How to Profit from Commercial Real Estate Investments with Violations in NYC

[Michael Genari]

Investing in commercial real estate in NYC is already challenging, but buying a property with open violations? That’s a whole new level of opportunity—if you know what you're doing.

While many investors avoid properties with violations, savvy buyers know they can use these issues to negotiate a lower price and increase the building’s value once brought back into compliance.

But before jumping in, you need to understand the risks, required permits, and compliance process to avoid costly mistakes. Here’s a step-by-step guide to turning a distressed commercial property into a profitable investment.

Step 1: Find Distressed Properties with Violations 🏗️

Most investors look for turnkey properties—but competition is fierce, and prices are high. Instead, focus on distressed properties with:

✅ Open NYC Department of Buildings (DOB) violations
✅ Stop Work Orders or Vacate Orders
✅ Work Without a Permit issues
✅ Fire code violations from the FDNY
✅ Outstanding Environmental Control Board (ECB) fines

These properties scare away traditional buyers, but if you can resolve these issues, you may unlock serious value.

📌 Where to Find Them:

• DOB NOW & BIS databases (NYC’s violation tracking systems)
• Foreclosure & tax lien auctions
• Direct outreach to struggling property owners

Step 2: Negotiate the Purchase Price 💰

A building with violations is a financial liability for the seller. Use this to your advantage.

✅ Cash Offers = More Leverage – Sellers with distressed properties often need to sell quickly. Cash buyers can demand bigger discounts because financing violations can be difficult.

✅ Estimate Compliance Costs in Advance – Before making an offer, consult an architect or permit expediter to assess the cost of resolving violations.

✅ Factor in Potential DOB Fines & Fees – Some violations come with daily penalties. Make sure the numbers work before committing.

🚨 Red Flag:
❌ Structural integrity issues – Some violations indicate serious foundation or safety problems that may not be cost-effective to fix. Always consult an engineer before purchasing.

Step 3: Hire an Architect & Expediter Immediately 🏢

Once you acquire the property, the first step is to start clearing violations.

✅ Architectural Plans – A licensed architect must prepare DOB-approved plans to correct any illegal or unsafe conditions.

✅ Permit Expediter – NYC’s permitting system is notoriously slow and complicated. An expediter files applications, tracks approvals, and ensures compliance with city agencies.

✅ Special Permits & Variances – Some violations stem from zoning non-compliance. A zoning expert may be needed to secure special approvals or variances.

🚨 Red Flag:
❌ Ignoring Existing DOB Stop Work Orders – Work cannot legally begin until Stop Work Orders are lifted. Expedite this process immediately.

Step 4: Begin Work & Schedule Inspections 🔨

With permits approved, construction and remediation can begin.

✅ Contractor Selection – NYC requires licensed professionals for electrical, plumbing, and fire safety work.

✅ Scheduled DOB Inspections – Certain violations require multiple DOB, FDNY, or environmental agency inspections before sign-off.

✅ Fire Safety & Sprinkler Compliance – Commercial buildings must meet fire safety regulations, including sprinkler systems and egress requirements.

🚨 Red Flag:
❌ Starting Work Without Proper Permits – Any work performed without valid permits can result in new violations or additional fines.

Step 5: Close Out Violations & Secure a Letter of Completion 📜

Once all work is done, you must officially close out the violations and obtain a Letter of Completion from DOB.

✅ Final DOB & FDNY Inspections – Inspections confirm that all corrections meet city codes.

✅ Violation Dismissals & Permit Closeouts – Your expediter will submit final paperwork to remove violations from DOB records.

✅ Letter of Completion – This document confirms the building is fully compliant and ready for refinancing or sale.

🚨 Red Flag:
❌ Unresolved Violations Can Block Refinancing or Resale – Lenders and buyers will not approve transactions if violations remain open. Always confirm full compliance before listing the property.

Step 6: Unlock the Property’s True Value & Refinance or Sell 🏦

With violations cleared, the property is now fully legal, safe, and more valuable.

✅ Refinance at a Higher Appraisal – Now that the building meets code, banks will offer financing optionsunavailable before.

✅ Sell to a Broader Market – Properties without violations attract institutional investors and traditional buyerswho were previously hesitant.

✅ Increase Rental Income – Now that the property is compliant, it can legally be leased at market rates without risk of DOB enforcement.

Is Investing in Properties with Violations Worth It?

✅ Yes—If You Understand NYC Regulations.
Buying commercial properties with violations isn't for the faint of heart, but investors who understand NYC’s compliance system can find hidden value where others see problems.

✅ Yes—If You Work with the Right Experts.
Having an architect, expediter, and zoning specialist on your team is crucial to fast-tracking compliance and maximizing profits.

❌ No—If You’re Unfamiliar with NYC’s Legal Process.
If you don’t have a team to navigate permits, violations, and compliance, this strategy could backfire.

Final Thoughts

NYC’s commercial real estate market is highly competitive, but properties with violations present unique investment opportunities.

🏗️ The right strategy + expert guidance = major value creation.

💬 Have you ever considered investing in a property with violations? Share your thoughts in the comments!