Momentum Returns to NYC’s Development Market
After years of uncertainty, 2024 delivered a surge in development activity that surprised many in the industry. Development site sales reached $5.5 billion—a 45% increase over the prior year—with $2.4 billion (or 44%) of that volume tied to office-to-residential conversions.
The momentum continued into first quarter when New York City recorded 78 transactions totaling $1.05 million, a 50% increase in dollar volume from Q1 2024, Ariel Property Advisors’ research shows. A new narrative is taking shape: one of creativity, urgency, and, most of all, resilience.
Policy Paves the Way
This shift isn’t solely organic but fueled by new public policies designed to specifically address the housing availability and affordability crisis, which was prominently discussed in the recent New York City mayoral primary.
Spearheaded by Mayor Eric Adams and approved by the City Council in late 2024, the City of Yes initiative is the largest and most comprehensive rezoning initiative in over half a century. It aligns the city’s zoning laws with a modern-day imperative to build more housing. Ariel has produced a series of reports explaining the City of Yes that are available here.
Governor Kathy Hochul and the New York State Legislature also approved two tax incentives last year to propel development—the 467-m tax exemption to encourage office-to-residential conversions, and 485x, which replaced the expired 421-a tax incentive, to encourage ground-up construction. Perhaps as significant, the housing policy extended the completion deadline for 421-a vested development sites from 2026 to 2031, which has generated increased sales and development activity, especially in the Gowanus neighborhood of Brooklyn.
“Once the 421-a tax abatement was extended, a lot of projects that were stagnant moved forward, allowing sites that had the pile in to transact,” Justin Pelsinger, COO of Charney Companies, said on my recent podcast. He will be a featured panelist at Ariel Property Advisors’ Coffee & Cap Rates event on July 30.
Charney Companies was among the developers taking advantage of the extension and recently acquired a grandfathered 421-a site at 175 3rd Street where the firm is planning 1,000 residences across approximately 1 million square feet, the fifth building in their Gowanus Wharf campus. Upon completion, Charney will have developed and will own over 2 million square feet and 2,200 residences in Gowanus, making them the largest owner in the neighborhood.
Pelsinger expects that properties vested under the 421a tax abatement will continue to trade until mid-2027 to 2028. At that point, lenders are likely to become concerned about projects meeting the 2031 completion deadline.
He also noted that the newer 485x tax abatement is less appealing to developers due to wage requirements for projects with 100 or more units, which is why interest remains focused on smaller sites with 99 units or less.
The Real Estate Board of New York’s (REBNY) New Building Construction Pipeline Report for Q1 2025 confirmed that developers are gravitating toward smaller multifamily projects. Of the 123 new building job application filings submitted to the Department of Buildings in the first quarter, 77 were under 55 units, 35 were between 50-99 units, only one building was between 100-149 units and 10 were 150 units or more. These buildings will collectively deliver 6,871 units, which is a 65% increase in units from the previous quarter and 58% higher than the overall average in units since 2008. Clearly, policy is catalyzing development, but primarily on a smaller scale.
Notably, the 421a program in Gowanus, which always included an MIH (Mandatory Inclusionary Housing) overlay (requiring 25% of units at 60% AMI or 30% at 80% AMI), functioned similarly to the 485x program for smaller projects because it never had a wage requirement.
Charney Companies: Early Visionaries in Gowanus
Charney Companies was a pioneer developer in Gowanus, recognizing the significant mismatch between land values and potential rents and began acquiring sites before the neighborhood was rezoned from manufacturing to residential use in 2021, Pelsinger said. The firm already owned buildings in the mature, high-rent markets of Carroll Gardens and Cobble Hill, which are situated on Gowanus’s western edge. Furthermore, the eastern side of the Gowanus Canal was designated an Opportunity Zone, offering powerful tax incentives that further fueled their early investment.
Pelsinger describes Gowanus as “the hole in the donut,” surrounded by amazing brownstone neighborhoods—Park Slope and Boerum Hill in addition to Carroll Gardens and Cobble Hill. Now that hole is being filled with full service, amenitized buildings and a public park along the two mile canal. The Gowanus rezoning is expected to create approximately 8,500 units housing, of which about 3,000 will be permanently affordable
Early signs of the potential transformation in Gowanus appeared over a decade ago. Whole Foods’ decision to open at 3rd Street and 3rd Avenue in 2013—now one of the chain’s highest-performing stores nationwide—demonstrated that the area’s demographics and buying power were strong, even before the zoning caught up.
Ariel Property Advisors: A Major Player in NYC Development Transactions
Ariel is playing a central role in the development sector and so far this year has arranged 10% of New York City’s development transactions totaling 1.65 million BSF. The firm is currently marketing or has in contract an additional 28 development sites across 1.7 million BSF.
Ariel Partner Sean R. Kelly, Esq. is active in Gowanus and earlier this year arranged the sale of two 421a vested development sites:
- 224 3rd Avenue, a 59,995 BSF site, which includes 6,000 SF of air rights, for $17,800,000, or $296/BSF, and,
- 284 4th Avenue, a 33,261 BSF residential development site located between 1st Street and Carroll Street along the 4th Avenue corridor in Gowanus, which traded for $7,850,000, or $236/BSF.
Other Gowanus sales negotiated by Kelly include a vacant lot at 544-550 Union Street that sold recently for $9 million; a mixed-use development site offering 101,852 BSF at 125 3rd Street that sold for $29.5 million ($290 /BSF); and a development site with a 142,500 SF zoning floor area at 450 Union Street that sold for $40.65 million or $285 per BSF. He also has two additional Gowanus development sites in contract.
“Given the state of the rent stabilization market and the regulatory obstacles investors face, we’ve seen increased demand for ground up development from investors who traditionally purchased value-add multifamily assets,” Kelly said.
Conversions Take Center Stage
While new construction is a vital piece of the puzzle, office-to-residential conversions may hold the key to unlocking more supply quickly and efficiently—especially in areas where office vacancy remains high.
Density caps have been lifted, and the 467-m tax exemption will allow a tax savings of 90% for conversion projects in Manhattan below 96th Street and tax savings of 65% in the rest of the city. In exchange, 25% of the units must be rented at a weighted average of 80% of AMI. The policy also expanded conversion eligibility to office buildings built before 1991. Previously, buildings built after 1961 could not be converted, unless they complied with specific regulations. I highlighted the conversion trend in a previous Forbes article.
The response has been swift. Analysts are now projecting approximately 40 million square feet of New York City office space will be converted into residential and other uses over the next five to 10 years, according to a recent Wall Street Journal article. This updated forecast is twice the amount predicted two years prior, a direct result of newly enacted tax benefits and government incentives.
A pipeline of office-to-residential conversions under construction, planned or proposed is expected to create 8,300 apartments in Manhattan, according to a report from RentCafe cited by the Real Deal.
Some of the most prominent conversions include:
- 219-235 East 42nd Street: Metro Loft is converting Pfizer’s former headquarters into roughly 1,500 rentals.
- 300 East 42nd Street: CSC Real Estate acquired this 18-story, 235,000-square-foot office building for $52 million—less than half its 2019 sale price—and will convert approximately 93,000 square feet into 135 rental apartments.
- 6 East 43rd Street: Vanbarton Group is in contract to acquire this 400,000-square-foot office building with plans to convert it into approximately 450 to 500 rental apartments.
- 675 3rd Avenue: David Werner Real Estate Investments and Metro Loft are converting the 32-story, 340,000-square-foot office tower into approximately 430 rental apartments.
- 5 Times Square: A major conversion project will transform 917,745 square feet of office space into 1,250 rental units, including 313 affordable units.
- Flatiron Building: GFP Real Estate is converting the iconic Flatiron Building into 38 condo units.
- 25 Water Street: A partnership between Metro Loft and GFP Real Estate is creating more than 1,000 new residential units.
- Pearl House (160 Water Street): Vanbarton Group converted this former office building into 588 residential units.
Conversions will get a significant boost from the Adams Administration’s proposed Midtown South Mixed-Use Plan, which aims to rezone 42 blocks in Midtown South into a vibrant mixed-use residential district. The plan is expected to create approximately 9,700 new apartments, of which 2,900 will be affordable.
The Midtown South proposal focuses on four distinct areas around Herald and Greeley Squares, generally spanning between West 23rd and West 40th Streets and 5th and 8th Avenues. The New York City Planning Commission recently approved this plan, and it will now move to the City Council and the Mayor for final approval.
The Bigger Picture: Are We Building Enough?
Yet for all this activity, the question remains—is it enough?
Mayor Adams and Governor Hochul have set an ambitious target of 500,000 new housing units over the next 10 years, which means the city needs to build 12,500 units every quarter. However, units proposed in the first quarter were close to half of that, according to the REBNY study. Even with strong growth in development activity, we’re not building fast enough to close the gap.
There’s reason for optimism, however. The tools are in place: intelligent zoning, robust tax incentives and a cadre of developers willing to build. What’s needed now is execution—clear, consistent policies and faster approvals. The private sector has demonstrated it is ready to meet the moment. With continued governmental support, New York City could indeed be on the cusp of a generational shift in how it addresses housing.
The city’s development story is being rewritten. And for now, that story is one of momentum, innovation and cautious optimism.
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