Let's get to yes
Let's get to yes
Summaries: Potential for $1.0Bn of real estate buyouts in NYC flood areas, the vacancy problem in NYC, the largest private developed Queens affordable housing project, and Mayor Adams's city of yes
This week:
Climate law means buy outs
Apartment vacancies in New York
The biggest Queens rezoning ever!
Mayor Adams’s housing agenda
Buyout opportunity for multifamily investors
Approximately 110 million square feet of multifamily or mixed-use properties in the five boroughs are liable to be flooded. That is, they lie in the flood plain. This accounts for about 33% of the multifamily / mixed use housing stock in NY. By the year 2050, 53% of all multifamily / mixed use housing in NY will be in flood prone areas. These and other data points were highlighted in NYC Comptroller Brad Lander’s report to analyze the policy climate responses since Hurricane Sandy some ten years ago. The report paints a critical view of NY climate and anti-flood policies and drew attention to the fact that some projects still haven’t finished from 10 years ago in 2012.
The report revealed some things to be optimistic about:
The state of NY is considering the sale of $4.2Bn municipal bonds to finance better flood-response strategies and take concerted actions ex-ante. $1Bn of this funding would go towards buying properties from owners who want to relocate away from flood areas.
New Yorkers have a lot to lose from flood-risk. Approximately $2.0Bn of tax revenue (across property types) is currently at risk since so many properties in NY lie in the floodplain. That’s approximately 6.5% of NYC’s tax revenue.
IMPORTANT: NYers will have to vote “Yes” in the November 8th state elections to pass this proposal.
The path for owners to sell their properties to the State of NY won’t be as straightforward as it sounds. After getting voted in, this proposal needs to be implemented. Tenants will need to be relocated. For multi-family owners who opt to sell, there will need to be guidelines on how long the process takes from application to cash-in hand. Finally, there will be caps on funding which may prevent some owners with interest in this program from participating.
Fun question: What cap rate will officials use to value properties they buy? If the numbers pencil, the state’s buying program could be an escape hatch for some investor/owners in a time of rising rates and declining property prices.
Source: Comptroller’s report on Hurricane Sandy lookback
Vacant units in NYC
NYC’s Housing Preservation and Development (HPD) found that 88,830 rent stabilized apartments sit vacant in NYC. Let’s add some context. According to a housing and vacancy survey published in May 2022, there are approximately 3,644,000 housing units in NYC as of 2021. 986,100 housing units are owner-occupied and 2,171,000 are renter-occupied. Out of the renter occupied housing, approximately 1,006,000 apartments are rent regulated. If the vacancy numbers are correct, then 88K empty apartments comes out to 1 in 11 rent stabilized apartments being held empty. This year, approximately 28,000 apartments will be delivered to the NYC market. Put differently, if the vacant apartments were leased, it could provide a quick path to additional housing at a level that would be meaningful. Either that or legalizing ADUs / basement apartments. Below are some more interesting things to get the juices flowing and get you thinking:
Big picture: the units sit vacant because owners feel that it is not financially viable for them to repair & rent. Many of the units in question need rehabilitation, which require lump sums of money to be paid upfront. With recent changes to rent stabilization laws, the payback period on an upfront $50,000 investment into an apartment is now 3-5x what it was before. I will explain more in detail how the payback period has changed for multifamily investments in another piece. For now, we must understand that the math doesn’t work.
There are approximately ~55,000 homeless people in NYC (numbers vary based on method used to count). This means that there are more vacant apartments in NYC than there are people without housing. It’s easy to see where policy makers’ minds will go on this one. But also – it is a stunning number.
CHIP, a landlord organization in NY, has created a twitter account where they have pledged to post a new vacant apartment each day, to highlight the magnitude of the vacancy issue @NyVacant.
Source: https://twitter.com/NyVacant
Innovation QNS update
Some updates on Innovation Queens, the new development that would convert garage and industrial space into 2,845 multifamily units, otherwise known as “the largest privately developed affordable housing project in the history of Queens,” according to the development team. There has been lots of small incremental progress in the last few weeks. We summarize these below:
Mid 2018 – Plans for Innovation QNS are drafted.
March 2022 – Julie Won who represents the city council district 26 where the development is proposed put out a list of requirements that needed to be met before she would evaluate the merits of the development proposal. REMINDER: the project needs to go through the steps cited in this article in order to to get approval to build.
June 2022 – The Community Board votes 24-8 to deny approval to the Innovations Qns project.
August 2022 – Queens Borough President Donovan Richards rebuffs the project and asks that a greater share of the apartments be made affordable, and a few other things in his official recommendation. He keeps his door open to negotiations with the development team.
Early September – Council Member Tiffany Cában of a different district approves a 1,400 multifamily development in Queens. This news came as shocking given Cában’s prior antagonism toward the project. Consensus around how to manage big developments begins to shift and Cában sets a precedent for large rezonings in Queens.
Late September – the City Planning Commission votes for the project to proceed (under current affordability levels) at a 10-3 vote.
Later September – Council Member Won demands that 55% of units be made affordable on the project.
End of September – Larry Silverstein and his developments partners increase the % of affordable units from 25% to 40%, bringing total affordable unit count to 1,100 apartments.
Sometime in October – Queens Borough President Richards throws his support behind the project.
October 19th, 2022 – the City Council holds Q&A meeting with the executive team from Innovation QNS.
To get to a yes, all that’s left is for the City Council and Mayor Adams to approve the project. At that point, the spot re-zoning would pass, and the development team would be able to start putting bricks in the ground. With 2,845 units to be delivered when the project is complete, this project alone is contributing 1 out of every 7 new apartments that will be put into service this year in NYC. Given the size of this project, whether it passes or fails to do so will reverberate across the industry.
Mayor Adams’s ‘City of Yes’ edges forward
The mayor’s plan to “yes in my backyard, yes on my block, yes in my neighborhood” is starting to take shape. On a series of calls last week and the week before, city agencies held info sessions to present their intended plans and collect feedback.
Most relevant to multifamily owners are the policies around housing opportunity. Adams’s stated goals are:
Allow housing types that serve everyone – such as ADUs, smaller units, and shared housing.
Ease conversions of obsolete and underutilized buildings to housing.
Reduce or eliminate unnecessary parking requirements to unlock housing potential.
Give all supportive and affordable housing the same preference given to affordable senior housing (AIRS).
Make it easier for owners of homes and small buildings to alter and update their buildings over time.
The plan is ambitious. If successful, these measures could breathe life into a NY market that has seen many of the economic incentives for development and investing into multifamily real estate removed. Earlier in the year, we used Adam’s preliminary remarks to try and predict how they would translate into actual rules / zoning changes. Check those out here and let us know how we did.
Source: Adams’s of yes presentation
Sources: Office of the Comptroller, City Limits, The City, Coalition for the Homeless, City of Yes Presentation, 2021 NYC Housing and Vacancy Survey