Developers, start your engines: Moratorium on hotel conversions expires

REBNY had described proposal as “bad public policy” and “legally flawed”
By Rich Bockmann | June 03, 2019 01:30PM

REBNY President John Banks and The Waldorf Astoria New York at 301 Park Avenue (Getty Images, Larry Ford)

REBNY President John Banks and The Waldorf Astoria New York at 301 Park Avenue (Getty Images, Larry Ford)

The city’s four-year moratorium on converting hotel rooms to residential units quietly expired over the weekend, as the city declined to extend the law following an unfavorable court decision a few months ago.

The sunsetting legislation is a major victory for hotel owners and advocates of property rights, though it’s unclear how enthusiastically developers will take advantage of it: The red-hot condo market that gave rise to the law is long gone.

“We are pleased that the Mayor and City Council will not seek to extend the law,” said John Banks, president of the Real Estate Board of New York, which sued the city shortly after it implemented the moratorium in 2015. “From the beginning, we argued this proposal was bad public policy and legally flawed because it was an end run around the city’s public review process and was an unconstitutional taking.”

Lawmakers did have reservations about the legality of the ban when it was implemented. Though they pushed it through with the backing of the politically influential Hotel & Motel Trades Council union, which was looking to prevent the kinds of conversions that happened at the Plaza Hotel and the Waldorf Astoria that eliminated hundreds of hotel rooms and union jobs.

The law prevented large hotels in Manhattan with 150 rooms or more from converting more than 20 percent of their rooms to non-hotel use for a period of two years.

David Greenfield, a former City Council member who at the time was chair of the Land Use Committee, testified during a hearing on the bill that he commended its aim of preserving well-paying jobs, but said he disagreed with its methods.

“By preventing hotels [from] converting to permanent housing, we’re going where we’ve never gone before as a Council,” he said before casting a “nay” vote. “I believe this is a land-use issue, and would strongly prefer that this bill go through the city’s [chartered] transparent ULURP process.”

The City Council passed the bill in 2015 by a vote of 42 to 8, and then extended it for another two years in 2017. But the law expired June 2 without even so much as a public hearing on a potential renewal.

The reason, sources said, is the city realized a few months ago that it would be impossible to defend the measure in court.

Not long after the city passed the law, REBNY filed a lawsuit challenging it as unconstitutional. The city moved to have the lawsuit thrown out, and in June 2016 a state Supreme Court judge did just that, on the grounds that REBNY failed to show that even one of its hotel-owning members suffered injury from the law.

But in October, an appeals court reversed the decision, arguing that REBNY hotel members had indeed been injured.

A spokesperson for City Council Speaker Corey Johnson, who authored the original legislation in 2015, did not immediately respond to a request for comment.

It’s not clear if the law’s expiration will result in a frenzy of conversions. At the time it was enacted in 2015, the city’s condo market was at an all-time high, and the hotel business was hurting from a flood of new rooms coming online.

Since that time, though, the bottom’s fallen out of the luxury condo market, while the hotel market has rebounded.

In fact, no hotel owners attempted to convert their properties under the moratorium through a loophole that allowed them to do so by getting a waiver from the city’s Board of Standards and Appeals, according to the sole appeals judge who voted against REBNY’s appeal.