NYC Takes Baby Steps in the Journey Toward Commercial Conversions

By Frank Fortino

Office-to-residential conversions present an exciting opportunity for addressing the ongoing housing crisis here in New York City. The most recent New York State budget introduced the Affordable Housing from Commercial Conversions (AHCC) tax incentive, and the Department of Housing Preservation and Development (HPD) website has since published newly released guidance for developers who want to take advantage of the incentive.

AHCC Tax Breaks Reward Early Action

The AHCC Program Benefits, established by Real Property Tax Law Section 467-m, offers a partial tax exemption for rental housing created by converting non-residential buildings, provided the conversion meets affordable housing requirements. The length of the exemption depends on the construction completion date, with earlier projects qualifying for longer benefit periods. The geographic location of projects will determine the exemption percentage.

Developers who start such conversions after December 31, 2022, and on or before June 30, 2026, can qualify for a 35-year tax break. Projects located in Manhattan below 96th Street, known as the Manhattan Prime Development Area (MPDA), will receive a 90% exemption for the first 30 years; then, the benefit will decrease by 10% each year for the remaining five years. Outside the MPDA, projects started during this time can receive a 30-year abatement: 65% during the first 25 years, then dropping to 50% in Year 26 and decreasing by 10% each year.

Projects that start between July 1, 2026, and June 30, 2028, can receive a 30-year benefit, while those that begin between July 1, 2028, and June 30, 2031, can qualify for a 25-year exemption.

Interim HPD guidance indicates that a project officially begins when the Department of Buildings issues one of the following permit types:

• ALT-CO – New Building with Existing Elements to Remain (DOB NOW Work Type: General Construction)
• Alteration CO (DOB NOW Work Type: General Construction)
• Alteration Type 1 (DOB BIS Work Type: OT – General Construction)

Additional Conversion Hurdles Remain

While the NYS budget lifted the residential floor area ratio cap for residential buildings, other obstacles remain. To start, commercial buildings don’t meet residential requirements for natural lighting and ventilation. Bridging the gap between the construction standards for older commercial properties and those for modern housing will require close collaboration between multiple city agencies, including the City Planning Commission and the Bureau of Standards of Appeals, the community boards, and construction professionals. All of us will have to work together to realize this common goal of increasing the city’s housing inventory and making New York City more accessible.

Here at Metropolis Group, we have already started working with clients to evaluate potential conversion opportunities. Based on our extensive knowledge of the codes and zoning regulations that govern commercial and residential construction, as well as our experience working with municipal agencies, we can identify the opportunities and challenges associated with each proposed project. We can conduct early feasibility studies to help developers decide whether to move forward.

As a native New Yorker and a professional with decades in the real estate and construction industry, I am personally committed to supporting the administration’s vision for creating additional housing. I am also confident that we can overcome the present hurdles if we combine our respective strengths and bring the public and private sectors together to achieve this important goal.