The NYS Legislature has just passed, and Governor Cuomo is expected to sign into law, the “Housing our Neighbors with Dignity Act” or “HONDA” which enables an existing State public benefit corporation, the NYS Housing Trust Fund Corporation (“NYS HTFC”) to finance and facilitate the acquisition of certain distressed hotel and commercial office properties for the purpose of converting them into 100% affordable or supportive housing. There are several key aspects of HONDA and considerations that certain owners, investors and lenders will want to consider:
- Not-for-Profit Ownership, Operations and Management Requirement; Government Financing. HONDA conversions only apply to projects sponsored by NYS HTFC or NYC Housing Preservation & Development (“NYC HPD”) and owned, operated and managed by an Appropriate Nonprofit Organization. In addition, such conversion projects must use government funding.
- Affordability limits: 100% of converted units must be used for affordable or supportive housing. The units must be permanently affordable at an average of fifty percent (50%) of area median income (“AMI”) and with no unit exceeding eighty percent (80%) of AMI. 50% AMI units are below the low-income housing tax credit (“LIHTC”) eligibility threshold. At least 50% of the units must be set-aside for previously homeless individuals or households. HONDA is designed to work with not-for-profit conversion projects financed with LIHTC and bond financing, among other possible governmental funding programs.
- Hotels subject to collective bargaining agreements cannot be converted unless the union CBA hotel shutdown requirements and payments are all satisfied.
- Converted properties in New York City would be subject to prevailing wage requirements for building service employees, except for supportive housing properties and certain small properties. All units must be subject to rent stabilization where rent regulation jurisdiction applies.
- HONDA does not modify any local zoning rules. As a result, conversions must comply with existing local zoning, in short they must be located in zoning districts that allow residential use ‘as of right’ – i.e., New York City hotels in manufacturing districts would not be eligible.
Hotel/Office Building Owner Considerations: Owners of hotel and commercial office properties who are considering HONDA participation will want to investigate whether their property is considered distressed by the statute and future State and City rules. Owners of distressed properties may also want to consider whether to potentially form, or partner with, a qualifying NFP entity in order to participate in the HONDA program or to negotiate a sale of their property to a qualifying NFP.
NFP Corporation Considerations: Negotiations with NYS and NYC and possibly with current private owners of distressed hotel properties.
Issues For Lenders and Investors to Consider:
- Land use: zoning (use and bulk) and certificate of occupancy analyses.
- Real estate due diligence.
- Government financing for acquisition and/or conversion to HONDA.
- Affordability / Supportive Housing compliance.
- Regulatory Agreement and Rent Regulation negotiation with NYS HCR and NYC HPD.
- Formation of NFP entity.
- Property tax incentives.
We are prepared to answer your questions and assist you in making informed business decisions regarding your properties. If you have questions about these HONDA issues, or generally about a distressed hotel or commercial office property, please contact: