NYC’s Conversion Break Producing Far More Units Than New-Construction Sweetener

It’s been well documented and much lamented just how few ground-up residential units are being developed and constructed in New York City due to the limitations of 485-x, a 2-year-old state tax incentive that appears to guide most developers to a 99-unit limit on new multifamily buildings in much of the city in order for them to avoid paying construction wage minimums of $40 an hour. 

This becomes especially stark when compared to the robust productivity of 467-m, another 2-year-old state tax break, this one for office-to-residential conversions and without any wage requirements. 

Now, one enterprising industry professional has put the comparison in stark terms, and it doesn’t bode well for 485-x.

According to Nate Bliss, founder and principal of Latent Urban Ventures and a former chief of staff to the deputy mayor for housing in Eric Adams’s administration, the average office-to-residential conversion project in the city — including completed and planned projects under 467-m — produces 298 apartments. By comparison, the average new construction project under 485-x creates a grand total of just 39.4 apartments per project.

“The problems with the 485-x program were well known at the time it passed,” said Bliss. “The biggest surprise to me is just how much has been generated under the 467-m program. If you look at this first wave of projects, we’ve got over twice as many permanently affordable apartments delivered with 467-m as we do with 485-x.”

Bliss, who utilized pipeline data — meaning that his numbers included both projects that are underway and projects in the application stage — found that there are currently 55 conversions filed or underway under 467-m, with another 15 in active plan review. In total, these projects are slated to produce up to 20,876 apartments, 5,219 of them potentially designated permanently affordable.

As for new construction under 485-x, he found 301 prospective registrations for a total of 11,869 intended apartments, with 2,557 affordable. Of these, he found 30 registrations at exactly 99 units, and only three projects above the 99-unit threshold.

Bliss said he believes that the construction wage requirements are only one aspect of 485-x that is standing in the way of progress.

“485-x is a mix of a lot of different requirements, incentives and benefits,” said Bliss. “On the requirements side, there are wage standards, income thresholds and depth of affordability. On the incentives side, there is the length of the abatement and the other economic features of the program. What is clear is that the mix the state landed on does not work. One of those dials needs to be turned if the market is going to successfully make use of this program.”

Another interesting aspect of the dueling incentives is that 84 percent of the projects being converted under 467-m are in what Bliss refers to as Manhattan’s prime commercial core. These are mostly centered around Midtown and Lower Manhattan where, he noted on his website, “housing is expensive, developable land is scarce, and affordable apartments are especially difficult to produce.” 

By comparison, 96 percent of the new construction projects completed or underway under 485-x are in Brooklyn, Queens or the Bronx.

“We’ve spent a lot of time in this city thinking about how to build affordable housing not just in the farthest reaches of the city where the land is cheap, but in our most amenity-rich, transit-rich neighborhoods,” said Bliss, who wrote on his site that “a single 1,200-unit conversion complying at the statutory minimum can create approximately 300 permanently affordable apartments in a high-cost neighborhood — comparable to the affordable component of many smaller projects combined.”

Bliss is currently working on a project that he hopes will assist in the creation of new housing.

“Having come out of the policy space and been part of a lot of the regulatory reform efforts to encourage more housing over the past several years, I’ve been focusing on building a way to get information out there about the latent potential for sites around the city to produce housing,” said Bliss. “I’m working on building a tool where you can enter any address, and it gives you a quick report as to the unbuilt potential of that property.”

As part of this, Bliss hopes to further the city’s success with office-to-residential conversions.

“I’m looking at how I can create a predictive analytical framework that looks at office conversion history over the past several years, and tries to forecast where there are opportunities to convert in the next wave,” said Bliss.

As for the current wave, while there have been no signs of government action to adjust 485-x, Bliss believes there are other potential avenues to finding solutions that can increase the level of ground-up residential development in the city.

“I think that labor and industry are going to find a way to come together and solve a problem that is an issue for both,” said Bliss, “because a stifled new construction pipeline is good for no one.”

Larry Getlen can be reached at lgetlen@commercialobserver.com.