City of Yes, No or Maybe?
Things to Consider include Erosion of Commercial Property Tax Base, Impact of Your Neighbors' Running Machines at all Hours of the Day for their Home Based Businesses, Significantly Stunted Regulatory Enforcement and Oversight over Home Based Businesses, the Feeding of the Non Profit & Religious Orgs' Valuable Property to the Real Estate Development Wolves without Making & Taking Proper Precautions & the Transfer of Power from Local Control to Billionaires & International Real Estate Developers & ...
June 4, 2024 / NYC Neighborhoods / NYC Government / NYC Business / News Analysis & Opinion / Gotham Buzz.
City of Yes to be Voted Upon This Week
This week the New York City Council will vote on Part II of the City of Yes proposed changes to New York City zoning laws. While the media pundits and many local pols believe it will pass, there's still a chance that it could be tabled for further consideration, and an outside chance that it could be voted down.
I've attended a number of meetings and conferences where the legislation has been discussed by various experts who have examined and have advocated both for and against the proposal. Unfortunately, I haven't been able to square away enough time to provide more complete coverage of this legislation as it has moved from conception to a proposal which will be voted upon this week.
Another Failure to Inform by NYC Major Media
So what I am publishing today, is a compendium of what I've been able to learn over the past five months, about the City of Yes Part II Text Amendment Changes. My intention is to enable you to make a more informed decision about the sweeping zoning changes that are, in time, sure to affect most New Yorkers' lives - just in time for you to do something about it. Unfortunately, as is so often the case these days, TV news is too busy doing weather, sports and crime & accident videos, to do any real news reporting about what's going on in NYC, that will affect city residents and workers. And none of the three NYC major daily newspapers have paid sufficient attention to what is sure to be one of the most signifcant - and possibly harmful - pieces of municipal legislation in generations.
Let me say at the outset that a government for, of and by the people doesn't work if the people don't pay attention and get involved. Voters need to make sure that their interests - not just those of the billionaires and real estate developers - are included in legislation passed by the government officials voters elected to represent them. Democracy, on auto pilot, crashes and burns. So, I'm both alerting you and asking you to get involved - given there are only a few days left before a vote.
The rest of this will come later this afternoon and into the evening. It will be a highlight of some of the significant points made at the meetings and conferences I attended, as well as some of my thoughts of possible 'collateral damage' this legislation could do. if not significantly alterred, which means at a minimum the NY City Council must table it pending further work, if not vote it down.
- CLICK here to read the rest of our report on the City of Yes Part II - Sweeping Zoning Changes proposed for NYC.
City of Yes, No or Maybe?
Things to Consider include Erosion of Commercial Property Tax Base, Impact of Your Neighbors' Running Machines at all Hours of the Day for their Home Based Businesses, Significantly Stunted Regulatory Enforcement and Oversight over Home Based Businesses, the Feeding of the Non Profit & Religious Orgs' Valuable Property to the Real Estate Development Wolves without Making & Taking Proper Precautions & the Transfer of Power from Local Control to Billionaires & International Real Estate Developers & ...
June 4, 2024 / NYC Neighborhoods / NYC Government / NYC Business / News Analysis & Opinion / Gotham Buzz.
The sources of the following excerpted notes were: three different Zoom conferences organized by The City Club of NYC, a Zoom conference organized by Community Board 6 and a Zoom conference organized by the Federal Reserve Bank of New York in February, March, April (2) and May of this year.
I. City Club on New York Discusses Proposed Office to Residential Conversions
These excerpted comments are from the 2.26.24 conference, entitled 'Is the Office-to-Residential Conversion the Cure for What Ails NYC?', held by the City Club of NY. * Asterisked paragraphs identify material not presented in the conference that I looked up separately.
Continued 1.
PreCovid there were 1.5 million Office employees who worked in NYC.
* Editor's Note. After the conference I spent some time trying to figure out whether 'NYC' was was defined as all five boros or just Manhattan. In the incredibly abysmal reporting of the ebb and flow of office workers during the pandemic, available via the first click reports found off the first page of a Google, using the search ' how many office employees in manhattan precovid', none reported actual NYC office worker numbers, save for the NYS Comptroller. In that report NYC appeared to be defined as the five boroughs and the 1.5 million office worker figure held fast.
Property taxes fund 33% of the NYC budget, and Commercial Real Estate taxes alone are 14% of the NYC budget or (40% of the property taxes). Fewer than 3% of office buildings are viable candidates for residential conversions per Moodys.
Almost all office buildings in the major business districts in Manhattan are eligible for conversion to residential. The permissive rules for adaptive use of buildings in central business district of city was adopted in the 1980's. So, 100's of millions of square feet are already eligible for conversion. Woolworth already has done some, and the Empire State Building is also eligible.
But office to residential conversions are complex and not inexpensive to convert. The following are some of the choices for public policy.
1) Allow conversions, 2) Prohibit it for most recent buildings which don't comply with codes [and something about buildings in 1951 and before], 3) whether to provide financial incentives for conversions, the Impact such incentives will have on revenue for city budget if owners do conversions, and what problem are government officials trying to solve [revitalize the business district?], and 4) what about incentives to solve affordable housing crisis?
We were shown a chart which showed the loss of office space as well as the office vacancy rate ticking up in NYC. The vacancy rate was similar to the 1990's, when banks and real estate developers temporarily suffered but NYC did not, as companies used the commercial real estate downturn to strike cost effective deals so they could establish a presence in NYC.
* Editor's Note. It's important here to remind folks that reportedly the committee that put together the City of Yes zoning proposal was comprised of billionaires and real estate developers in tandem with the NYC Department of Planning. So, one could reasonably ask in whose interest is passing the City of Yes zoning changes. Who will profit and who will pay. Keep that in mind as we move further into the discussion.
Allowing these office / commercial to residential conversions could cost NYC as much as 5% of its tax revenue.
* Editor's Note. What's unclear here is whether it's 5% of the total NYC tax revenue, or 5% of the real estate tax revenue, or 5% of the commercial real estate tax revenue. Thus the potential tax losses for each of those scenarios would be $5.35 billion, $1.77 billion and $710 million, out of a budget of approximately $107 billion in 2024. But those losses in funding would continue each year into perpetuity. So the Net Present Value of forfeiting this tax base at a current interest rate / APR of 6.2%, over 30 years, is equivalent to forfeiting $72 billion in today dollars, over a 30 year term for the first scenario [5% of total tax revenue]. And it's forfeiting $24 billion for the second scenario [5% of real estate tax revenue] and it's $7.9 billion in the third scenario [5% of commercial real estate tax revenue].
The question rhetorically asked was why would the number one office destination in the U.S. - if not the world - give up this tax revenue to wealthy landowners, without negotiating to get something of equal value in return for the voters and tax payers of New York?
* Editor's Note. Sometimes government officials say they are pushing the City of Yes zoning changes to stimulate business activity in NYC. My question to them, is why - when NYC is operating at a full employment, unemployment rate, of 4.8% [down from 5.1% a year ago and down from 7.8% which is the long term average] be trying to stimulate business activity which will only lead to overheating the local economy which causes more inflation?
Continued 2.
One speaker, Allan, told us that "the sky is not falling". He recalled the 1990's real estate crisis and, even worse, the 1970's crisis, when President Gerald Ford essentially told NYC to drop dead . Even with the severity of the 1970's crisis, by the 1980's it was over. Property owners are going to continue paying their taxes, and while they may lobby for some decrease, they are not going to abandon their properties.
He opined that mixed use districts can be beneficial, and said that differences from one district to next, can be significant. He also opined that adding residential to mixed use may be a good thing for some areas, but warned that to create a viable mixed use area, you need to have a balance that is good for both residential and business, and these communities behave differently. Residential zones keep longer hours, from 7a - 12 midnight, while generally businesses run from 9 am to 7 pm.
And his cautionary advice continued, as he told us that real estate owners and developers can act like herds, in that once movement in a given direction begins, it can get out of hand. One can quickly unravel the value of neighborhood or district, which is tied up in the character which owners and developers are trying to change or preserve. He cautioned that once regulations are set down, the government has created a machine, and it's very difficult to stop that machine once started.
He went on to say that converting post war buildings to residential, will be cost prohibitive and complicated and not likely to yield much, if any cost-effective affordable housing. There are other, more pragmatic, use options for these buildings, such as healthcare clinics, hospitals, schools, retail space and the like that can be located not just on the ground floor, but in the building, all the way up.
He warned those who were listening to be careful not to turn a downturn into a full blown crisis.
Another speaker, Howard, told us that in 1983 NYC granted the buildings in a wide swath of Midtown the option of converting to residential. Another speaker, John, said that about 3% used that opportunity to convert, while the rest did not. In the 1990's there was another opportunity to convert, which that same speaker said that 6% converted during that time [Howard had previously said he thought it was 10%].
John cautioned that NYC government ought to take a cautious approach to changing the zoning in Midtown because it is such a critical tax revenue generator for the city. He too warned that a herd effect could ensue, sapping NYC of a significant segment of its tax revenue.
* Editor's Note. This impacts all New Yorkers as a budget shortfall will impact NYC sanitation, NYPD staffing, NYC schools, hospitals and healthcare staffing, as well as enforcement agencies, social services and the list goes on. All of these areas will experience funding shortfalls in order to shore up the billionaires', large corporations' and real estate developers' property investments in NYC - in the short term.
John went on to note that the real estate community doesn't react to needs per se, so much as that they react to where they can make the most money. And he opined that the governmental goal of zoning should be how properly apportion how land is used, not how the most money can be made. He also opined that nobody is going to build 'affordable housing' in Midtown because Midtown isn't an affordable location vis-a-vis food and other daily services - not to mention that the infrastructure for thing like schools, playgrounds and other such requisites are just not there and not affordable to build there.
John also warned that once a building becomes residential, or even partially residential, it is very, very hard to reverse, because there are housing laws in place that protect the tenants, especially if they have children.
Howard said that the cost of some of the conversions could be as much as the cost of a new building and don't make sense.
Allan said that affordable housing should not be hijacked by office conversions and that there are plenty of other far more affordable options to building affordable housing near public transit lines, than in attempting to convert very expensive office space in Midtown Manhattan.
Some of the above and all of what follows, came out in the Q & A session. There was some discussion about what seems the lack of planning by the NYC Department of Planning vis-a-vis infrastructure like schools, hospitals, parks, public bathrooms and [likely the Department of Transportation] management of bike lanes.
Someone noted that it was Mayor Koch who rolled back some of the power that Mayor Lindsay said should be vested with the community boards vis-a-vis infrastructure identification and planning. This is unconfirmed, but I think that they also said that Koch allocated that responsibility and authority to the NYC Department of Planning. Someone opined that czars aren't good. Another opined that BIDs [Business Improvement Districts] are afraid of their own boards.
* Editor's Note. BID Boards are generally populated by a significant number of members of the real estate community. The real estate development community ensures they have some of their people placed on the boards, and oftentimes in the BID management structure as well, by wielding their financial contribution clout during election campaigns, with aspiring politicians.
Coming Wednesday -
3.25 - Community Board 6 Panelist identifies some of the pitfalls of the COY rezoning plan.
4.8.24 - City Club - Economic Impact on Hoods.
4.25.24 - Faith Based Orgs & Affordable Housing & COY. Some of participants at the Federal Reserve conference identified risks of religious and non-profits developing away their futures.
5.7.24 - City Club panelists from around the nation and globe talk about some of the real issues that are intrinsic in the NYC & every other housing crisis which points to what may or may not work.
* Editor's Note. My intent here is to get the members of the NYC Council to pause and reflect on the sweeping changes they are ushering in on all New Yorkers. This legislation appears to greatly benefit the few, very modestly benefit another small contingent, and negatively impact most of the rest of us. I don't think this 1,000 plus page piece of legislation is ready for implementation across a city, affecting 7.9 million lives.
I believe it's better to go slow and get this right, than to move quickly, and get it wrong. And then have to redo it. As fighting a rollback of any of this legislation will be a huge uphill battle by everyday New Yorkers against the very wealthy and very powerful people who drafted the City of Yes to benefit themselves - not the community.
The Mayor has demonstrated an openess to having changes made, and hopefully the NY City Council and he will continue to make changes, until the City of Yes better addresses the problems it was supposed to cure, without doing all of the collateral damage to the city that seems baked into this legislative package.
