New York's tourism-and-entertainment hub of Times Square is moving closer to becoming a place to live as much as to play. The state approved a plan to turn the former home of accounting and consulting giant EY at 5 Times Square into a mixed-use residential tower.
The 38-story building can now convert about 917,745 square feet of office space to 1,250 apartments, with 1,050 studios and 200 one-bedroom units, in a public-private partnership, New York Mayor Eric Adams and New York Gov. Kathy Hochul said Thursday in a statement. Under the plan, the existing 37,311 square feet of retail space will remain, and a quarter of the residential units will be affordable.
The building, built in 2002 as a headquarters for EY, formerly Ernst & Young, has become “underutilized” with a “high vacancy rate of 77%,” the statement said. EY vacated in 2022. The tower is owned by developers RXR Realty and SL Green Realty as well as investment giant Apollo Global Management; the city owns the land.
New York is seeking to reshape its office-dependent areas and other commercial business districts, which are still recovering from the damages of the pandemic.
“This project — one of the largest office-to-housing conversions in New York City's history — will address the immediate, critical need for more housing, while leveraging iconic, city-owned property as a place not just to do business, but as a 24/7 live, work and play destination,” New York City Economic Development Corp. President and CEO Andrew Kimball said in the statement.
The 5 Times Square conversion was made possible through an amendment to the 42nd Street Development General Project Plan overseen by Empire State Development, the state's chief economic development agency.
Industry professionals have said office-to-residential conversions can be challenging and costly because of such factors as building layout, kitchen gas hookups and other infrastructure that may be required of a residential unit. They say that as the value of some office buildings has declined, it may make more sense for developers to demolish the buildings and rebuild instead.
Tight housing market
New York is contending with one of the country’s tightest housing markets. The multifamily vacancy rate has fallen below 3%, a near-record low, while the rebounding office market still faces a near-record-high vacancy rate of about 13.5%, CoStar data shows. The city and state have eased rules and offered incentives to encourage more conversions of underutilized and obsolete office properties.
The conversion of 5 Times Square, for instance, will tap the city’s new 467-m tax incentives designed for conversions of commercial buildings to housing in exchange for a portion of the units being affordable.
Doing office-to-residential conversions instead of building housing from the ground up also can be more attractive because the 467-m tax incentives don’t have any minimum construction wage requirements, which developers have said raise costs significantly, versus the 485-x tax incentives for ground-up residential developments that require developers to meet minimum construction wage requirements for projects of at least 100 units. In a telling example, an overwhelming 112 of 123 proposed new ground-up residential multiunit buildings in the first quarter in New York were all for projects under 99 units, according to a fresh study from the Real Estate Board of New York.
“Developers are quite mindful of the distinction from 485-x where 467-m does not have any minimum construction wage requirements, which is indeed in part drawing them to 467-m so that they have the opportunity to work on larger high-density projects,” YuhTyng Patka, co-chair of the real estate tax and zoning group at law firm Adler & Stachenfeld, told CoStar News in an email.
The 5 Times Square plan joins other mega office-to-residential conversions in Manhattan, including 25 Water St., with more than 1,300 units, and the former Pfizer headquarters in midtown, which is expected to yield 1,600-plus units. That project, at 219 and 235 E. 42nd St., landed the city’s largest loan for an office-to-residential conversion. SL Green, Manhattan’s largest office landlord, also is planning an office-to-residential conversion at 750 Third Ave.
For Times Square, the conversion of the former EY building spotlights high-end residential demand in the “Crossroads of the World,” with access to a dozen subway lines and other nearby transit hubs. The Ellery, a 330-unit luxury rental property, which CoStar data shows as the only Class A rental property to open in the neighborhood in at least 35 years, was fully leased in about 10 months — with market-rate rents well above the New York average.
Besides 5 Times Square, the McGraw-Hill building at 330 W. 42nd St. also is said to be planning a partial residential conversion.