New York Reboots Pilot Program for Basement Conversions

By Kristen Fortino

As we’ve previously covered, the 2025 New York State Budget includes several initiatives to alleviate the ongoing housing crisis in New York City. Among these measures is a pilot program to legalize basement apartments. Specifically, the program seeks to bring illegal basement and cellar apartments into compliance with new health and safety standards.

Basement apartments are unique spaces that hold great appeal to a wide range of tenants. Many people love these apartments and the backyard access that can accompany them. Those with physical disabilities appreciate the ground-level entry. Musicians often enjoy these apartments because they can practice without worrying about noisy neighbors.

Converting a basement into a legal dwelling, however, is not easy under current regulations. The program’s success will depend on the specifics of the implementation plan.

Challenges of Basement Conversions

In 2019, the city launched a similar pilot program in East New York. The Basement Apartment Conversion Pilot Program (BACPP) offered low—and middle-income homeowners low—or no-interest loans to convert their basements into legal apartments. Ultimately, due to the high costs and regulatory hurdles, only a handful of homeowners were able to participate.

The state budget seeks to overcome these challenges by updating the existing building codes and granting amnesty to owners of illegal basement apartments.

Considerations for Investors

We’re still waiting for details regarding the implementation of this pilot program, particularly the updated construction standards. The goal will be to make the regulations more flexible while ensuring the health and safety of tenants.

Converting basement apartments into legal dwellings is an expensive endeavor. Bringing these below-grade spaces into compliance with light and air requirements involves a lot of construction and coordination with city agencies. Landlords and investors will need to consider whether the potential increase in revenue outweighs the construction costs and resulting tax hike.

Another factor to consider is how the asset is underwritten. Small landlords typically own buildings privately, while others have partners or real estate investment trusts (REITs). If an investor has an exit strategy, that also needs to be considered. Someone with an exit timeline of five to seven years may not realize the benefit of a basement conversion.

Next Steps for Interested Investors

As we await additional information, we can help interested investors evaluate potential opportunities. Our partnership with Metropolis Group can provide insight into changes that we’re likely to see, as well as help determine the anticipated costs of bringing a property into compliance. We’ll help run various scenarios to help investors decide whether a prospective project is worth their time.

If you’re interested in taking advantage of the new basement conversion pilot program, contact OnePoint Real Estate Group.