In New York City, a unique convergence of challenge and opportunity is reshaping the urban landscape. Once-unwanted office buildings, left behind by shifting work patterns and market demands, are now being transformed into much-needed affordable housing. This process of conversion—breathing new life into aging structures—has become a vital strategy for addressing the city’s housing shortage while recycling what might otherwise be wasted space.
Conversions are hardly new to New York’s real estate toolkit, but recent incentives have made the approach more attractive than ever. Not every outdated office building can be economically repurposed, but enough are viable to spur a wave of activity that is revitalizing neighborhoods and offering hope to those seeking affordable homes.
Yet, this momentum faces a potential roadblock. The Wall Street Journal recently noted that Zohran Mamdani, the Democratic mayoral candidate who won his party’s primary, is advocating for a freeze on rents for nearly a million rent-stabilized apartments. Such a policy, if enacted, could threaten the economics of office-to-residential conversions, making them far less feasible.
Recommended For You
For years, these conversions have served as a crucial economic engine for the city. “There [have been] many different programs—incentives for providing affordable housing,” Jahn Brodwin, senior managing director and co-leader of the real estate practice at FTI Consulting, told GlobeSt.com. In some cases, city officials have even allowed developers to increase the number of residential units beyond what was originally permitted, further boosting the appeal of conversion projects.
Still, the process is not without its hurdles. The inherent differences between office buildings and multifamily residences—such as floorplate layouts and the need to install plumbing in far more locations—often result in a loss of about 25% of rentable square footage, Brodwin explained. These costs must be absorbed into apartment rents, and if those rents climb too high, attracting tenants becomes a challenge.
According to the Journal, for conversions to make financial sense, office property values need to be about half those of multifamily buildings. As of 2024, the average discount was around 24%. This reality, combined with the pressing need to repurpose Class B and C office properties and expand affordable housing, has spurred the creation of new development programs.
Daniel Harris, executive vice president and chief commercial real estate officer at Ocean First Bank, told GlobeSt.com that these programs have enabled many successful conversions. The latest initiative, known as the 467-m Affordable Housing from Commercial Conversions program, offers significant incentives: depending on construction dates, developers can receive up to three years of exemption from real property taxes, followed by as many as 30 years of a 90% exemption and an additional five years of gradually decreasing exemptions. To qualify, at least a quarter of the new units must be affordable rentals, permanently subject to rent stabilization.
The program’s success is partly due to favorable financial conditions. As the Journal reported, more owners of distressed office buildings are accepting the new reality, with some properties selling for as little as 20 to 30 cents on the dollar.
However, Mamdani’s proposed rent freeze could dramatically alter this landscape. While he is not yet mayor, his policy would impose strict financial limits on a quarter of the units in any converted building, creating significant stress for developers.
“For developers, the numbers must work,” said Eugene Flotterson, principal and director of architecture at CetraRuddy, a New York City-based architecture and interior design firm. “The 467-m has been really successful in every conversion we’ve looked at.”
Harris echoed this sentiment, noting, “It's a wonderful solution, but it's extremely challenging. All the stars have to align in order to be able to execute one that economically makes sense.”
If Mamdani’s rent freeze becomes reality, developers “may certainly take their foot off the accelerator to see what happens,” Brodwin warned. “Which makes sense; you’re not going to do something if it won’t pencil out.”
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
