Manhattan’s rental-to-condo conversion craze has continued unabated, amid rising prices, the lack of available buildable land, and low condo inventory. Over the last year, major new condo conversion projects have been announced at a record pace throughout Manhattan, from the Upper West Side all the way down to Battery Park. To-date, the driving force behind the conversion trend was a number of economic challenges and opportunities; however, a major new policy shift is set to fuel even more conversions, creating a huge opportunity for both building owners and future buyers.
During the financial crisis, Manhattan developers were forced to develop rental-to-condo conversion projects, as banks eschewed financing risky high-rise residential towers. Only ultra-luxury projects such as One57 and 432 Park Avenue could find financial backing. At the time, banks were more inclined to finance smaller pre-war rental-to-condo conversions such as 530 Park Avenue and 737 Park Avenue, among others. If loans for these buildings soured at least the bank would recover an asset that it could finish construction on itself or repurpose, rather than inheriting a hole in the ground.
In the current environment, however, with land prices breaking records and a strong Manhattan condo market (in terms of both activity and prices), developers increasingly are focused on rental-to-condo conversions, which are both cheaper and quicker to build than those from scratch. While banks have begun to finance high-rise towers, the increased land costs have relegated ground-up new construction to only the highest price tier, leaving little available inventory in the middle of the market. That is where many of these rental-to-condo conversions come in. Most of these conversions are high-end, complete with new, contemporary interiors and amenities, but at more attractive prices.
The rental-to-condo conversion trend has been most noticeable in pre-war neighborhoods that are already fully built, such as the Upper East Side and Upper West Side. For instance, currently, The Astor on West 75th St. is being whittled down from 198 rental units to 100 condo units. The Chatsworth at 344 W 72nd St. is converting from rental-to-co-op (with condo rules) featuring only 55 units. Other conversions on the UWS include The Orleans at 100 West 80th Street and The Evelyn at 101 W 78th Street. All of these projects are undergoing the same simple process – bringing back the exteriors to their former glory and adding modern luxuries. However, even non-descript post-war buildings are getting in on the action. In Battery Park, 22 River Terrace, originally built in 2001, is being converted to the River and Warren condos, and in Midtown West, The Metro at 301 West 53rd St., originally built in 1979, is being converted from rental to condo.
A recent policy shift in New York State has set the stage for this rental-to-condo conversion trend to accelerate. According to the New York Times, now owners of hundreds of mixed-income rental buildings are allowed to sell most of their apartments as long as they preserve their low-income rentals. The new policy applies to those buildings that participate in government programs that offer subsidies, such as bond financing and tax breaks, and are required to have at least 20% affordable rentals. Generally, the affordability restrictions expired after 30 years. At that point most owners would have converted their buildings to condominiums and lost the affordable units. With the policy change, however, owners no longer have to wait 30 years until the restrictions expire and the affordable units would never be lost, a goal of Mayor DeBlasio’s to maintain or grow affordable housing in NYC.
Without any policy change, the New York City rental-to-condo conversion trend would have continued unabated, given the current economics involved. However, this new policy change will fuel this craze even further, which we consider as a win-win-win scenario for all those involved - building owners, future buyers and, ultimately, low-income renters.