Commercial real estate developers and landlords in New York City anticipated a downturn in the market when the coronavirus pandemic struck. They just didn't realize it would last this long and run this deep.
The NYC commercial real-estate market is in an all-out crisis right now, with thousands of retailers shuttering, office space vacancies at record highs, and a huge spike in litigation between landlords and tenants over unpaid rent and lease disputes. The crisis is prompting some real estate developers to re-imagine how the vacant office space might be used—including converting much of it to residential housing.
According to a New York Times report, a major real estate group is making the case that city and state authorities should allow developers to do just that. Specifically, they're proposing to convert 1 million square feet of Manhattan office space into apartments, some of which would be designated as affordable housing.
Advocates for converting unused office space into residences see this approach as a win on multiple fronts:
- It could save landlords and developers from disaster. Repurposing commercial spaces would provide landlords a lifeline to generate additional revenue for what appears to be an extended crisis.
- It could provide much-needed housing and relief for NYC residents. In a city constantly starved for affordable housing, the conversion could save thousands of at-risk NYC residents from becoming homeless while encouraging more people to migrate to the city.
- It could keep more retailers from shuttering. Converting commercial structures to combination commercial/residential creates more foot traffic for retailers.
- It could save city and state budgets from disaster, as well. Local and state governments rely on tax revenues, and with so many businesses at risk of closing and tens of thousands of residents already fleeing NYC, such a move could stem the exodus and keep more tax revenues in the city/state so they can continue providing services.
Creative Thinking for Unprecedented Times
With commercial vacancies in midtown Manhattan at a high of 14 percent, even higher vacancies more along Madison Avenue, and only about 10 percent of Manhattan's office workers coming in to work months into the pandemic, some believe this “temporary” crisis may be the sign of a sea change in commercial real estate. Even after the pandemic ends, many experts predict that the remote work structure will become a permanent fixture in our economy now that companies see its value. Many believe it may be time to rethink the entire commercial real estate system in NYC, as well as the economy it supports.
Challenges Remain for NYC Owners
While these proposals show promise, it may take some time to implement them if approved. In the meantime, both residential and commercial building owners struggle to pay their lenders due to the losses of millions of dollars in unpaid rent. It's important to remember that if you're facing foreclosure, losing your home or your investment property are not foregone conclusions. A good foreclosure attorney may be able to offer alternative solutions you might not have considered. Give our offices a call to discuss your options.