Overlooked City of Yes Zoning Changes to Know
The passing of the City of Yes for Housing Opportunity (COYHO) represents the largest-scale reform to NYC's zoning code ever. Not since NYC's adoption of its zoning framework in 1961 has so momentous a zoning change been done. You’ve heard this. You know this. So, what’s next?
The first step is for the revised zoning resolution to be officially published. As of today, it is not updated. In anticipation of the official document coming out, various efforts by private companies are underway to understand and publish guidance on the new changes. Tech software platforms like PropertyShark, Property Scout, Simplex 3D and others are racing to include the zoning implications of COYHO into their online software maps. Architects and zoning attorneys are just as busy reading the draft zoning texts and producing guides and frameworks to distribute to existing clients to help them along.
Brokers are taking in the big changes of COYHO and translating those into price adjustments for properties. Some notable changes include adjusting FAR for *some* R4A sites from 0.75 today to 1.5, doubling what can be built on a single lot. Will that translate to a doubling in the value of the land? Hopefully not, because part of the appeal of COYHO is to make development more affordable and easier for developers to undertake so that they can build more apartments to address the housing shortage– especially in low-density areas that previously prevented such behavior.
On a 10,000-square-foot lot, these changes can be somewhat significant…
The area that has captured my attention the most is Dwelling Unit Factors (DUFs) changes. DUF changes and modifications the City Council requested from the plan are available here in plain English. There are two ways to increase housing units in multifamily developments without purchasing more land or buying air rights. One option is to allow for the development of larger properties. That means raising FAR levels. The other method is to allow for more units to be built per square foot of a building. Consider how hotel landlords seem to design twice the amount of hotel rooms in their properties than they otherwise could if their properties were apartment buildings. DUF reform allows multifamily investors and developers to leverage these concepts and pack more units into their buildings.
There are already monetary incentives to deliver buildings in partial or entirely vacant status, allowing the next purchaser to (1) begin repositioning immediately and (2) bypass Good Cause Eviction Measures. The new reductions in (or the abolishment in Manhattan) DUFs should further reinforce the monetary rewards for delivering vacant buildings. Here's a visualization of why.
This chart was put together by contrasting existing FARs vs. new FARs under COYHO for Qualifying Residential Sites (which is not that elusive a designation, but it's worth calling out that not ALL sites qualify for the highest FAR). In addition, this chart incorporates the old DUF per each zoning district and contrasts it with the new universal DUF of 680 that applies everywhere outside of core Manhattan. By stacking the benefits of COYHO together, the changes are remarkable. The number of buildable units in the following districts has more than doubled: R3-2, R4, R4-1, and R5B. Most impressive, though, is the R4A district, where the total number of units that a 10,000 SF site can now facilitate has almost 4x'd with a 289% increase! I am not an architect, and what I call out here may be subject to certain real-world limitations. Light & air, rear, front, and side yard requirements are all still in place. Construction projects must adhere to the rules of common sense and most of the existing rules, which means 22 units on a 10,000 SF R4A lot isn't guaranteed 100% of the time. But, with the moderate tweaks that COYHO has made, an entire universe of land sites and small properties that were previously out of bounds for developers to consider will now be much more interesting to look at and review.
Another vector to building more units per building is to remove the amount of square footage dedicated to parking. I won’t spend too much time on this here because attorneys and architects are widely addressing this at the request of developers. Parking requirement removal is the most significant value add that COYHO is bringing to developers. I spent time discussing the DUF reform because it is not getting as much attention as I think it ultimately will. Yes, it doesn't impact outer boroughs in zoning districts of R6 & up, but I believe there are numerous sites in R4 & R5 districts whose owners will benefit from these looser DUFs. Not to mention the impact this will have on Manhattan properties that are now completely exempt from any minimum DUF!
How Should Deal Parties (Buyers and Sellers) React to COYHO?
Parties considering transacting land sites, whether currently occupied or vacant, should understand the COYHO measures sit on top of a long chain of legislation that has deeply reformed the way residential properties and residential development sites trade. These are the Good Cause Eviction rules, the 485-x legislation, and 2019’s HSTPA. Some additional quick thoughts:
Understanding, even with cursory knowledge, the basic tenets of COYHO is imperative for all owners of free market residential property and land sites. Owners in Long Island City, especially so.
Owners and investors should know what the 485-x tax abatement program is. Previously known as 421-a, it was responsible for 70% of new apartment construction between 2010 and 2020.
No less importantly, deal parties must understand that Good Cause Eviction has created more incentives for buyers to look for vacant properties and non-residential properties located in R zoned districts. Does that make office conversions more viable now? Maybe the big office conversion developers already underwrote COYHO's success into their models as upside cases.
Finally, buyers and sellers should understand that all new regulations and transactions are happening in the echoes of 2019’s HSTPA rule, which acutely disrupted the apartment building real estate market and significantly reduced capital flows toward NYC real estate. Eventually, that capital was diverted toward assets that are free from rent regulations, like new development.
I am incredibly bullish on NYC multifamily.
Call me at any point to discuss. 646 326 2220.
Best Regards,
Romain Sinclair