City of Yes
Research Report Series
A Reduction in the City's Office Stock: Conversion of Non-Residential Buildings to Housing & New High-Density Residential Districts
City of Yes | Research Report Series
In December 2024, New York City Mayor Eric Adams and the City Council approved the City of Yes for Housing Opportunity, a sweeping citywide rezoning initiative aimed at addressing the city's deepening housing crisis. This ambitious plan is expected to enable the creation of more than 82,000 new apartments over the next 15 years and includes a $5 billion investment in critical infrastructure and housing development. By expanding where and how housing can be built, the initiative seeks to make it easier to add new homes across all five boroughs.
This research report series will examine the major components of the City of Yes for Housing Opportunity. While exact housing outcomes will vary, each report will explore where the proposed changes are likely to be most impactful. The series will provide a data-driven analysis of how each aspect of the plan could influence housing production, real estate development potential, and pricing across different neighborhoods.
Introduction
The City of Yes for Housing Opportunity initiative, coupled with the housing measures in the 2025 New York State Budget, is set to spark a significant wave of new development across the city by broadening the rules for converting non-residential buildings to residential use.
Policy Changes
New zoning and tax incentives
Building Conversions
Non-residential to residential
Housing Creation
Increased housing supply
Density Changes - Lifting the FAR Cap
1961
The 12 FAR cap was introduced in response to concerns about the rapid growth of housing in New York City, particularly in Manhattan
Pre-April 2024
The 12 FAR cap restricted residential development, even as zoning loopholes such as air rights transfers enabled the rise of large mixed-use and supertall buildings
april 2024
Included in the 2025 State Budget, the new deal lifts the 12 FAR cap that had restricted residential floor area to 12 times the lot size. While this change doesn’t immediately permit larger apartment buildings, it gives the city the authority to rezone for them
New FAR Regulations
Conditions for FAR Above 12
  • Allowed by City-approved zoning districts following public review (including ULURP), where projects must meet or exceed the City's Mandatory Inclusionary Housing (MIH) affordability requirements
  • Empire State Development Corporation (ESD) projects where at least 25% of units are affordable to households earning a weighted average of 80% of Area Median Income (AMI)
Limitations on 12 FAR for Residential Use
  • No development in historic districts or lots with artist live-work quarters/interim multiple dwellings
  • Compliance with harassment protections for existing buildings
  • Relocation or compensation for displaced tenants
Office-to-Residential Conversion Tax Exemption (467-m Tax Exemption)
Additionally, the New York State FY 2025 budget introduced the 467-m tax exemption to encourage conversions.
  • The tax abatement program requires 25% of the residential units to be rented at a weighted average of 80% of AMI (includes 5% of units at 40% of AMI).
  • In Manhattan (below 96th Street), the tax savings would be 90% of the tax bill, whereas outside of the area, tax savings would be 65% of the tax bill.
The length of the tax exemption is determined by the commencement date:
Before July 1, 2026
35-year tax benefit
Before July 1, 2028
30-year tax benefit
Before July 1, 2031
25-year tax benefit
City of Yes Expands Conversion of Non-Residential Buildings to Housing
The City of Yes broadens the possibilities for converting non-residential buildings into residential units citywide, while maintaining the following zoning and building eligibility:
  • Eligible Geography: Conversions remain applicable only in zoning districts where residential use is permitted or where it is permitted by authorization or special permit.
  • Eligible Office Buildings: Applies to office buildings built before 1991. Previously, eligibility for flexible conversion rules was limited to buildings constructed before 1961 or 1977, depending on location. In Special Mixed-Use Districts, buildings that existed as of Dec. 10, 1997, also qualify. The updated zoning allows conversion of mechanical space and all floor area on a zoning lot, even if it exceeds the district’s floor area limit. However, buildings first occupied on or after Jan. 1, 1977, can't convert more than 12 FAR unless affordable housing is included. Buildings occupied before that date with over 12 FAR can still fully convert.
  • Additional Residential Uses Allowed: Previously, only conversions to Class A multiple dwellings were permitted, which meant no rooming units or community facilities with sleeping areas were permitted. These restrictions have now been lifted. However, conversions to non-profit institutions with sleeping accommodations, such as some types of supportive housing, are still limited to those with Class A occupancy.
Identify Eligible Zones
Determine if property is in a permitted residential zone
Assess Building Eligibility
Check if building meets age and use requirements
Review FAR Limitations
Understand FAR restrictions based on building age
Plan Residential Conversion
Design conversion with permitted residential uses
Impact of Legislation on Conversion Potential
Non-Residential Size Distribution
787M
Total Square Feet
Office, hotel, retail, and condominium buildings
67%
Office Space
Majority of convertible space
22%
Retail Space
Second largest category
11%
Hotel Space
Smallest portion of convertible space
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City of Yes / State Budget Impacts
Manhattan contains the majority of the 455 million square feet flagged for potential redevelopment, with 75% of that space in existing office buildings. Roughly 10% of the total will likely require affordability components, as those buildings were constructed between 1977 and 1991 and exceed 12 FAR.
Manhattan Concentration
Majority of redevelopment potential
Office Dominance
75% of space in existing office buildings
Affordability Requirements
10% requires affordability components
This map highlights ZIP codes with office, retail, and hotel buildings over 10,000 square feet that meet the year-built criteria and are located in zoning districts where residential use is allowed (based on PLUTO data), even if they exceed the current maximum permitted floor area.
City of Yes / State Budget Impacts
This map shows the percentage of non-residential square footage in each ZIP code that may be eligible for residential conversion. The calculation is based on the ratio of convertible non-residential space to the total non-residential square footage in that ZIP code.
Whether a conversion is feasible depends on factors like building type, available buildable area (which might make ground-up development more viable), and other site-specific considerations.
Geographic Distribution
Conversion potential varies significantly by ZIP code
Building Criteria
Buildings must meet size and age requirements
Conversion Ratio
Shows percentage of eligible space in each area
Feasibility Factors
Multiple considerations affect actual conversion potential
City of Yes Updates: R11 and R12 Districts
The City of Yes initiative proposes the creation of two new high-density zoning districts, R11 and R12. Areas rezoned to these districts would undergo the ULURP process and become Mandatory Inclusionary Housing (MIH) zones, where only the Inclusionary FAR would apply to new developments, enlargements, and conversions.
As of now, there are no R11 or R12 zoning districts in New York City. However, on October 31, 2024, the Department of City Planning (DCP) released an updated draft of the Midtown South Mixed-Use (MSMX) Plan, which aims to facilitate development across 42 blocks in Manhattan where residential uses are currently prohibited. This plan introduces the new R11 and R12 residential zoning districts, pairing them with M1-8A and M1-9A manufacturing zones that permit a range of non-residential uses, including light industrial, office, and retail.
The MSMX Plan, which has been certified by the City Planning Commission, would unlock approximately 126 million square feet of potential residential development capacity across the affected tax lots through a combination of new construction and adaptive reuse of existing buildings. In line with Mandatory Inclusionary Housing (MIH) requirements, all development sites would be required to include a portion of units designated for low-income households. For our analysis, we assumed that split-zoned lots with a width of 25 feet or less would be governed by the predominant zoning designation. We then performed a highest and best use analysis for each tax lot within the MSMX area, assuming all existing buildings could be vacated immediately. The results are presented below.
1
1
Non-Residential to Residential Conversions
74% of development potential
Ground-Up Development Sites
17% of development potential
Additional Air Rights Available
9% of development potential
Midtown South Rezoning Pricing Estimates
Ground-Up Development
For pricing assumptions, we analyzed comparable MIH-restricted development sites over 15,000 BSF located in high-income, high-rent areas of NYC between 2023 and 2024. These sites averaged just over $200 per BSF, though pricing could be higher within the Manhattan Midtown South Mixed-Use Rezoning Area.
Compared to other residential projects in Manhattan, any development includes a required amount of affordable residential floor area, making it more suited for rental rather than condominium use. To mitigate the affordable housing requirement, a significant portion of the building would likely be allocated to commercial uses such as retail, office, or hotel space.
$/BSF high-rent areas of NYC 2023/24.
Office Conversions
Office pricing in Manhattan (below 96th Street) has declined since the onset of the COVID-19 pandemic, driven by the shift toward hybrid work and the growing obsolescence of Class B and C office stock. In 2024, the average sale price for office properties with at least 50k square feet, including those slated for conversion, was $497 per square foot, while the median was significantly lower at $349, reflecting the influence of high-priced Class A and owner-user transactions on the average.
$497
Average Price Per SF
For office properties with at least 50k square feet
$349
Median Price Per SF
Reflecting influence of high-priced transactions on average
Conversions within MIH-restricted areas remain subject to affordability requirements, which place additional constraints on redevelopment potential and generally result in lower acquisition pricing compared to conversions without such restrictions.
Notable Rules for Non-Residential Conversions
Enlargements of Converted Buildings
The City Planning Commission may authorize modifications to bulk regulations to adjust for the sky-exposure plane, an imaginary sloped line that starts at the street and touches the parts of a building that are set back, and may also impose additional conditions and safeguards to reduce potential adverse effects on the character of the surrounding area. To grant such authorization, the Commission shall find that:
  • The enlarged building is consistent with the scale of the surrounding area.
  • The zoning lot provides open areas of sufficient size to serve the building's residents. These open areas, which may include rooftops, courtyards, or other spaces, must be accessible and usable by all residents. They should also feature appropriate access, circulation, seating, lighting, and paving.
  • The site plan incorporates high-quality landscaping for all open areas on the zoning lot, including planting street trees.
  • The enlarged building will not negatively impact nearby structures or open space in terms of scale, location, or access to light and air.
Mezzanine Conversion Rules
Mezzanines are allowed in dwelling units if they occupy no more than 33 1/3% of the unit's floor area. Permitted only in buildings with a floor area ratio of 12 or less as of January 22, 1998, mezzanines must be between existing floors or roofs and are excluded from floor area calculations for minimum unit size or allocation.
Light and Air Provisions
Spaces Other Than Rooms
  • Mezzanines must be lit and ventilated.
  • Cellar space is not permitted in dwelling units with three and one-half rooms or fewer unless such units include at least 1,200 square feet of interior floor area.
  • Spaces, excluding living rooms, kitchens, bathrooms, or mezzanines, with a minimum width of five feet in the narrowest dimension (measured perpendicular to an enclosing wall), are not allowed in dwelling units with two rooms or fewer unless the units have at least 1,200 square feet of interior floor area.
General Requirements
  • Every dwelling unit must satisfy the light and air requirements outlined in Section 277 of the Multiple Dwelling Law.
Width-to-Depth Ratio
  • For buildings with more than one dwelling unit per story, the average width of each dwelling unit must be at least one-fourth of its depth. Depth is measured as the farthest point within the dwelling unit from the exterior building wall containing windows, measured perpendicular to the wall. Width is the distance between the exterior walls of the dwelling unit, measured perpendicular to the depth.
Required Recreation Space
  • All conversions in buildings containing multiple dwelling residences that result in a total of nine or more dwelling units must provide recreation space equal to at least 3% of the building's residential floor area.
  • This space may be located indoors, outdoors, or as a combination of both.
  • Indoor recreation spaces may be excluded from the calculation of floor area, up to 5% of the building's residential floor area, provided they meet the required standards.
  • These spaces may include, but are not limited to, fitness centers, pools, wellness services, sports courts, game rooms, outdoor areas, or children's play spaces.
  • If the recreation space is provided outdoors, the minimum required amount may be reduced to 2% of the building's residential floor area.
About This Report Series
This report is part of a series by Ariel Property Advisors, offering an in-depth analysis of the new initiatives introduced under the City of Yes. The series aims to explore these programs and their potential impacts on New York City's development market.
Click here to view a high-level summary of the notable programs within the City of Yes.
Click here to request a complimentary asset evaluation and learn how the City of Yes impacts your property or development site.
By: Adam Pollack, Head Analyst - Investment Sales, Ariel Property Advisors