After a Year of Missed Opportunity, New York Revises Sputtering Hotel-to-Housing Plan

When COVID-19 hit, policymakers saw an opportunity: The city had interconnected affordable housing and homelessness crises; the city also had hundreds of empty hotels hemorrhaging cash. But a year after the state passed a law funding the conversion of hotels to affordable housing, not a single one has happened. The experience of the Paramount Hotel on West 46th Street illustrates why.

Late last September, mayoral candidate Eric Adams campaigned in front of a boarded-up hotel in Sunset Park, describing it as the kind of place he wants to see turned into affordable housing through a $100 million state fund.

An empty building with a sordid history that antagonized neighbors, the Phoenix Hotel seemed to fit the bill for conversion. But there were two problems: First, the Phoenix did not qualify under the terms of the state’s Housing Our Neighbors with Dignity Act (HONDA) because it is located in a light manufacturing district, a few dozen feet from residential zoning. Thus, a conversion would have to happen the old-fashioned way—passing the city’s lengthy land use review process and “layers and layers of really outdated bureaucracy,” Adams said then.

Second, New York City’s hospitality sector had already begun to recover from its pandemic devastation. A few days after Adams’ visit, Phoenix staff removed the plywood and the hotel reopened, a manager told City Limits. That may have been an omen.

Nine months since that visit and a year since state lawmakers established the HONDA program, not a single hotel has been converted to housing in New York City. The state’s Division of Homes and Community Renewal (HCR), which administers HONDA, said it has still not received an application. Just two developers have come forward with informal proposals, the agency said.

There is some reason for optimism, however. The sputtering program got new life Tuesday, when Gov. Kathy Hochul signed into law revisions that should make it easier for housing providers to turn rooms into apartments.

READ MORE: New York’s Legislative Session Ends, With Mixed Results on Housing. Here’s What Passed & What Didn’t

The measure, approved last week by the state legislature, amends New York’s multiple dwelling law to allow hotels to become permanent housing while retaining their current certificates of occupancy and bypassing onerous code requirements. The legislation also overrides land use restrictions to allow such conversions in manufacturing zones located within 400 feet of a residential district—just like the Phoenix in Sunset Park. That zoning text was removed from the original HONDA bill before the vote last year, seriously restricting the number of potential conversions.

“An opportunity has arisen to use vacant hotels in a way that will lift people up and give them, yes, the dignity of a home,” Hochul said at the bill signing. “The legislation we are signing today will help create new affordable housing units.”

Never mind that that opportunity actually arose more than two years ago, when the COVID-19 pandemic devastated the city’s hospitality industry and prompted pontification on how best to convert vacant, debt-burdened hotels into apartments for New Yorkers experiencing or at-risk of homelessness.

The program, now funded with a total of $200 million, can still work as long as housing providers look in the right places, said architect Mark Ginsberg, an expert in the affordable housing development and hotel conversions.

“It’s going to be smaller, outer-borough hotels,” Ginsberg said. “That won’t get you the magic bullet of 1,000 rooms at once, but it will provide needed housing and get people off the streets.”

Setting expectations

As COVID-19 shut down New York City, policymakers, housing advocates and everyday residents saw a clear opportunity: The city had interconnected affordable housing and homelessness crises; the city also had hundreds of empty hotels hemorrhaging cash. By January 2021, even then-Gov. Andrew Cuomo was touting a plan to turn those hotels into permanent homes.

The narrative tended to focus on vacant high-rise hotels in Manhattan. But even before the tourism sector began to rebound, that vision turned out to be unrealistic. The experience of the Paramount Hotel on West 46th Street illustrates why.

More than 26 months have passed since a guest last checked into the Paramount in March 2020. The hotel website now advertises an Aug. 15 reopening. The decorative plants outside died long ago, and on Monday, construction workers spent the morning jack-hammering the concrete near the locked front doors. A security guard said no one was working inside the building.

Surrounded by glass towers owned by multinational hotel chains, the 19-story stone Paramount seems a hospitality anachronism. And so it appeared to be a prime candidate for conversion to affordable apartments. Except it wasn’t.

The organization Breaking Ground worked for months on an agreement with the building owner to purchase the Paramount and transform it into supportive housing, just as they have done with other large, historic Midtown hotels, according to people familiar with the proposal. The deal crumbled when the powerful Hotel Trades Council (HTC) vetoed the sale to preserve 170 union jobs at the Paramount. The hotel has begun recalling some of the workers in preparation for a reopening, a union spokesperson said.

Breaking Ground declined to comment for this story. The hotel owner, a limited liability company tied to hotelier Aby Rosen, did not respond to phone calls and emails.

HONDA includes a provision that the union must consent to conversion at a unionized hotel, and HTC was instrumental in getting the law and the recent revisions passed—without its support, HONDA would have been D.O.A. In a statement to City Limits, the union head made clear they will never forfeit their strong contract, effectively wiping out any chance of converting large hotels like the Paramount.

“Failing and distressed hotels that pay workers low-wages and are a safety risk to their neighborhoods should be converted into affordable housing, but hotels that provide high-quality jobs and support the tourism industry should be preserved,” said Rich Maroko, president of the NY Hotel Trades Council (HTC). “We now have a smart, thoughtful program that can accomplish all of these goals.” 

Ready to sell? 

Adams, who received early backing from HTC, announced a goal last September of turning 25,000 rooms into permanent housing by only using hotels in the four boroughs outside Manhattan. That number was based on a 2021 projection by the Hotel Association of New York City, an Adams advisor said at the time. 

The landscape has since changed: About 83 percent of the city’s hotel rooms were filled on May 20, said Hotel Association of New York City CEO Vijay Dandapani. Adams put the rate at 95 percent in a recent tweet, which Dandapani said is true if you exclude the roughly 100 hotels with 20,000 rooms that remain closed. Just over half of those are non-union lodgings and several may never reopen, he added.

Dandapani, a supporter of HONDA and the new legislation easing conversion rules, said he knows of hotel owners in Long Island City, Manhattan and The Bronx who want to sell their buildings, but he declined to provide more specifics.

“The proof in the pudding will be in the eating,” Dandapani said. “We will see if they have the incentive to sell.”

Manhattan is not entirely off the table either. Some smaller, non-union hotels exist on the Upper West Side and throughout Northern Manhattan, including accommodations that have been rented in the past as temporary homeless shelters. 

More recently, Adams has focused less on specific boroughs and more on their union status. Last month, he called for conversions at “hotels that are creating blight.” 

On Tuesday, he urged nonprofits to take over shuttered hotels in an “oversaturated market”—that likely includes buildings that local lawmakers and homeless New Yorkers say are built specifically for the purpose of winning lucrative shelter contracts.  

“How do we use our hotel population correctly to continue to have union jobs, but at the same time utilize these hotels…to do something that many of us know is important and that is affordable housing,” Adams said. “The hotel conversion bill will unlock affordable housing for New Yorkers. We talked about it and now we have put it in place.”

Gateway Housing, a nonprofit that finances and helps develop income-restricted and supportive housing, estimates that there are 100 hotels in light manufacturing zones that could qualify for conversion under the new law. 

Hotel conversions that receive funding or financing through HONDA must reserve 50 percent of the 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 about $75,000 for a single adult. All of the units would fall under rent-stabilization protections.

Supportive housing providers have for years taken over hotels, especially single-room occupancy sites, and turned the units into apartments. Before HONDA, Breaking Ground purchased a roughly 500-bed DUMBO hotel once owned by the Jehovah’s Witnesses and have nearly finished the conversion. 

Developers say a hotel room costs about $500,000 to convert into a supportive housing unit, though the total varies depending on the state of the hotel and the existing infrastructure. That’s still far less than a brand new building, and can be done on a speedier timeline. Ginsberg, the architect specializing in the conversions, said newer hotels have the added benefit of already complying with local accessibility laws. 

Gateway President Ted Houghton, who played a key role in crafting the two hotel conversion bills, said the stage is now set to follow through on conversions and help alleviate the city’s affordable housing crisis.

“Homelessness is a housing shortage problem,” Houghton said at the bill signing.  “We can’t build fast enough and this bill will allow us to do things differently.”