Would a new law allow the conversion of a hotel into a condominium?


Question: I understand that New York may be looking to change the multiple housing law to allow conversion of hotel properties to residential use. As drafted, does the bill allow the conversion of a hotel into a condominium for sale, and if so, what type of deposit would be made under the Martin Act?

Reply: As of the date of this article, there have been a few different proposed amendments to the New York State Multiple Housing Act (MDL) to encourage the conversion of certain commercial and hotel properties to residential use. This article focuses on Part L of Governor Andrew M. Cuomo’s Transportation, Economic Development and Environmental Conservation Bill in the last Executive Budget as it relates to qualifying hotel properties. See part L of S.2508-A / A.3008-A.

Part L would add a new §277-a to the MDL to encourage the conversion of certain Class B hotel properties to residential use in designated areas of New York City. The purpose of the law is to promote work-living neighborhoods that will strengthen the economy by deviating from the existing requirements of the zoning resolution. The law applies to building permits legally issued no later than December 31, 2024.

MDL §277-a would apply to the conversion, modification or improvement of certain class B collective dwellings which functioned as a hotel before the date of entry into force of the law and which meet the following criteria: ( 1) the hotel has less than 150 rooms and (2) the hotel is located in Manhattan but outside the exclusion zone which stretches from roughly 110th Street south to Chambers Street and the Brooklyn Bridge, or one of New York City’s other boroughs. When converting, modifying or improving the hotel for residential use, the building must be agreed with the Housing and Community Renewal Division (DHCR) to provide at least 25 % of housing units as affordable housing (affordable housing), or another city or state agency to provide housing and support services to any population. Part L would empower DHCR to promulgate appropriate rules and regulations, including providing a definition of affordable or supportive housing, as well as the required duration of affordable restrictions for affordable units.

The MDL defines a class B apartment building as “an apartment building which is occupied, generally on a temporary basis, as the more or less temporary accommodation of individuals or families accommodated with or without meals. This class includes hotels, shelters, rooming houses, boarding houses, boarding schools, furnished houses, lodgings, club houses, college and school dormitories, and dwellings designed as private dwellings. but occupied by one or two families with five or more boarders, roomers or tenants in a household. NY Mult. Remain. Law §4 (9).

In addition, the MDL defines a hotel as “an inn with thirty or more rooms”. Identifier. in §4 (12).

Read together, the current legislation and statute would make it easier to convert 30 to 150-room hotels in upper Manhattan or the Financial District to condominiums provided 25% of the units are affordable. The legislation does not specify whether affordable housing is to be rented to people with a certain level of income or can be sold to eligible buyers and instead provides that such details would be determined by the DHCR.

In the absence of DHCR enacting a rule that would expressly prohibit affordable units offered for sale or located in a homeownership project; it appears that it would be possible to convert an existing hotel into a condominium for sale. Given the statutory mandate that at least 25% of housing units are affordable units, a hotel-to-condominium conversion would likely take the form of a mixed-income project during the period for which the affordable units are subject to a regulatory agreement with DHCR.

At first glance, Part L seems to envision that a hotel owner would undertake major renovations to convert the property into a residence. Therefore, for the purposes of this article, it will be assumed that the hotel is vacant, is in no way subject to the Rent Stabilization Code, and is free from permanent tenants, as that term is defined by 9 NYCRR 2520.6 (j). (Note that the analysis would be significantly different if the hotel were a Class A apartment building subject to rent stabilization, potentially triggering NY Gen. Bus compliance. §352-eeee and 13 NYCRR Part 23 .) It is also assumed that the hotel is a transient hotel, not an apartment hotel, which the zoning resolution classifies differently, and apartment hotels may not find an easy exception within the grasp of the rent stabilization code.

The conversion of a vacant hotel would be subject to §352-e of the General Business Law, which requires the filing of an offer plan to make and participate in a public offering of condominium units to or from New York. . See NY Gen. Bus. Law §352-e (1) (a). In addition, 13 NYCRR Part 20 would apply since the hotel would be vacant upon conversion to residential status.

Filing a Part 20 offer plan is usually straightforward, but in this case, a condominium hotel conversion plan would likely include a number of special risks that the developer should consider. First, there may be various physical aspects of the conversion that would be considered a special risk due to the flexibility of the zoning. According to Eli Meltzer, of Meltzer / Mandl Architects, PC, hotels have no density restrictions on the number of keys they can provide, and most rooms are smaller than a typical studio apartment. Therefore, reconfigurations can result in unique design features that are typically not found in a new construction project. Second, if the condominium is operated as a mixed income project, it is likely that the constituting documents of the condominium will have to take into account certain restrictions required by the inclusion of affordable units, such as the special allocation of common interests. in accordance with NY Real Prop. Law §339-m and provisions necessary for the condominium to fulfill its regulatory obligations DHCR. See the memorandum from the New York State Department of Law’s Office of Real Estate Finance, Special Allowances for Common Expenses under the NY Real Prop. Law §339-m. Finally, if affordable units are indeed offered for sale, the supply plan will also provide specific information for buyers of affordable units, including, but not limited to, restrictions on price, income, subletting, primary residence requirements and terms governing the ownership of affordable units, for example, resale restrictions or limits on common charges. See New York State Department of Law Office of Real Estate Finance memorandum, Affordable Housing Plan Disclosures (January 5, 2012).

The idea of ​​converting commercial buildings and hotels to residential use is a potentially exciting prospect for property owners and developers, but one that requires lawmakers to agree on this lofty political goal. It is hardly disputed that the idea of ​​work-life communities in New York would be welcomed, but not all lawmakers agree on the most important form of housing (i.e. rental or ownership). ). If Part L were to become law as it is currently drafted, it appears that hotel owners would take one step closer to being able to convert their properties into condominiums for sale. What is less clear is whether the DHCR would allow affordable homeownership in older hotels, which the agency’s rules could address. In the rule-making process, the public would have the opportunity to participate and advocate for the various benefits of homeownership.

Erica F. Buckley is the former Office Manager of the Real Estate Finance Bureau and is the Practice Group Leader of the Nixon Peabody Co-operatives and Condominiums team. This column is for informational purposes only and does not replace agency guidelines from the Department of Law.

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