Affordable Housing Institute : US

From that great hotbed of multifamily experimentation (for good, random, and ill) comes this New York Times story showing how, when there’s nowhere to go but up, one can sell the air itself — or at least, the right to develop into it:

 

ON an island where there is often nowhere to build but up, the air in Manhattan can get pretty pricey. Air-rights deals, or the sale of unused development rights from one property owner to another, are generally considered the business of big-time developers. But in cheek-by-jowl Manhattan, homeowners, small-building owners and co-op boards can often find themselves involved, too. While potentially lucrative, such deals are complex and can even raise ethical quandaries for property owners.

 

 

Oh, you thought air was free? Not in the Big Apple:

Air rights allow developers to build taller by buying the space over low-scale buildings and transferring it (on paper, if not in reality) to spaces over adjacent buildings.

 

LOCATION IS KEY Four small buildings on West 99th Street sold most of their air rights for about $2.7 million to the developer of a new condominium tower with its entrance on Broadway. Their air rights were valuable because they share a lot line with the site of the condo.

 

 

New York City, you see, has elected not only to zone upwards but also, in a brilliantly Machiavellian coup, to allow zoning to be marketed:

The market for air rights in Manhattan, in its current form, dates to a revamping of city zoning rules in 1961.

 

I’ve got those air rights here in my glove.

 

 

Forty-five years ago!

Those rules established density restrictions for every block in the city, expressed as a ratio of floor area to lot size. For instance, a 10,000-square-foot lot zoned with a floor-area ratio (or F.A.R.) of 10 could hold a building no larger than 100,000 square feet. But if a developer bought 15,000 square feet of unused air rights from his neighbors, then he could put up a 115,000-square-foot building.

 

Like other dense cities such as San Francisco, New York City has sought to balance the windowed canyons by limiting the overall gray cubic:

Although such transfers occur elsewhere in the country, the prices do not run as high as they do in Manhattan, which, after all, is an island and generally provides developers with one option: up.

The rights will be transferred to a site west of the Grolier Club on East 60th Street, where the Zeckendorfs and their partners own three tenements that are to be demolished.

 

If it all goes as planned, the developers will be able to build a taller tower than the zoning ordinarily allows. In a separate deal with Christ Church, the tower will also have a coveted Park Avenue address, despite its location on 60th Street.

Making air rights transferable (to abutters) is a truly brilliant innovation comparable to the ‘carbon tax’ being mooted as a response to global warming, or energy conservation credits that motivate utilities to find ways to reduce demand.

 

On the Upper West Side, the owners of four town houses on 99th Street, west of Broadway, sold a total of 19,148 square feet of development rights last April to the Extell Corporation, which will allow Extell to add about four stories to a large, and controversial, condominium tower it is building on the block.

In all these cases, monetizing the intangible creates a clearing marketplace, and that fuels efficiency:

 

Frank Farina sold 14,472 square feet of development rights last March for about $3 million, or $213 a square foot, to a developer that owned a site next door to his five-story building at 231 East 34th Street.

 

Great location, location, location.

 

 

Mr. Farina, 79, a retired restaurant owner, lives in the 19-unit century-old building and rents out the apartments.

“So far I’m happy with it,” Mr. Farina said of the deal. “I had no use for those air rights myself. I wasn’t about to build on top of my building. It was a no-brainer for me. I had no cause for turning it down.”

Back on West 99th Street:

 

Extell approached the town-house owners for their air rights because the properties all share at least 10 feet of lot line with the developer’s building site — a requirement for most air-rights deals.

By limiting air-rights transferability to abutters, New York City thus prevents those rights from being bought cheaply at the periphery (darkest Staten Island), where they would never be needed, and imported into crowded Manhattan. Indeed, this approach tends to cluster air rights in a few very tall buildings rather than a hedgerow of merely tall ones:

 

The incentives for the developer are clear. Construction and marketing costs are generally estimated to be $450 to $500 a square foot, although the figure generally rises as you go higher in a building. Adding in the air rights, that puts the developer’s costs at roughly $650 a square foot on the upper floors. The apartments on the top four floors of Extell’s building have been priced at about $1,500 a square foot, leaving plenty of room for profit.

The system thus assures that once a property is known to be moving forward, everyone involved — developer, abutters with air rights to sell, even the city — has incentives to make that one as tall as possible.

 

As a rule of thumb, air rights typically sell for about 50 to 60 percent of what a piece of land would sell for, said Bob Von Ancken, an air-rights expert who is executive managing director of Grubb & Ellis Consulting Services. In other words, a medium-size parcel that could hold a 100,000-square-foot building might sell for $45 million, or $450 a buildable square foot. A neighboring property owner then might expect his air rights to sell in the neighborhood of $225 a square foot, as long as there are no other factors affecting the price.

 

The result is spacing, just like arid areas where baobab trees and shrubs seem telepathically to space themselves at interval sufficient to allow each to draw water.

 

“I’ll just move over here where there’s a better aquifer.”

Meanwhile, that a market exists creates fascinating side-effects. For one thing,

[Continued tomorrow in Part 2.]

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