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How NYC Developers Are Using 'Wink-Wink' Creativity To Add Housing As Pipeline Shrinks

With housing development in New York well below its historical norms — dragged down by the combination of expired government subsidies, construction costs and interest rates — building by the book is no longer an option.

Rosenberg & Estis' Adam Sanders, Brown Harris Stevens Development Marketing's Stephen Kliegerman, Bozzuto Management's Alyssa Boyle, RXR's Jarrod Whittaker and Rockrose's Alyssa Brennan onstage at Bisnow's New York Multifamily and Residents of the Future event.

Instead, developers who are trying to add critical new housing are looking at unit shapes and sizes that may not look like the housing stock New Yorkers are used to. Younger renters moving to the city might be able to make peace with compromises that could facilitate conversions, developers and architects said at Bisnow’s New York Multifamily and Residents of the Future Conference last week.

“Somebody that's coming in, entry-level into the city and stuff, they're just so happy to be in a brand-new unit with new finishes, with the golf simulator and the crazy amenities,” Raymond Houseknecht, Rudin senior vice president and head of multifamily, told the audience at the New York Marriott Marquis. “They're happy to have no windows.”

After the 421-a mixed-income development tax break expired and Gov. Kathy Hochul's housing push died in Albany this year, developers have been forced to get creative. Some are thinking about how technicalities could help them get creative with conversions, and others are looking to areas outside the five boroughs altogether.

One compromise to add more units fast is to take advantage of a zoning law that allows conversions with what developers referred to onstage at Bisnow’s event as “wink-wink home offices” — rooms that are designed in a way that could be used as bedrooms but wouldn’t be allowed under zoning laws if they were new buildings, architects said onstage.

“Under modern zoning, a home office is really frowned upon. You can't create a windowless room with a door and a closet because your plan examiner will look at it and say, ‘I know you're going to use this as a bedroom,’ and they won't allow it,” STO Building Group Senior Vice President for Building Repositioning Brooks McDaniel said.

NYC has long had a requirement that any room classified as a bedroom have a window that opens to the street to facilitate light and airflow as a fire safety measure. But a caveat of the city’s zoning text, Article I, Chapter 5, allows for conversions to create windowless bedrooms, McDaniel said.

“One project that we're looking at has a four-bedroom unit, but only the living room has legal light and air. So it's filed as a four-home-occupancy studio apartment, but it will be occupied as a four-bedroom,” he said. “It is a legitimate way to make usable space out of what is otherwise a challenged space.”

The proposal of windowless bedrooms shouldn’t be shocking, Skidmore, Owings & Merrill principal Frank Mahan said.

“New Yorkers might gasp, but it's very common in other cities to have legal bedrooms that have only been borrowed light, to have nonoperable windows, so long as there's sufficient mechanical air supply,” he said. “Things like these are not radical elsewhere.”

Herrick Feinstein's Brendan Schmitt, Skidmore, Owings & Merril LLP's Frank Mahan, Rudin's Raymond Houseknecht, STO Building Group's Brooks McDaniel, Olnick Organization's Seth Schochet and Severud Associates Consulting Engineers' Steven Najarian.

STO Building Group’s consideration of this move comes as New Yorkers battle skyrocketing rents for apartments across the city. A lack of housing supply is part of the reason that rents in New York are so high, developers say.

Market-rate rents broke records throughout the summer, and an April study by the Fund for the City of New York found that half of all the city’s residents don’t make enough to comfortably afford food, rent and medical care. Residents need to make an annual salary of $100K just to get by, the same study estimated.

Despite Mayor Eric Adams' call for a "moonshot" goal of 500,000 new housing units over the next decade, the city is on pace to produce fewer than 10,000 new units this year, according to the Real Estate Board of New York. That is less than half of the annual average in the city during the decade before the pandemic.

Manhattan now features as the worst offender for economic inequality of any county in the U.S., according to census data analyzed by demographics firm Social Explorer and reported by The New York Times. The top 20% of the city has a household income of more than $500K, while the bottom 20% of households earn roughly $10K per year.

The costs of building in NYC leave developers with few alternatives other than to build luxury units or push for heavy government subsidies, The Hudson Cos. Development Director Marlee Busching-Truscott said. One of the key culprits is how long it takes to get development plans approved, especially with hiring freezes and understaffing at crucial city agencies, resulting in a need for developers to stretch loans even further, she said.

“I have a basically as of right ULURP [review], and we’re on our third planner,” she said. “It makes the project drag on, and you just have these carrying costs for so long. You're five years deep into pre-development loans, you're looking at extended construction periods — you can build the building as fast as possible, but then you still have to wait for FDNY to do their inspection.”

Today’s lending environment, with 9% interest rates from banks or even higher from debt funds, is also a contributing factor to the lack of housing development, she said. Capalino principal Brian Cook said those factors combine to lower the number of affordable units that can be built in any project.

“Costs are rising, interest rates are rising, time is getting longer, and the dollar coming in isn't keeping up. And that's why we can be exasperated as we push the lower-income units — which we do desperately need — down,” Cook said. “The answer is going to be government intervention.”

The Hudson Cos.' Marlee Busching-Truscott, Rose Associates' Marc Ehrlich, Capalino's Brian Cook, Loci Architecture PLLC's David Briggs and Zetlin & De Chiara LLP's Jaimee Nardiello.

Meanwhile, other developers are simply shifting their focus farther outside of NYC. RXR is the master developer in Downtown New Rochelle, a city that offers an example of creating housing that keeps NYC accessible but avoids the costs and red tape of building new housing in the five boroughs.

“We are taking a wider risk in new markets,” said Jarrod Whitaker, senior vice president and head of residential operations at RXR. “We've built the market [in New Rochelle] and are top of class for amenitized product there and in other areas like Glen Cove. So in some cases, it takes a bit of a risk in being able to be the pioneer for submarkets that are emerging.”

Ultimately, NYC’s housing affordability crisis appears to be pushing younger people out of the city and into the suburbs. Demographic data shows an increasing number of people in their mid-30s to late 30s living in the city now as opposed to younger workers, Whitaker said.

Meanwhile, younger renters may be choosing affordability over location, Brown Harris Stevens Development Marketing President Stephen Kliegerman said.

“This younger generation doesn't all want to live in Manhattan anymore,” he said. “As long as they're 30 minutes from the city on a train line, they're happy. And if they're paying 20% less in rent, it's affordable for them.”