NYC hotel-to-residential conversions face holdup

Ownership of real estate includes a complex set of common law rights, which when combined are technically referred to as real property. Commonly known as a bundle of rights, the entitlements of possession, control, exclusion, enjoyment and disposition of real estate can be broken up and given to different parties. Real property is subject to four governmental powers including: escheat, taxation, eminent domain and police power. The real property rights of possession and control of property ownership allows a titleholder to, within the law, develop and/or operate a property to its highest and best use — namely, the legal use of property that is physically possible, financially feasible and that results in its highest value. 

Recently the New York City Council passed a law placing a temporary two-year moratorium on most hotel-to-condo conversions, during which time a study will determine the economic effects of such transformations. The negotiated legislation originally came about as the NY Hotel Trades Council labor union promoted passage of a law that would permanently require ownership of a hotel with more than 150 rooms to prove financial need to a review board. Furthermore, formal permission from NYC would be required to convert more than 20% of a property’s rooms into residential apartments and/or condominiums. A labor union attempt to protect membership jobs by way of an infringement on the property-use rights of real estate owners is a new phenomenon, and one that will surely be litigated. 

While the merits and disadvantages of labor unions for both a capitalist economy and workers has long been debated, the fact is that compared with non-union employees, NYC hotels with organized labor incur notably higher expense levels. If the new law becomes permanent there is little doubt NYC hotel property values will experience negative pressures, particularly those buildings where floor plates are conducive for apartments and zoning allows for residential conversion. Clearly, such legislation diminishes the notion of free-market-based pricing of real estate assets and increases the regulation of ownership of NYC hotels. The flip side would most likely include a diminishment of new hotels over 150 rooms being developed in NYC.

Stay tuned on this one.