealing, rental option that served as a backstop for New Yorkers on the cusp of homelessness.

Stein, who helped craft the bill, says he and other HONDA supporters talked to many homeless New Yorkers who said they didn’t want the legislation to foster the creation of cheap SROs.

Thus, the final version of the bill mandates that each new apartment funded with the $100 million have a private bathroom with a bath or shower and a kitchen or kitchenette with a sink, cooktop, microwave and electrical outlets.

“This was important for the homeless and their advocates,” Stein says.

The legislation has undergone a number of changes in recent weeks, including the last-minute elimination of provisions that would have allowed developers to bypass the city’s land use process if they converted hotels located in M1 manufacturing zones within 400-feet of an area zoned for residential use. People familiar with negotiations said New York City officials opposed that provision because they did not want to cede municipal control over land use.

Some supporters say removing that regulatory relief portion of the bill will limit the number of hotels and buildings that can be converted because nonprofits will be unlikely to make a major purchase without a guarantee that they can renovate the building for residential use.

Ted Houghton, the president of the nonprofit developer Gateway Housing, says bypassing land use rules would have been a bold step, but “boldness was warranted based on the extent of the emergency and the crisis we’re seeing right now.

Nevertheless, Houghton said he remains optimistic that state lawmakers might revisit the idea in the future, especially if the next mayor supports a plan to do hotel conversions as-of-right in some M1 zones in order to house homeless New Yorkers. “This is a once-in-a-generation opportunity. but it’s not going to last forever and we’re hoping this is a first step and a down payment on a much larger investment,” he says.

Empowering the legislature

Unlocking the initial $100 million set aside by the state is not the only purpose of HONDA, say several advocates and policy experts. Many supporters want to see the state Senate and Assembly take a leading role on the capital side of housing policy after years of Cuomo controlling planning and funding.

“This is partly about getting the state legislature to be more of an actor in capital funding and, in the bigger picture, creating armature to convert hotels into affordable housing,” Stein says. “The state is setting up a program that sets minimum standards with set asides, room quality standards and making sure in the future that converted hotels are good housing, with standards for the people who need it the most.”

A bill introduced by State Sen. Brian Kavanagh and Assemblymember Steven Cymbrowitz, chairs of each body’s housing committee, would also force HCR to release its five-year capital plan.

Housing Justice For All tenant organizer Cea Weaver says the legislation allows state lawmakers to muscle into the housing policy realm after recently exerting their influence on a series of new tenants’ rights laws which have kept New Yorkers in their homes.

Next up for the legislature: measures to get homeless New Yorkers into permanent homes, Weaver says.

“We’re sending a test balloon,” Weaver says. “We’re never going to have a real affordable housing program driven by the legislature unless they step up and do HONDA, which is a low lift bill.”