State Legislation Pending to Ease Conversion of Distressed Hotels to Permanent Affordable Housing

A controversial topic was discussed in a recent CB7 Housing Committee meeting: the conversion of “distressed” hotels to permanent affordable housing.

A bill designed to overcome current legal barriers to such conversions, called the Kavanagh Bill, is currently pending in the New York State Senate.

An existing law — the Housing Our Neighbors with Dignity Act (HONDA) — already allocates $200 million for the acquisition of distressed commercial properties, i.e. office buildings and hotels, to be operated by nonprofits as supportive housing. Supportive housing is permanent affordable housing with on-site social services, such as case managers and job developers.

Ted Houghton, president of Gateway Housing, a nonprofit offering technical assistance to nonprofits that provide supportive housing for previously homeless people, was the guest speaker at the meeting. Mr. Houghton explained the reasons for the dire need for permanent supportive housing in New York City.

In 1955, there were approximately 93,000 psychiatric hospital beds in New York City. Deplorable conditions led to the closure of many hospitals and, by 2016, the number of available beds had dropped by 97%.

At the same time, many SROs — traditionally the first rung of the housing ladder — disappeared. According to Curbed, “From 1955 onward, the city made laws to restrict the construction of new SROs, and in the 1970s began offering tax breaks to landlords to demolish them or convert them into almost anything else, especially upscale apartments or boutique hotels for tourists. Between 1976 and 1981 those incentives resulted in the loss of “nearly two-thirds of all remaining SRO units,” according to a CUNY report.”

New construction of affordable housing has not kept pace with demand, Mr. Houghton said. “In the past 30 years, New York City has seen an increase in the need for affordable housing by 1.5 million people, but only built 300,000 new units.” The problem has been exacerbated in recent years, he added, by the emptying of prisons and jails, in part due to the pandemic.

The pandemic battered the hotel industry, but has also provided an opportunity to create supportive permanent housing by taking some of the stressed hotels and allowing nonprofits to operate them. The best model for this is the Royal Park Hotel, on 97th & Broadway, purchased by Fortune Society.

Under existing law, the renovations required to compy with city building codes when turning existing hotels into permanent housing are extremely costly, Mr. Houghton explained.

The Kavanagh Bill, would permit the conversion without requiring a change in the certificate of occupancy from hotel to housing, and without extensive renovations. For example, instead of requiring a minimum of 150 square feet of habitable space, certain existing habitable space conditions, and other issues like elevator shaft and door sizes, would be grandfathered in. The new units would have bathrooms and kitchens.

Committee Chair Louise Craddock made clear at the start of the discussion that “we do not want to recreate SROs. We do want to create studios and apartments for people where they can live permanently.”

Ira Mitchneck raised the issue of whether the available HONDA funding is sufficient. The first $100 million, Mr. Houghton explained, must be spent in New York City. The rest can be spent in other areas of the state, as well as the city. The HONDA funds would be seed money to acquire the distressed properties. The balance of the funding required for renovations would come from “contract financing”.

Essentially, the sponsor would get a 30-year contract from the city whereby the city would commit to paying a certain amount per studio. This should enable the nonprofit to obtain the necessary financing, based upon the assured source of income through the contract with the city. Mr. Houghton indicated that the HONDA money whould be used for acquisition costs as opposed to the costly renovations.

As the meeting drew to a close, Sheldon Fine questioned whether permanent supportive housing was the solution for those living in the streets, including mentally ill people or those just released from prison or jail. Mr. Houghton agreed that if you place people directly from the streets into housing, “as a rule, it is not successful. There is a need for transitional housing,” he said. He noted that those experiencing street homelessness seem “more psychotic than I’ve ever seen,” and “we don’t have a housing model for them.”